Purchase In Quantity Accelerates Industry Differentiation: Some Large Enterprises Are Out Of The Market; Pharmaceutical Enterprises Increase Revenue But Not Profit

Recently, the winning results of the second batch of procurement with volume have been announced, involving 18 provinces, and will be implemented nationwide in April. Hu Jinglin, secretary of the Party Leadership Group and director of the National Medical Security Bureau, published a signed article in Qiushi magazine on March 16, saying that the reform of the medical and health system has entered a deep-water area, and will continue to promote centralized procurement in quantity when the tough time comes.

On March 23, Shi Lichen, the head of Beijing Dingchen Medical Management Consulting Center, also said in an interview with the 21st Century Economic Report reporter that procurement with volume has become the trend of the times, but it has now reached a differentiation period. Hengrui Pharmaceutical said that with the improvement of drug approval standards, the consistency evaluation of generic drugs continued to advance, and the volume purchase gradually expanded. The industry entered a stage of rapid differentiation, structural upgrading, and elimination of backward production capacity.

The 21st Century Business Herald reporter found that in the second national procurement with volume, some enterprises abandoned the standard and some large enterprises were eliminated by "small enterprises". For example, the selection rate of foreign enterprises this time is only 4%, which is far lower than 11.7% and 8% of the "4+7" expansion and the "4+7" pilot procurement with volume.

In fact, the changes brought by purchasing in quantity to the pharmaceutical industry are enormous. However, Shi Lichen believes that while promoting volume purchase, we should also pay attention to solving the problems of back-end access to hospitals, total sales expectation, and payment collection. Otherwise, the enthusiasm of enterprises will be lost, and centralized procurement may also return to the old way of basic drugs and low-cost drugs.

A person in charge of an enterprise involved in volume procurement told the 21st Century Economic Herald that many enterprises gave up because of cost problems. "In the past, the import product line was an advantage, but now the bidding process has become a cost disadvantage. Enterprises responded to the national call to invest a lot in the research and development of new drugs, but the profits of generic drugs were too low to grow, hoping to give enterprises some time. Now, enterprises are also differentiated, such as Huahai Pharmaceutical's revenue and profits have soared, while Guangshengtang's revenue has not increased profits."

Some large enterprises are out

On March 18, the National Health Insurance Bureau issued a document, saying that the current situation of COVID-19 epidemic prevention and control continues to improve, and production and life order is accelerating to recover. While winning the battle of epidemic prevention and control, local health insurance departments should actively resolve the impact of the epidemic, and comprehensively and solidly implement the second batch of centralized procurement results.

In the second batch of procurement with volume, nearly 120 pharmaceutical enterprises participated in the bidding, including 21 foreign enterprises and 97 local pharmaceutical enterprises. In the end, 77 pharmaceutical enterprises selected varieties, with a winning rate of only 65%, of which 17 foreign enterprises failed.

Zhang Ziran, a doctor of medicine, said that the second batch of procurement with volume involved 21 foreign enterprises (original research 20+foreign enterprise imitation 1), and the circuit breaker mechanism of "the 'comparable price per unit' is not higher than 1.8 times the lowest 'comparable price per unit' of the same variety" made many foreign enterprises get rid of the fluke mentality, and the ideal state of "4+7" expansion can be difficult to reappear without price reduction, so most quotations are abandoned, Only 4% of foreign enterprises were selected this time, which was far lower than 11.7% during the "4+7" expansion and 8% of the "4+7" city pilot.

On March 20, Shanghai Sunshine Pharmaceutical Purchasing Network released the renewal results of "4+7" urban drug centralized purchase, and carried out work related to the expiration of the purchase agreement for 25 varieties, of which 22 varieties were renewed by the original selected enterprises, some varieties' prices were lowered, and the other three varieties were replaced by other pharmaceutical enterprises.

According to the price list of Shanghai renewal results, the supplier of atorvastatin calcium was changed from Beijing Jialin Pharmaceutical to Lepu Pharmaceutical, and the price of 20mg × 7 tablets was also reduced from the original 6.6 yuan/box to 3.84 yuan/box, a decrease of 41.8%; The supplier of entecavir was changed from Zhengda Tianqing to Guangshengtang, from the original 17.36 yuan/box (0.5mg × 28 tablets) tablet to 7.69 yuan/box (0.5mg × 28 capsules) capsule, with a decrease of 55.7%; The supplier of montmorillonite powder was changed from Hainan Xiansheng Pharmaceutical to Zhejiang Hailison Pharmaceutical, and the quotation was reduced from about 0.68 yuan/bag to 0.33 yuan/bag, with a decrease of more than 50%.

According to the 21st Century Economic Report, most of the three enterprises that abandoned their bids in the second batch of foreign enterprises purchasing in quantity and withdrew in the renewal of Shanghai centralized purchase were caused by cost problems.

"The production cost of larger domestic enterprises should be higher than that of small and medium-sized enterprises, and that of foreign enterprises is higher than that of domestic enterprises. We used to be proud of introducing world-class production lines, but now all of them have become unfavourable factors in competition. Many enterprises that won the bid at reduced prices are infinitely close to the cost price. It is difficult to give consideration to both quality and efficiency at present. For example, Guangshengtang's revenue increased by 3% last year. But profits fell by 35%. The good days of pharmaceutical enterprises are gone forever. "

It is also understood that atorvastatin calcium is the core product of Jialin Pharmaceutical, which won the bid for the first round of belt purchase exclusively. However, Jialin Pharmaceutical succeeded only at the cost of 83% price reduction. The expected high sales growth did not occur, and Jialin Pharmaceutical fell sharply after the expiration of its performance commitment, which even triggered inquiries from Shenzhen Stock Exchange. An insider close to Jialin Pharmaceutical told the 21st Century Business Herald reporter that the main reason why Jialin Pharmaceutical withdrew from Shanghai centralized purchase this time was that the price was too low to bear the cost.

Although some pharmaceutical enterprises' revenue and profit declined due to volume purchase, some enterprises also benefited.

For example, Huahai Pharmaceutical released its 2019 performance announcement that, according to the preliminary calculation of the financial department, the 2019 net profit is expected to increase by 405 million yuan to 500 million yuan compared with the same period last year (statutory disclosure data), an increase of 376% to 465% year on year. The increase in profits of Huahai Pharmaceutical was mainly affected by the increase in the price of some products in the current period and the winning of the bid for centralized purchase.

Hengrui Pharmaceuticals said that with the improvement of drug approval standards, the consistency evaluation of generic drugs continued to advance, and the volume purchase gradually expanded. The industry entered a stage of rapid differentiation, structural upgrading, and elimination of backward production capacity. Enterprises with independent innovation capabilities and intellectual property protection will be in a dominant position in the future market competition.

Asia Pacific Pharmaceutical said that centralized procurement in quantity has reduced the intermediate links, reduced the marketing costs of enterprises, and promoted the adjustment of marketing models and the purification of industry ecology. The substantial increase in procurement can enable the winning enterprises to reduce unit production costs through scale effect, which is conducive to improving market share and expanding brand influence.

Zhang Ziran said that the purchase in quantity has greatly squeezed the profits of generic drug enterprises. The era of high gross profit of China's generic drugs is coming to an end, and it is moving closer to the low profit rate of international generic drugs. Only those enterprises with advantages such as the integration of raw materials and preparations, product clusters and productivity can take advantage of the market competition dominated by purchase in quantity in the future, while the sales ability is gradually weakening, At the same time, it will force enterprises with R&D capabilities to accelerate their transformation to innovation.

As for the cost of pharmaceutical enterprises, the State Medical Insurance Bureau said in an interview with reporters on January 17 that, according to the audit and investigation of more than 100 commonly used drugs by relevant departments, the average drug sales price is about 17 to 18 times of the drug production cost, and the production cost only accounts for a very low proportion of the drug price.

A marketing director of a pharmaceutical enterprise analyzed to the 21st Century Business Herald reporter that some pharmaceutical enterprises that master the integration of API preparations have great advantages in cost control, and the price of finished drugs is higher than the profit of API. "The bulk drug is sold by ton, and the drug is sold by milligram. One ton can produce one billion tablets. The bulk drug is only a few thousand tons. The relative R&D cost of generic drugs is also relatively low, and many pharmaceutical enterprises can match the price."

Three problems need to be solved urgently

Purchasing in quantity has become a general trend. Hu Jinglin, secretary of the Party Leadership Group and director of the National Medical Security Bureau, published a signed article entitled "Striving to Relieve All People's Medical Concerns about Diseases" in the sixth issue of Qiushi magazine in 2020 published on March 16, pointing out that the reform of the medical and health system has entered a deep-water area, and will continue to promote centralized procurement in quantity when it comes to the tough time.

He said that the centralized purchase in quantity directly hit the soft spot of high drug prices, achieving multiple effects such as reducing drug prices, improving drug quality, and promoting industrial upgrading. More importantly, while reducing the burden and increasing the efficiency of medical insurance, centralized procurement in quantity has created conditions for standardizing medical behavior and promoting the reform of public medical institutions.

Ding Yilei, Deputy Director of the Department of Medicine Price and Bidding Procurement of the State Health Insurance Bureau, said earlier that the next procurement work with quantity will be carried out regularly, "not only by the state, but also by the local government; not only over evaluated varieties should be carried out, but also non over evaluated ones; not only a number of products can be purchased with quantity, but also exclusive products can still be purchased with quantity, such as exploring ways to purchase bulk commodities; Not only in the field of medicine, but also in the field of high-value consumables and low value consumables. The idea of the National Health Insurance Bureau is to normalize the purchase in quantity, achieve nationwide popularity, make the purchase in quantity gradually become the leading mode and mainstream mode of the centralized purchase of medicine, and also make the expectations of the business community and the industry change in time. "

"The participation rate of multinational pharmaceutical enterprises is low, and some pharmaceutical enterprises withdraw from bidding due to cost problems, which is not a good signal." Shi Lichen told the 21st Century Economic News reporter that although the production costs of enterprises are low, they also face problems such as rising raw material and labor costs, R&D investment and so on.

Previously, the disappearance of common drugs and low-cost drugs in the market often caused social concern. There are many reasons for the disappearance of these drugs, and the unprofitable is one of the important reasons for many pharmaceutical enterprises to give up.

The above person in charge of pharmaceutical enterprises pointed out that in recent years, under the promotion of national policies, most pharmaceutical enterprises are now doing innovative drugs, but this requires the accumulation of funds for technical talents. "It's too expensive for ordinary enterprises to afford. I hope to give generic drug enterprises some time."

Guangshengtang, which increased revenue but did not increase profits, said that the reason for the sharp decline in profits was not only due to the impact of policies such as medical insurance fee control and centralized procurement, but also because the company was currently closely focusing on the development strategy of transforming into an innovative drug enterprise. During the reporting period, it continued to invest in research and development of innovative drugs. The research and development of innovative drugs was carried out as planned. GST-HG161 was in the climbing stage of the clinical phase I dose group.

Shi Lichen believes that if the state purchases in quantity to ensure access to hospitals, quantity, payment collection and other conditions, enterprises are actually motivated, but in the actual process, there are still some problems, such as the quantity of some pharmaceutical enterprises has not been guaranteed. "The price of drugs has dropped, and the total sales volume has dropped significantly. It is impossible for drugs to be delivered to hospitals only through the promotion of medical insurance and health sector policies, and drug enterprises still need to follow up."

In Shi Lichen's view, at this stage, we should look back and solve the existing problems, so that we can continue to step by step. "Although the country, provinces and cities have formulated relevant policies, including promoting the access of drugs to hospitals, the specific supply quantity of drugs, and the details of payment collection, many of them have not been implemented in the operation process, and enterprises are unable to do a good job of docking."

At the same time, the drug price that is infinitely close to the cost has also caused public concern and fear of quality problems. A person in charge of a multinational pharmaceutical enterprise in China once said to the 21st Century Business Herald reporter that he was optimistic about the development of China's generic drugs, which had been distributed several years ago, but he found that its price did not prevail in the competitive bidding. He wanted to reduce costs from the production line, and found that if its quality requirements were reduced, it would not meet its global standards.