Value Assessment Vexes Pharma As China Costs Soar, Prices Fall
Executive Summary
Traditionally a low-cost manufacturing haven, China has seen pharma R&D costs increase rapidly although prices for pharmaceuticals have not gone up, forcing officials and executives to explore value assessment and market access approaches in a toughening environment.
Jiangsu Hengrui Medicine Co. Ltd. is widely considered a national champion for the pharma industry in China, having not only licensed an anticancer asset to US firm Incyte Corp. in a $900m deal, but also developed its own oncology drugs that have gained several approvals in China.
In the first quarter, Hengrui reported its revenues jumped by 29% to CNY4.97bn ($719m), driven by new launches including anticancer drug Iruini (pyrotinib), and another oncology product, apatinib, that was launched earlier.
On the other hand, the Lianyungang-based company also reported that R&D expenses grew even faster than sales, up 57% compared to the same period in 2018; its quarterly R&D costs reached CNY662m.
This relative level of R&D spending (equivalent to around 13% of sales) puts Hengrui in the same league as its overseas peers, the only issue being that it can’t command the same price premiums for novel new drugs as these companies, noted Jianjun Zou, a vice-president at the company.
“Our R&D expenses are on a par with large drug makers but the product price in China, for instance, is like CNY200 [$30] compared to $1,000 in the US,“ Zou told attendees at the Drug Information Association's China annual meeting, held 22-24 May in Beijing.
Zou’s reference to the large price gap reflects a widening view that China’s price control policies, including steep price reductions in exchange for reimbursement coverage, could potentially deter innovation in the sector.
Assessing a novel drug’s proper valuation is thus seen as key in pricing policy and negotiations, especially during this time when China is building up to including many additional new drugs in its National Drug Reimbursement List (NDRL), a process that started this April and will be complete in September. Any products that have been approved in the country prior to 1 January are eligible for the coverage.
The process is divided into two stages, one for low-priced drugs that will be added without pricing negotiations and another for high-priced products, for which many are expected to go through multiple rounds of pricing negotiations.
Out of 17 anticancer drugs that were covered using a similar mechanism in the past, the average price reduction was 55%.
R&D Cost Consideration
Entering May, China is kicking into high gear for the NDRL update and drug companies are busy persuading medical experts about the value of their products.
Doing so needs a large amount of epidemiology data which needs to be assessed with a holistic view, Kun Zhao, director of Health Technology Assessment (HTA) at the China National Health Development Research Center, told the DIA meeting.
Real world evidence, and not only data from clinical trials, is playing a growing role in determining product value, noted Zhao, while citing uncertainties in these studies. “Is it an iceberg or just the tip?” he asked.
Furthermore, a clear mechanism and transparent process are needed, so guidelines and methodology should be publicized to convince the public, stressed the expert. For drug makers like Hengrui, experts should take R&D costs into consideration in order to provide a fair assessment, Hengrui's Zou said.
Market Access Issues
Aside from such assessments, market access also poses a major challenge for high-priced drugs in China, including the world's best-selling biologics. AbbVie Inc.’s Humira (adalimumab) may have $20bn in worldwide sales but just $20m - 0.1% of this figure - in China, noted Ning Li, CEO of Junshi Pharmaceutical Group.
“There is more that can be done besides quantifying a product’s value using HTA analysis, especially when it comes to drug pricing,” Li proposed during a panel discussion at the annual gathering. Such options include patient assistance programs (PAPs) and local provincial reimbursement schemes.
Li’s company is one of four makers of immuno-oncology products that have been launched in China, where its Tuoyi (toripalimab) became the first domestic IO agent to be approved. However, it is priced at CNY7,200 per 240mg vial, less than half the level of Merck & Co. Inc.’s Keytruda (pembrolizumab), which costs CNY17,918 per 100mg in China. This in turn is already nearly 50% lower than the drug's US price.
Better Positioning
Pricing aside, both domestic and foreign drug firms routinely provide PAPs to qualified patients in China, with Merck and Junshi having such schemes in place that award free drugs after a certain amount of purchases.
Pricing, PAP and private insurance are known as the "three Ps" for both multinational and innovative domestic companies wanting to expand product access in China.
Despite the national reimbursement scheme offering potentially large volume uptake, companies are also now actively looking to get local coverage that will help new drugs get to patients faster. Both Keytruda and Tuoyi, for example, were recently added to Zhuhai city’s coverage scheme for cancer treatments. This means a patient can get 90% of the cost covered for the purchase of listed anticancer drugs priced in a range of CNY10,000 to CNY300,000.
The combination of pricing strategy, local scheme coverage and PAPs will hopefully provide buffers for pharma companies to feel better positioned entering negotiations for NDRL coverage, or some might even forgo the process altogether.