NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, March 9, 2016

The world’s largest pharmaceutical companies are facing a roadblock in China as a state-led campaign to slash drug prices has triggered a slowdown in sales growth.

One of the biggest problems: China’s government-run health insurance funds, which are struggling to keep up with an ageing population and surging incidence of diseases like cancer or diabetes. As they grapple with tighter budgets and a slowing economy, many of these funds are capping reimbursements to patients and pushing local authorities to negotiate with companies to lower drug prices.

More than $115 billion of drugs were sold in China last year, according to researcher IMS Institute for Healthcare Informatics, making it the world’s second largest market after the U.S. China’s pharmaceutical market shrank by 1 percent in dollar terms from October to November, according to Barclays Plc, a sharp contrast with the 17 percent expansion in the second half of 2013. As a result, companies from the U.K.’s GlaxoSmithKline Plc to AstraZeneca Plc and New York’s Pfizer Inc. saw China sales growth weaken last year.

In the latest sign of price pressures for the industry, Li Bin, director of the National Health and Family Planning Commission said at a press conference at the National People’s Congress on Tuesday that China has won price cuts of more than 50 percent in national-level bargaining with drug companies on about five kinds of costly imported drugs for illnesses including cancer. The official didn’t specify the names of the drugs or the manufacturers.