In the first decades after it gained independence in 1947, India had little influence over the global pharmaceutical market. Imports made up nearly 90% of its drug consumption, while local prices for medicines were among the highest on Earth.
But there was a game-changing moment in the 1970s which transformed the country into the world’s largest exporter of generic drugs (a generic replicates the branded original after its patent expires). The country’s leader Indira Gandhi passed a law to allow local manufacturers to disregard intellectual property rights and reverse-engineer foreign patented drugs. The exemption stayed in place till 2005 when India was forced to comply with World Trade Organization rules. By that time, however, a lot of the leading Western drugs had already gone off-patent, while the local pharma sector had built up considerable competence at making low-cost replicas. Today Indian producers account for one-fifth of the world’s generic drug exports.
China is seeking to achieve a similar rate of success. “It’s not realistic to surpass India in the short-term, but in eight or 10 years, there will be a breakthrough in the domestic generic drug industry,” Li Tianquan, co-founder of domestic healthcare Big Data platform Yaozh.com, told the Global Times. The newspaper noted that a local market leader had already been able to produce an effective copycat of Gleevec, a leukemia drug developed by Switzerland’s Novartis, yet priced it at just one-tenth of the original. The drug even features in the recently released movie Dying to Survive (see WiC417). The social satire has already taken Rmb2.7 billion ($409 million) at the box office and it has also sparked a nationwide debate about the drug industry. Local audiences have used it as an outlet to air long-held grudges against the country’s flawed healthcare system, while the government has seized on the film as a catalyst to force big pharmaceutical firms to reduce their drug prices.
Last week the Chinese State Medical Insurance Bureau reportedly entered into discussions with 10 foreign and eight domestic pharmaceutical companies over slashing prices for cancer treatments, following New York-based Pfizer’s agreement in June to drop its prices by up to 10.2%.
This latest initiative dovetails with the removal of import tariffs on cancer drugs in May, and the lowering of value-added tax on such products to 3% from 17%.
It’s not the first time the government has gone after the pharmaceutical firms over prices. The 36 drugs included in the state reimbursement list last year – most of which are developed by multinational firms and still subject to patent protection – saw an average cut of 44% to their retail prices a year ago. The reductions for cancer drugs were particularly steep, down 67% in one instance.
But to make medicines more affordable for the Chinese public, analysts say the better way forward is greater usage of cheaper generic drugs. The practice helped US consumers save $253 billion in 2016, and roughly $1.67 trillion over the last decade, according to the Association for Accessible Medicines, a Washington-based trade group. A similar organisation in Europe likewise estimated that the adoption of generics had helped the continent’s healthcare system save €100 billion ($116 billion) in 2014.
Branded drugs are understandably expensive, as big pharmaceutical firms needs to recoup their huge research and development costs before the patents of their product expire. But their prices are particularly high in China. Gleevec, whose patent expired in 2016, is currently sold at around Rmb10,800 per box. Its three made-in-China equivalents are priced between Rmb870 and Rmb1,160. Yet the Swiss version represented 81% of the stocks sold through Chinese public hospitals. The best-selling local strain of the product made up merely 11% of the market, according to data company Sinohealth.
Cheaper local generics have historically shunned, partly because hospitals were incentivised to prescribe expensive drugs, given their rights to impose a 15% surcharge on patients’ pharma bills. The policy was only abolished last September but the bigger issue is the inferior quality of China-made equivalents.
“The crux of the matter is we haven’t been able to produce anything competitive,” Sun Libing, director of the Intellectual Property Operations Centre at the China Pharmaceutical University, told Xinhua.
Of the 170,000 licenced drugs made by some 6,000 domestic companies in China, 95% are generics. But a sense of distrust, and hence a lower adoption rate of local products, means that China is still not using enough of the cheaper substitutes to meet its rising medical needs.
Since last year the Chinese government has got more serious about overhauling the homegrown generics industry. One key new measure is to require all generic drugs to go through an evaluation process that proves they are as effective as the branded drugs they mimic – replacing the previous licencing method that relied on a rather fluid ‘national standard’. As no more than three generics will be allowed to pass the bioequivalence test for each tendered drug, the new process is expected to spark a race among Chinese drug makers and bring significant consolidation.
In April another set of measures was proposed to improve market access and cut red tape for generics production. One major breakthrough was the granting of compulsory licencing. This means the government can authorise a local manufacturer to produce a still-patented product if the rightholder fails to supply it at affordable prices and in sufficient quantities. In compliance with World Trade Organization rules, India granted its first compulsory licence in 2012 for a cancer drug developed by Germany’s Bayer.
The path is not without challenges. Low profitability has stymied quality in the production of Chinese generics and the new initiatives are unlikely to improve margins given their mission is to dent drug prices.
Another factor is the potential competition from Indian generic drugs. A wave of these is set to reach China’s shores following an agreement to allow any EU-approved Indian suppliers to export to China within six months of making an application. Though unconfirmed by the Chinese government, a member of India’s trade ministry leaked this news to Reuters.
Longer term, some generics will be usurped in usage by the next generation of pharmaceutical treatments, known as biologic medicines, which are made by harvesting living cells rather than combining chemical substances. The making of copies, known as biosimilars, is complex and costly.
China has made advances in medical technology in recent years: from treating cancer with cell engineering, to developing relatively long-life antiviral injectables targeting HIV (developed by Nanjing-based Frontier Biotechnologies, the injected drug, which is said to be able to block the fusion of the virus and host cell membranes, will be ready for use in August). That makes the poorer quality of generics products something of an irony. Last year Chinese drug makers saw 38 of their generics win approval from the US regulator, up from 22 the previous year. But that still pales against India’s 300 American approvals in 2017…
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.