Cheap meds could stymie China pharma’s future


A controversial policy has roiled health care stocks and led to widespread company profit warnings
Newsfeed23 Oct 2019
Photo credit: AFP Photo


Market news selected by the DBS Chief Investment Office


MAINLAND CHINA & HONG KONG

China’s aggressive campaign to bring down drug prices is leading to a “vicious cycle” and will prevent the emergence of a national pharmaceutical champion, said one of the country’s biggest drugmakers.

In some of the strongest criticism yet over a new policy that is likely to save China tens of billions of dollars, but has roiled health care stocks and led to widespread company profit warnings, Stephen Tse, vice president of Sino Biopharmaceutical Ltd, said that the programme will undermine local firms’ ability to invest and grow.

“If prices are kept low, you won’t see the rise of any big pharmas on the horizon,” said Tse, who is also spokesperson for China’s third-largest drugmaker by market value. “It won’t work if you don’t have a high enough gross margin to support your research and development investment.”

The controversial policy has already caused the prices of 25 commonly used drugs – ranging from cholesterol treatments to chemotherapy – to drop more than 60% nationwide, and will expand. While the plan is to re-direct the cost savings towards covering top-of-the-line drugs and treatments, the programme is rapidly eroding company profits, potentially hampering China’s goal of nurturing globally competitive companies in the scientific field.

Under the system, drugmakers compete for tenders to supply generic drugs to public hospitals nationwide, under-cutting one another to secure supply contracts. Although China has softened the terms of the exercise to allow for three suppliers and not just one, both local and foreign drug manufacturers are feeling the pressure.

Sino Biopharmaceutical chose not to continue to bid down the price of its own drugs in the programme after the first round, said Tse. In the first round of bidding last December, it dropped prices for its hepatitis B treatment entecavir by more than 90%, only to be undercut by peers in the second round which took place last month. It could have gone lower in the latest round of bidding, but stopped short.

Sino Biopharmaceutical is the best performer on Hong Kong’s Hang Seng Index this year, with shares gaining 114%. Its strategy to disengage from the national price war seems to have been cheered by investors: its stock has risen 5.3% since the bidding exercise last month, while Fujian Cosunter Pharmaceutical Co Ltd – one of the local drugmakers who won the contract for entecavir – has dropped 5.4%. – Bloomberg News.

The Hang Seng Index rose 0.23% to 26,786.20 on Tuesday, while the Shanghai Composite Index gained 0.50% to 2,954.38.

 

REST OF ASIA

Indonesian President Joko Widodo opted for a mix of politicians and professionals in his cabinet line-up as he strengthens his grip on power and looks to bolster Southeast Asia’s largest economy against a global slowdown.

Sri Mulyani Indrawati, a veteran finance minister, was reappointed to the post, while Prabowo Subianto, Widodo’s challenger in the 2019 and 2014 elections, was drafted into the cabinet to expand the coalition of parties backing his government to almost 75% of the seats in the parliament. The ministers are due to be sworn in and their portfolios announced on Wednesday (23 October), according to the president’s spokesman Fadjroel Rachman.

For Jokowi, as the president is commonly known, finalising the makeup of the cabinet may have been the easy part. Now he has to make good on his pledges to boost the economy. Indrawati said the challenges awaiting Jokowi’s new team include a worsening global economic landscape that makes the task of reining in the Current Account deficit arduous.

Jokowi, who was sworn into office on Sunday, has put economic reform at the heart of his second-term agenda, promising to overhaul laws that hinder investment and job creation. He has added 35-year-old Nadiem Makarim, co-founder of ride-hailing service Gojek, and business tycoon Erick Thohir to his team.

But the new ministers will need to first deal with a slowing global economy that has dragged domestic expansion to the lowest in two years. Growth has hovered around 5% for most of Jokowi’s first term, with the International Monetary Fund recently revising down its forecast for this year to 5% from 5.2% in July. – Bloomberg News.

Australia’s S&P/ASX 200 Index was 0.34% lower at 6,649.60 in early-Wednesday trading. The benchmark had posted a second consecutive rise, of 0.30% to 6,672.18, on Tuesday.

South Korea’s Kospi Index slipped 0.17% to 2,085.38 at the open on Wednesday. It climbed 1.16% to 2,088.86 on Tuesday.

The Taiwan Stock Exchange Weighted Index (Taiex) rose 0.78% to 11,271.25.


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