Summary in One Sentence
Chinese innovative drugs are currently in a very paradoxical situation: New drug candidates that have not even sold a single box in the laboratory are being sought after by multinational pharmaceutical companies at prices of several billion dollars each. The total value of licensing deals in the first half of the year has approached 11 billion dollars. However, when the drugs are finally developed for use by domestic patients, they face the reality of a limited healthcare budget shared by 1.4 billion people. The old strategy of “cutting prices to increase sales” no longer works, and the entire industry is exploring new pricing models that ensure both that innovative companies can make a profit to continue research and development and that ordinary people can afford medical treatment.
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Detailed Analysis
1. What is the “splitting sensation” around innovative drugs? The pricing logic for both parties is completely different
Many people wonder why the same drug can be sold for vastly different prices to overseas buyers and domestic healthcare systems. The fundamental reason is that the purchasing objectives of these two groups are vastly different:
- Multinational companies are buying Chinese drug pipelines with the expectation of earning millions of dollars over the next few decades. If the clinical data for the drug are good and it can be sold in dozens of countries worldwide, spending hundreds of millions of dollars for the rights is worthwhile because they are calculating the long-term global market benefits.
- Healthcare systems, on the other hand, are buying innovative drugs with the aim of ensuring equal access for 1.4 billion people. The budget for healthcare is fixed, and if more money is allocated to one drug, it may mean less funding for other essential medical services such as diabetes, hypertension, and childhood vaccines. Healthcare systems must balance the needs of the entire population and cannot afford to squeeze all other patients’ budgets for one drug.
2. Why doesn’t the strategy of “increasing sales by lowering prices” work anymore?
There used to be a consensus in the pharmaceutical industry that once a new drug was developed, the focus should be on getting it into the healthcare system, even if it meant lowering the price significantly, as long as millions of patients could benefit. This model was a win-win for all parties: pharmaceutical companies gained sales, ordinary people could afford previously expensive drugs, and healthcare systems reduced prices through large purchases. By 2018, healthcare systems had reimbursed 248 million patient treatments using this approach.
However, this model has reached a bottleneck. In the past, there were few new drugs each year, so healthcare systems could afford to cover them. Now, 38 new drugs have been approved in just half a year, including 11 that are globally groundbreaking (such as ADCs, bispecific antibodies, and drugs for rare diseases). If each of these drugs were priced according to the overseas valuation of several billion dollars, even if all the healthcare budget for the year were used, it would not be enough. The problem is not that a single drug is too expensive, but that the combined cost of all these high-value drugs is unaffordable for healthcare systems.
3. Healthcare systems no longer want to be the sole payer and are establishing a three-tier payment system
There is often criticism that healthcare systems only know how to negotiate lower prices. However, new pricing policies allow for exceptions for truly groundbreaking drugs. These drugs can be priced higher initially without immediate price cuts when they are first launched. The approach now is to use a three-tier payment system:
- Basic healthcare: Covers the basic needs of the majority of people with lower prices and larger volumes, ensuring that drugs for common diseases like hypertension and diabetes are accessible.
- Commercial health insurance: Targets drugs with high prices, exceptional efficacy, and a small patient base, such as expensive CAR-T therapies for rare diseases or genetic drugs that cure diseases once. These costs are covered by commercial insurance, without affecting the budget for other patients.
- Out-of-pocket market: Provides options for patients with sufficient funds and special needs, allowing for market-based pricing.
This system frees pharmaceutical companies from the dilemma of either having their prices drastically reduced by healthcare systems or facing no sales at all.
4. Why are large pharmaceutical companies aggressively expanding overseas? It’s about gaining pricing autonomy
Leading companies like Hengrui, BeiGene, and Innovent are investing heavily in overseas clinical trials and sales. The goal is to break free from the constraints of domestic healthcare systems. By selling drugs at global prices overseas, they can recoup their research and development costs and offer domestic patients more affordable prices. They also aim to diversify their revenue sources rather than relying solely on domestic sales.
5. In the future, whether innovative drugs can be sold at high prices will not be decided by pharmaceutical companies; it will depend on the benefits they bring to patients
New healthcare policies clearly state that pharmaceutical companies cannot use their investment in research and development as a pretext for exorbitant prices. The success of a drug depends on its actual benefits to patients: whether it can extend their lives, reduce side effects, or cure chronic diseases. If a drug merely reuses existing targets with minor improvements, it cannot expect a higher price. What’s really needed in China’s innovative drug industry is a pricing system that encourages genuine innovation while ensuring that treatments are affordable for everyone.
In summary, China’s innovative drug industry is at a critical juncture. A reasonable pricing system is essential to ensure that companies can continue to invest in research and development while making treatments accessible to the general public. Only then can the industry truly stand on its own feet.