The current non-negative long-term is good "4 7" with volume procurement forced the transformation and upgrading of the pharmaceutical industry

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On December 6, after the pre-selection results of the "4 7" volume procurement pilot were announced, the overall "slimming" of the-share and Hong Kong stock pharmaceutical sectors in the capital market was about 340 billion yuan within two days. On the afternoon of December 9, the State Medical Security Administration held a media communication meeting, saying that the price reduction of the selected drugs was in line with expectations, and the price reduction of the selected varieties replaced the institutional costs and the gray costs that previously existed in the field of drug marketing, which was conducive to the high-quality development of drug manufacturers.

"Ensuring that the selected drugs enter the hospital and receive priority use is the key to the success of the centralized drug procurement pilot organized by the state. The National Health Insurance Administration, together with the health, drug administration, and industry and information departments, will introduce a series of measures to escort the selected drugs into the hospital and ensure their use." The relevant person in charge of the Medical Price and Bidding Procurement Department of the National Medical Insurance Administration said that the relevant departments are playing a set of "combined punches" to ensure the clinical use of selected products.

Professor Ding Jinxi, deputy dean of the International Pharmaceutical Business School of China Pharmaceutical University, said that "4 7" volume procurement will become a watershed in the development of China's pharmaceutical industry, forcing China's pharmaceutical industry to transform and upgrade and truly move towards innovation.

 The cut was in line with government expectations

On December 6, the pre-selection results of the "4+7" band procurement pilot were announced. On December 7, the results of the proposed election were officially publicized for a week after notarization. Data show that 25 of the 31 pilot generic drugs are to be selected for centralized procurement, with a success rate of 81%. Compared with the lowest purchase price of the same drug in the pilot cities in 2017, the proposed winning price has dropped by an average of 52%.

While the people are delighted with the further reduction in drug costs, the capital market pharmaceutical sector is showing a "net outflow" of funds. At the close of trading on December 6, the shares of Lepu Medical and Beida Pharmaceutical fell sharply, while the shares of East China Pharmaceutical and Tiger Pharmaceutical fell more than 9%. On December 7, pharmaceutical stocks continued to fall.

"The main reason why the capital market is worried is that there has been an extreme decline." CITIC Securities senior vice president, the pharmaceutical industry chief analyst Tian strengthened said. Zhengda Tianqing Pharmaceutical Group Co., Ltd. produces 0.5mg entecavir dispersible tablets for hepatitis B treatment. The price is only 0.62 yuan/tablet, which is 95.62 lower than the average price of 14.14 yuan/tablet in recent three years. However, the price of atorvastatin calcium tablets produced by Beijing Jialin Pharmaceutical Co., Ltd. has dropped by nearly 84%.

"Due to their different cost structures and different market structures, the 25 varieties have a high or low drop, with a drop of 96% and a drop of only 10%. But the average drop is 52%, which is in line with expectations." The relevant person in charge of the National Health Insurance Bureau said. It is reported that in 2017, Shanghai will purchase 26 drugs with quantity, with an average decrease of 54%.

Ding Jinxi also believes that many of the 25 varieties are produced by 2 to 3 at the same time. For such products with sufficient competition, companies will combine cost, market and other comprehensive quotations. At present, many of the 25 varieties account for less than 10% of the 11 cities. The "4+7" volume purchase accounts for 60% ~ 70% of the purchase volume of similar products in public medical institutions in 11 cities, and they are all exclusive supply. Therefore, enterprises have increased their willingness to actively reduce prices. The proposed selection of varieties of production enterprises are willing to reduce their own prices, price for volume.

The reporter learned that in a conference call minutes of Zhengda Tianqing, the company's executives bluntly stated that the bid is to "ensure": one is to ensure its leadership in the field of hepatitis B drug treatment, and the other is to ensure that it wins the bid. "We will adjust the impact of the price reduction. We can still make money by weighing our own costs and those of our competitors."

It is worth noting that among the 25 varieties to be selected, 22 generic drugs have passed the quality and efficacy consistency evaluation, and 3 original research drugs have been selected. Among them, the original research drug gefitinib tablets have been reduced by 76% and fosinopril sodium tablets have been reduced by 68%. Compared with neighboring countries and regions, the price is more than 25% lower-the original research substitution and "patent cliff" appear at the same time. Ding Jinxi believes that this is the inevitable result of the competition between domestic generic drugs and original research drugs after the country promotes the consistency evaluation of generic drugs.

Xu Jiaxi, general manager of the Great Health and Consumer Research Center of Societe Generale Securities and chief analyst of the pharmaceutical industry, also pointed out that the purchase amount of 25 varieties is very small, both for the industry and for hospital sales, and the price reduction of drugs has little impact on the performance of the pharmaceutical sector in 2018 and 2019.

  Squeezing dry water forces enterprises to innovate in research and development.

"The fundamental reason for the sharp drop in the price of the selected varieties is that under the centralized drug procurement mode organized by the state, there is no need for the 'moisture 'such as sales expenses and marketing costs previously included in the sales price." The above-mentioned person in charge of the National Health Insurance Bureau said.

The person in charge believes that volume procurement has saved the cost of enterprises in four aspects: due to the expansion of market economies of scale, the production cost of single products will be reduced accordingly; The joint procurement of 11 cities has reduced the cost of bidding one by one when enterprises participated in the provincial bidding. Product sales have realized "door-to-door", greatly reducing the promotion cost of enterprises, including the cost of "sales with gold"; The medical insurance department will pay back in time, it also reduces the cost of capital employed and financing for enterprises.

Wind data shows that in 2017, there were 171 listed companies in the-share pharmaceutical sector, with sales expenses totaling 129.8 billion yuan, accounting for 25% of total operating income, much higher than other industries. Tian said that the period cost rate of generic drugs in China is generally 40% to 60%.

At the same time, the volume of procurement can also achieve "two guarantees" and "two increases", that is, to protect the use, to protect the payment, increase the scale, increase the brand influence. The reporter learned that in the first two batches of volume purchases in Shanghai, although the price of a single variety dropped significantly, preliminary statistics showed that the average annual sales of the selected varieties increased by 55% to 650.

"The '4 7 'band procurement model helps liberate pharmaceutical companies from the disorderly competition of band gold sales to quality improvement and drug research and development." The head of the above-mentioned national health insurance bureau said. This view is shared by industry experts.

Ding Jinxi pointed out that under the impetus of purchasing with quantity, the mode of making money by promotion for domestic generic drug enterprises is no longer feasible. In the future, they will either rely on quality and scale or research and development of innovative drugs. For multinational pharmaceutical companies, either the price of original research drugs will be greatly reduced (or they will be jointly produced with generic drug companies through authorization), or the profit point will be focused on innovation and more innovative drugs will be introduced.

In addition to taking the road of innovation, Xu Jiaxi suggested that domestic generic drug companies can also move into areas such as high-barrier imitation, difficult imitation, and device hybrids, or sell their products to the international market like Indian generic drug companies. Tian strengthened that API and preparation integration enterprises will occupy the cost advantage in the future competition.

In fact, some companies are already considering the way forward. According to Tian's introduction, some companies have stated that future research and development will avoid "cluster" generic drugs and invest limited resources in innovative drugs. Ma Ming, vice president of Beijing Jialin Pharmaceutical Co., Ltd., said frankly that the enterprise will transform to take the road of innovation and brand generic drugs, transform the plant, and strive to pass the relevant certification of the European Union and the United States, and sell the products abroad.

  Ensure clinical use of selected products

25 varieties involving 16 pharmaceutical listed companies. In the announcements of these listed companies, many companies expressed concern about the uncertainty of the purchase volume. Huahai Pharmaceutical Co., Ltd. has six varieties to be selected in this volume purchase, and its announcement clearly states in the "risk warning" that "the following matters such as the signing of the purchase contract of the above products are still uncertain". Ding Jinxi believes that the strong reaction in the market is directly related to the lack of confidence in the volume of procurement.

"This band procurement is not government procurement, it is government-guided drug procurement, and the two sides of the transaction are still public hospitals and pharmaceutical companies, and ultimately this 'meant' is still guaranteed by the hospital. If the hospital does not push forward this work, it is not enough to rely on government guidance alone. Once the 'meant' is determined, this work will be pushed forward in great strides." Ding Jinxi bluntly. He believes that in addition to some restrictive assessment methods, we should also find ways to drive hospitals, doctors, and pharmacists to actively use products purchased with volume. At the same time, the government should also conduct comprehensive assessments of product quality, service level and even clinical evaluation for the manufacturers of the products to be selected. For companies with good assessment results, the supply period can be appropriately extended.

In this regard, the above-mentioned person in charge of the National Medical Insurance Bureau stated that the reforms are all "combined punches." The National Medical Insurance Bureau will work with health, drug supervision, industry and information and other departments to escort the selected drugs into the hospital and ensure their use.

It is reported that the health department will take measures such as "incorporating selected drugs into clinical pathway management", "incorporating the priority use of selected drugs into the performance appraisal system of public medical institutions, and establishing incentive and restraint mechanisms for medical institutions and medical personnel. In addition to "issuing a payment standard policy, clarifying the operating rules and transitional policies for medical insurance to pay drugs with the same general name and different trade names according to the same payment standard, and guiding the insured to use drugs rationally", the medical security department will also implement measures such as "for hospitals that reduce the expenditure of medical insurance funds due to the standardized use of selected varieties, the total budget amount of medical insurance in the current year will not be reduced, and the balance will be reserved for hospitals in proportion.