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Overseas companies struggle to gain ground in China's bulk purchase of drugs

Global pharmaceutical companies are fighting to gain a larger share in China's bulk purchase program for generic drugs, even as domestic companies continue to have the upper hand amid intense price competition.

Under the country's bulk purchase program, public hospitals buy predetermined quantities of generic drugs from companies that tender the lowest prices via a bidding process.

These purchases account for between 50% and 70% of the total by volume for public hospitals, Zhang Jialin, Hong Kong-based healthcare analyst at ICBC, told S&P Global Market Intelligence.

China has concluded three rounds of bulk purchases of generics, after a pilot program was launched in 11 cities in December 2018.

Prices were slashed significantly in each round as the government attempted to bring cheaper medicines to the masses.

In the third round of purchases for which bidding concluded in August, prices were slashed by an average 70% compared to the treatments' wholesale prices, according to data from investment research consultancy Morningstar.

Most of the bid winners were Chinese companies. In the latest round, only three of the 123 bid winners were foreign companies — Pfizer Inc., Eisai Co. Ltd. and UCB SA. The highest was seven out of 45 winners in September 2019, according to estimates by analysts.

Given that they haven't made much headway in the bulk buys, overseas drugmakers could give up on older drugs and compete for the market outside the purview of the purchase program, said Zhang.

Justifying far lower prices in China relative to other markets is also tough for global companies, Jefferies analyst Christopher Lui noted at an online press event Sept. 16.

The number of drugs included in the bulk-buy list also expanded to 55 in August, compared to 25 in the first round in September 2019.

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