From mid-2021 to 2024, as huge investments and efforts finally began to bear fruit, China’s innovative drug sector saw share prices continue to fall as investors doubted their chances of realizing returns.
According to Wang Liming, a partner at Co-win Ventures, an investment group active in healthcare sectors across China, North America and Europe, the early boom in innovative drugs investment was driven by assumptions that their high prices and profit margins would be covered by China’s basic medical insurance system or other third-party payment institutions, and that profits would be guaranteed in both domestic and overseas markets.
“Obviously, several years later, the two assumed conditions proved unconvincing,” Wang said at a symposium in 2024.
Pharmaceutical companies had hoped their innovative drugs could enter public hospitals covered by national basic medical insurance to secure a steady cash flow. However, prices offered under the two existing insurance catalogues remain too low to make that possible.
In response to widespread complaints about expensive medical products, the two catalogues, one for full coverage and the other covering 70 to 90 percent of personal costs, were designed to ensure that basic medical services remain affordable for most citizens. As a result, most drugs listed are inexpensive generics.
To further reduce personal medical spending and improve oversight of the basic medical insurance system, the National Healthcare Security Administration (NHSA) has handled annual price negotiations since its establishment in 2018, procuring medicines from companies seeking inclusion in the two catalogues.
Over the next five years, 446 medicines were added to basic medical insurance at a total cost of 340 billion yuan (US$48b), an average of less than US$10 billion per year.
The discounts, often 50 to 70 percent, have created a steep “launch cliff” for innovative drugs.
For example, Ivonescimab, a bispecific antibody injection produced by Akeso for lung cancer, dropped its price from 2,299 yuan (US$332) per dose to 736 yuan (US$103) after being added to basic medical insurance earlier this year.
“In developed countries, the prices of medicines fall only when their patents expire, whereas in China, the prices plummet once the drugs are rolled out on the market,” said Song Ruilin, CEO of the China Pharmaceutical Innovation and Research Development Association.
“Despite the painstaking efforts behind an innovative drug, earning forecasts in the domestic market are nothing but pious hopes when margins are squeezed so hard,” he added.
According to Song, the pharmaceutical sector has reached a consensus that basic medical insurance alone cannot support high-cost, long-term innovative drug development.
“With time-consuming research and development and high failure rates, drug innovation can be aborted when investors lose confidence once prices are set too low to cover costs,” said Zhu Xun, a former expert with the National Advisory Committee on New Drugs and professor at Jilin University. “Lack of economic returns will hinder innovation.”
Even when new drugs gain access to hospitals, it can take at least two years before they are prescribed, said Yu Qiang, CEO of Shengshi Taike Biopharmaceutical Technology.
“Innovative drug developers are always confounded that after spending enormous time and resources on price negotiations with the NHSA, their medicines are still denied access to domestic hospitals,” said Yang Dajun, CEO of Ascentage, a listed Chinese pharmaceutical firm.
In many public hospitals, innovative drugs can only be approved after review by Pharmacy Affairs and Therapeutic Committees (PATCs), which make and update hospital drug lists.
However, as several pharmaceutical representatives told NewsChina, these committees often postpone meetings for long periods. In some hospitals, members convene only once or twice every two years.
The anti-corruption campaign launched in the healthcare sector in 2023 also had an impact. Analysts believe the campaign made hospitals more cautious about prescribing expensive drugs or services, even though its purpose was to push pharma companies to focus more on innovation than on aggressive marketing.
Old Version
