Price cuts intensify as China's GPO programme expands outside 11 cities

Drugs with two or more bioequivalence qualifiers are likely to face fierce price competition.

As China has indicated satisfactory progress in the 11-city Group Purchasing Organisation (GPO) programme, more provinces have adopted 11-city GPO prices. According to UOB Kay Hian, there is a sufficient number of bioequivalence (BE) qualified generic drugs (123 generic drugs, including 253 specifications) for the second round of GPO.

From late-March to 14 April, the GPO drugs procurement in the 11 cities amounted to $79.11m (RMB533m), or 27.31% of total procurement of the pilot GPO programme. UOBKH analyst Carol Dou cited regulators, which said that the progress is better than expected and it is necessary to expand the GPO pilot progress in a timely manner on the basis of evaluating the pilot GPO programme and consulting the opinion of all industry parties.

“The provinces of the 11-pilot cities have shown varying degrees of intra-provincial price linkage dynamics recently. Some non-pilot provinces such as Shandong, Anhui, Jiangxi, and Hebei have also shown follow-up intentions. Companies have to cut prices to obtain market share outside the 11 cities,” Dou added.

BE qualified products with two or more producers are likely to face fierce price competition, the analyst said, as drugs with two or more BE qualifiers are likely to be selected for the next round of GPO. “Key players whose GPO drugs have not passed BE tests will also be negatively impacted for they would see decreasing market share,” she added.

Meanwhile, the market is expecting the new national reimbursement drug list (NRDL) to be released in June 2019. “Drug producers are taking it as an opportunity to expand their market share for their innovative products. This can be considered the companies’ attempts to get their drugs into the new NRDL and to expand market presence,” Dou said.

Moreover, the price pressure of the second round of GPO is likely to be even more drastic than the first round, as generic drug companies are striving for survival and are keen to win the GPO tenders.

As a result, leading drug distributors and common generic drug producers may be hit badly as the significant price pressure will slow down revenue growth and bring margin pressure. “Our channel checks indicate that most pharmaceutical companies have adjusted business strategies to pursue earnings growth in the near term and significantly increased their innovative drug R&D budgets for the next few years so as to seek decent earnings growth in the longer term,” Dou added.