[ET Net News Agency, 13 September 2018] China's Medical Insurance Administration
announced pilot central procurement program, which consists of 33 drugs, to be implemented
in 11 cities.
Based on the draft guidelines, if there are over 3 manufactures for a product, the
anticipated price cut will be 40%. For drugs with 2 competitors, the anticipated price
cuts will be 20%, and the price cut will be limited to around 10% for drugs with no
competition.
J.P. Morgan said the use of government tenders to lower drug prices is not new in China,
but the current program proposes to use a methodology wherein if there are 3 or more
tenders for the same drug, the government will set the price at the lowest level.
The concern is that the government may be able to extract a lower price from suppliers
by giving them a large guaranteed volume. Under the old method, suppliers bid for the
price without knowing what the purchase volume would be and might therefore have bid less
aggressively.
The research house believes the most defensive stocks for investors are those companies
that have innovative or first to market generics drugs with limited market competition.
Service companies such as Wuxi Biologics (02269) and Genscript (01548) might also
benefit from more service related work for research or quality control. (KL)