NEW DRUG LISTING & PRICING POLICIES IN CHINA

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1 NEW DRUG LISTING & PRICING POLICIES IN CHINA How to survive and thrive in the new market access environment YANG XIE, PHD, MPH, Principal, HEOR/RWE, IQVIA

2 Since the year 2000, updates to China s National Reimbursement Drug List (NRDL) have been less frequent, with the last revision dating back to In early 2017, the Chinese Ministry of Human Resources and Social Security (MoHRSS) ended that long interval with an update that is noteworthy not only for its comprehensiveness, but also for its novel approach to negotiating pricing for premium-priced drugs, the majority of which are manufactured by multi-national companies (MNCs). For the first time, the Ministry has begun to consider pharmacoeconomic and budget-impact evidence in its decisionmaking, signaling the need for global companies to approach the Chinese market differently in future. IS BEING LISTED ESSENTIAL TO SUCCESS IN CHINA? Unlike most developed countries and regions in Asia the access pathway for drugs in China involves three levels of decision makers: the National Reimbursement Drug List (NRDL) managed by the Ministry of Human Resources and Social Security (MoHRSS), the Provincial Reimbursement Drug Lists (PRDLs) overseen by the Provincial Bureau of Health Resources and Social Security (PBoHRSS) in each province, and the Hospital Pharmaceutical Affairs Councils (HPACs), which determine inclusion in individual hospital formularies. In total, 60 percent of the Chinese drug market is reimbursed through these schemes, and having a drug listed on the national list, in particular, is a critical factor in its success on the market. Yet, having a drug listed is not enough and its impact on performance varies considerably. As can be seen in Figure 1, new products that were on the NRDL between 2010 and 2013 consistently outperformed the market as a whole. However, there was considerable variation in the degree of market growth across therapeutic areas the impact of being listed was most pronounced in anti-infectives and least pronounced in oncology. Figure 1: Comparison of Market Growth for Hospital Pharmaceutical Products Listed on NRDL v. All Molecules, CAGR % 35% 37% All molecules New molecules entered in 2009 NRDL CAGR % 15% 29% 23% 24% 26% 29% 29% 22% 23% 5% 4% 0 All TAs Alimentary tract/ metabolic Hematology Neurology Cardiovascular Anti-infectives Oncology Therapeutic Area IQVIA 2

3 THE RELATIONSHIP BETWEEN CHINA S THREE INSURANCE SCHEMES The NRDL establishes coverage at the national and regional levels, creating an A list of typically low-priced and clinically necessary drugs that are fully reimbursed and a B list of higher-priced or new drugs that are partially reimbursed. The MoHRSS sets the negotiated drug price for the country, but the PBoHRSS sets the reimbursement ratio, which is typically between percent. NRDL drugs are not reimbursed until the reimbursement ratio is established. PRDLs cannot change the price negotiated by the MoHRSS for premium-priced drugs and must list those approved by the NRDL. For other drugs on the B list, provinces may conduct an independent price evaluation. Drugs can be listed on Provincial lists before they re included on the NRDL, and when they are, this influences the decision to include them on the NRDL. Provinces tend to give priority to drugs that treat diseases with a high local prevalence and those that treat catastrophic diseases at a reasonable price. Inclusion in the NRDL does not guarantee inclusion in individual hospital formularies. A SUMMARY OF THE 2017 NRDL UPDATE In 2017, experts in pharmacy, pharmacoeconomics and clinical practice advised the NRDL to factor in the clinical value of each drug. Together, they agreed to list an additional 339 new entries on the A and B sections of the NRDL, bringing the total number of covered drugs to 2,535, which was an increase of 15.4 percent when compared to the numbers in Of the new entries, 137 were western drugs with the remainder being Traditional Chinese Medicines. A little over half (53 percent) of the new entries had already been listed on the PRDLs. The reviewers focused on three categories of western drugs in their review: 1) innovative drugs with mid-range prices, such as the newest launches and those with few local generic alternatives, 2) drugs to treat catastrophic illnesses such as cancer, hematological disorders and HIV and 3) pediatric medications. Figure 2 shows that 51 percent of the newly added western drugs are in cardiovascular, metabolic, hematology, and oncology therapeutic areas. Products to treat rare diseases received more attention than in the past. Figure 2: Breakdown of Newly Listed Western Drugs by Therapeutic Area 17% 5% 8% 9% 16% 13% 12% Cardiovascular Alimentary Tract/Metabolic Hematology Oncology Neurology Anti-infectives Musculo-skeletal Respiratory Others A NOVEL PRICE NEGOTIATION MECHANISM A small fraction of the drugs considered for inclusion on the B list were deemed to be premium-priced drugs requiring further price negotiations prior to acceptance. These 44 products were innovative, patented drugs that 4,000 Key Opinion Leaders (KOLs) considered to be of high clinical value. About half of these products were oncologics. The MoHRSS adopted a unique price negotiation process for these drugs a process that had been discussed eight years earlier but had not been applied at the time. Negotiations were completed in just four months and some key takeaways are as follows: Manufacturers were given one month to submit a package of evidence for their products. This package included a summary of the product s assessment, information on the product s price, prior and estimated sales, and clinical efficacy data. Companies also had the option, for the first time, of including a health economic evaluation and a budget impact analysis. A team consisting of three functional groups met to evaluate all 44 drugs and set the upper price limits. An evidencebased approach was used that included an analysis of national insurance claims data. Although the reviewers reportedly were interested in the pharmacoeconomic analyses, the Ministry did not provide details on how these were used in the assessment. Negotiations then took place over a single 10-hour day during which manufacturers had two bidding opportunities. The negotiation could only continue in the second round if the manufacturer s proposed price was within 15 percent of the ceiling price that the Ministry had privately predetermined. The negotiated prices will remain in effect until December 31, 2019 unless a generic enters the market in the interim, in which case the originator product s price may be renegotiated. The high success rate of negotiations (36 out of 44) can be owed to a novel mechanism for negotiation with the necessary technical support. In subsequent updates, the negotiation process will become routine with greater regulation. IQVIA 3

4 Figure 3: Percentage Price Cut for MNC Products PRODUCT NAME HERCEPTIN AVASTIN REVLIMID TARCEVA FASLODEX ZYTIGA VELCADE NEXAVAR VICTOZA NOXAFIL SAMSCA TYKERB AFINITOR RENVELA SEROXAT FOSRENOL MABTHERA BETAFERON SEROQUEL BRILINTA LUCENTIS NOVOSEVEN % PRICE-CUT INSIGHT INTO THE DECISION-MAKING PROCESS Figure 4: Patent Expiration, 2016 Hospital Sales, and Percentage Price Cuts Although the above process was more efficient and transparent than ever before, the Ministry did not fully explain how it weighed all of the various factors that went into the initial price ceiling calculation. By analyzing the characteristics of the 36 premium-priced drugs that were eventually accepted into the B list, certain inferences can be drawn about the decision criteria. First, eight drugs dropped out of the negotiations, either voluntarily (given that many already enjoyed a strong coverage at the provincial level) or because the price proposed by the manufacturer after the first round of negotiation, did not fall within 15 percent of the Ministry s privately-set ceiling price. The remaining 36 drugs underwent an average 44 percent price cut compared to their 2016 average retail prices. A majority of multi-national products in this group saw price cuts of greater than 30 percent, although there was wide variation. IQVIA analysis suggests that, the 22 MNC drugs that were added to the B list saw an average price cut of 40.8 percent compared to the lowest provincial bid price in (Figure 3). The deepest cuts affected oncology products. Price-cut level 80% 70% 60% 50% 40% 0% Patent expiration year The higher the sales of the product, the higher the price cut imposed (Figure 5). In the U.S., the reimbursement application process puts more emphasis on clinical data and drug consumption, whereas in China, where there is a greater focus on pricing and sales data in determining budget impact. Figure 5: Average Price-Cuts by Different Sales Value Groups Our analysis revealed three interesting correlations between price cuts and the type of drugs most affected: Products facing imminent patent expiration were more likely to experience deeper price cuts (Figure 4). Price-cut level 60% 50% 40% 27,70% 40,73% 36,71% 48,02% 0% <10 million (N=5) 10~100 million (N=10) 100~1000 million (N=13) 2016 Sales (RMB, IQVIA CHPA) >1000 million (N=2) IQVIA 4

5 Products already included in provincial insurance lists experienced relatively higher price cuts than those without prior PRDL coverage. This correlation could, however, also be associated with the products time on the market or impending patent expiration (Figure 6). Figure 6: Percentage Price-Cuts by PRDL Inclusion Price-cut level 0% 39,91% Provincial insurance inclusion (N=9) 35,06% No provincial insurance inclusion (N=22) WHAT WE CAN INFER FROM THE PROCESS The most significant takeaway from this process is that health economic evidence is likely to become increasingly important to reimbursement decisions in China. The MoHRSS has started assessing health technologies using cost-effectiveness and budget impact, which were previously described as optional It is believed that these may well become mandatory in future evaluations. Experts at IQVIA believe that in years to come, the drugs selected for further price negotiations will be those that are highly innovative and of clinical necessity, providing an irreplaceable solution to a disease. They will also be relatively higher-priced drugs. The Ministry may also look at the amount of local access that a drug has achieved on the provincial lists. The Government may also be planning on shortening the update cycles and extending broader coverage to premium-priced drugs, a trend that would benefit pharmaceutical companies with innovative drugs in their pipelines. Treatments for conditions with high unmet needs, of high clinical value, or for rare diseases are likely to be the first to be considered in an update. At the same time, older drugs with limited clinical value could be excluded from the NRDL and PRDLs. More frequent updates could reduce access pressure, but these would also lead to more frequent price re-negotiations. Manufacturers should bear in mind that inclusion in the NRDL does not guarantee inclusion on hospital lists, and that the tendering and listing processes are presently uncertain. There has been no official clarification as to whether the 36 premium-priced drugs that were included in section B of the NRDL will be excluded from the second round of price negotiation mechanism at the hospital level. The potential negative impact on sales remains unclear. HOW TO THRIVE IN THE EVOLVING CHINA HEALTHCARE MARKET? Based on the MoHRSS new process of evaluation for NRDL inclusion and price negotiations of premium-priced drugs, the following suggestions can assist MNCs in maximizing their new product s success in the China market: Map out a detailed, multi-level access strategy. This should cover the NRDL, PRDLs, and hospital drug lists simultaneously. In the process, it should be kept in mind that China is not a unitary market. The provinces can customize their reimbursement lists and implementation policies to reflect local epidemiology, medical treatment practices and provincial medical insurance funding. Pharmaceutical companies will need to be attuned to these differences in order to develop tailor-made marketentry tactics. Consider integrating the pricing, access and HEOR strategies. Previously, companies could address their strategies for pricing and market access separately, since there was little likelihood that a new product would be considered for listing upon its launch. This may have been due to the fact that fewer products were considered, in addition to the long intervals between NRDL updates. In fact, in the past, it was rare for drugs that were less than three years old to be listed on the NRDL. Prices were simply set based on the competitive landscape. Now however, as the frequency of NRDL updates increases, swifter and more efficient price negotiations are expected. Since the quantitative impact on sales of the negotiated NRDL pricing is not clearly defined, manufacturers should consider this in their overall business strategy planning. Develop concrete, real-world evidence to demonstrate an innovative drug s value. It is clear that Chinese stakeholders are starting to pay more attention to the clinical value and effects of therapies. The evidence strategy should begin with an understanding of the information needs of the government officials and KOLs involved in the decision-making process, but also recognize that there are other stakeholders that have a voice in the reimbursement process. Pharmacoecomic experts are now included in evaluations and negotiations and will need to be convinced of a product s value. The aim should be to express the product s value in terms and logic that resonates with the stakeholders. Stay invested in your long-term market access strategy. Despite what we have gleaned from the latest listing update and price negotiation, there are still uncertainties (especially in how the provinces will implement policies) and rapid changes in the China market. MNCs should maintain a policy-tracking system and a quick-response project team to be able to adjust as needed. Prices may be re-negotiated more often, and ad hoc re-negotiations may arise in the event of a generic launch. Also, given IQVIA 5

6 the short lead time, the government was perhaps less demanding in terms of required documents in the 2017 update. In the near future, the document requirements may be more detailed and demanding, so companies should be prepared to devote ample resources to the process. Reconsider your launch sequencing. Prior to 2017, pharma companies could delay their launch into the China market, turning first to the U.S., EU and other selected Asia-Pacific countries such as Japan, Taiwan and Korea. In some of these countries notably Taiwanthe drugs underwent significant price-cuts in return for being listed for reimbursement. For companies looking to be successful and maximize revenue in the very large China market, delaying launch in China may no longer be wise, as the MoHRSS will cross-reference prices from neighboring countries like Taiwan to establish the price caps. For products with multiple indications, companies are advised to understand and consider the relationship between the indication launch and the NRDL listing to create a smart pricing strategy. Re-evaluate your Patient Assistance Programs. In some provinces, such programs may not be necessary as patients may already enjoy quite steep price cuts and high reimbursement rates. Accept that at times it may be best to walk away from negotiations. The price cut required to be listed on the NRDL might simply not be worth it, especially for products that already enjoy good provincial coverage. CONCLUSION With the new NRDL and, more importantly, the changing approach to negotiating prices for premium-priced products, pharma companies must re-evaluate their pricing and access strategies for the Chinese market. How well companies understand these changes and the requirements crucial to demonstrate their products value will become essential to their success in China. In the future, the NRDL renewal cycle will be shortened, the pace will be accelerated and a dynamic update mechanism will be established. To continue the conversation, please contact: Yang XIE, PhD, MPH, Principal, HEOR/RWE, IQVIA at yang.xie@iqvia.com IQVIA 6