GBI recently invited Yang Song, chief analyst for healthcare at Cinda Securities Co., Ltd, to offer his perspectives on the third round of China’s national scale volume-based procurement (VBP) program, the tender for which took place on August 20.
With about 200 companies completing a frenzied bidding round for 56 molecules across 86 specifications, the pricing competition was as fierce as previous rounds, with many companies offering up in excess of 90% price cuts in order to win bid spots and guaranteed procurement volumes under the VBP terms.
As noted by Yang, the intensity of price competition is closely related to the market size and competitive landscape, with this month’s round seeing three drugs with in excess of 10 competitors and eligible for 8 tender spots, in contrast with a maximum 6 winners during the previous round. The average price decrease offered by competing companies was 72.08%, with Alzheimer’s therapy memantine hydrochloride tablets the steepest cut at 98.72%. Amoxicillin granules saw the smallest price cut at only 13.26%. Price points reflected the level of procurement contracts on offer, for example for lamivudine oral regular release dosage form, the agreed purchase amount was only RMB 168,900, a relatively small reward for bidders. As a result, although 6 companies were eligible to compete for the molecule, only two companies filed bids and the price drop was insufficient, meaning there were no successful bidders.
For products with large procurement contracts on offer the competition was intense. The three products with 11 or more competitors were metformin in sustained-release or controlled-release form, metformin oral regular release, and captopril oral regular release form. Due to the large number of participating companies and fierce competition, the maximum price cuts for these three products (compared with the tender round’s ceiling price) were 80.01%, 92.32%, and 95.83%, with lowest bids of just RMB 0.01 per pill.
The large domestic pharmaceutical companies have led the industry in terms of winning VBP tenders from the beginning of the 4 + 7 pilot project throughout the three rounds. Qilu Pharma and Shijiazhuang Pharma led the round with 8 winning bids each, with Qilu responsible for 4 products in the top ten in terms of magnitude of price cut, and Shijiazhuang Pharma 2 in the top ten, indicating a relatively radical pricing strategy in order to capture market share.
Meanwhile, multinational corporations’ (MNCs’) enthusiasm for the VBP has decreased progressively over the 4+7 pilot scheme and three national VBP rounds. In the third round there were only 3 winners out of a total 189 tender spots, compared with 4 winners out of a possible 100 in the second VBP held in January 2020. According to Yang Song, this reflects the changing assessment of the competitive market landscape, appropriate strategies, and pipeline/portfolio priorities in China. Key MNC products in the round included metformin (Merck KGaA’s Gluocphage), valsartan (Novartis’s Diovan), omeprazole (Prilosec), and memantine (Lundbeck’s Ebixa), with the tender round estimated to have included products worth over RMB 50 billion (USD 7.13 billion) in market sales. The most affected companies were Merck, Sharp & Dohme (MSD) with 6 molecules included, Pfizer with 5 molecules, and AstraZeneca and Bristol-Myers Squibb with 4 each. The across the board lack of MNC participation indicates that, based on the experience of previous rounds, companies are largely seeking to focus on maximizing sales based on patient loyalty to MNC brands, both in hospitals and China’s non hospital channels, rather than enter the competition with local generics firms.
GBI is releasing a full analysis of the results of the third VBP round imminently.