China drug­mak­ers erase US$26b on price cuts

The Star Malaysia - StarBiz - - Treasury Pulse -

HONG KONG: A melt­down in Chi­nese phar­ma­ceu­ti­cal stocks in­ten­si­fied, eras­ing US$26bil in mar­ket value over two days on con­cerns the gov­ern­ment is driv­ing down generic drug prices through a new pro­cure­ment pro­gramme.

The MSCI China Health Care In­dex headed for its big­gest two-day drop since 2005. Sino Bio­phar­ma­ceu­ti­cal Ltd is poised for its largest two-day de­cline ever, af­ter Cit­i­group said it would be among the worst hit and cut its tar­get price and earn­ings fore­casts.

The se­vere price cuts have arisen from a new gov­ern­ment pro­cure- ment pro­gramme that’s de­signed to con­trol med­i­cal costs by get­ting 11 ma­jor cities, in­clud­ing Bei­jing and Shang­hai, to com­bine their pur­chas­ing from drug com­pa­nies.

The win­ner of the ten­der process for each of the 31 drugs will be­come the sole sup­plier for hos­pi­tals in all of those cities, but at a much re­duced price from be­fore.

The plan has been op­posed by both do­mes­tic and for­eign phar­ma­ceu­ti­cals from the start be­cause of its im­pact on prices, but also be­cause re­liance on one sup­plier for each drug could po­ten­tially cause qual­ity and sup­ply is­sues in the fu­ture.

While the gov­ern­ment said that this was a pi­lot pro­gramme, an­a­lysts ex­pect centralised drug pro­cure­ment to be the new nor­mal for the gener­ics mar­ket in China.

“This is just the be­gin­ning” said Kay Mai, an an­a­lyst at Guo­tai Ju­nan Se­cu­ri­ties Co.

“We ex­pect the gov­ern­ment to ex­pand the cat­a­log of the drug list and in­clude more cities in or­der to lower the drug costs for cit­i­zens. This trend is neg­a­tive for drug­mak­ers and sales growth of generic drugs in China should slow down in the fu­ture.” — Bloomberg

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