Western drugmakers may have to give hefty subsidies and forgo some profit on expensive cancer drugs if they want access to China’s “huge market,” the country’s former health minister said.

China Drugmaker Access May Require Profit Cut, Chen Says

Western drugmakers may have to give hefty subsidies and forgo some profit on expensive cancer drugs if they want access to China’s “huge market,” the country’s former health minister said.

With the cost of some oncology drugs topping $100,000 a year, Chinese officials may increasingly push for deals like one reached last year with Novartis AG (NOVN), in which the company agreed to donate three doses of its leukemia drug Gleevec for every one sold to the government, the former minister, Chen Zhu, said during an interview in Washington, D.C.

“If the cost is too high, maybe only a few percent of patients can benefit,” said Chen, who stepped down last month after seven years as China’s top health official. “If we can arrange an appropriate, acceptable, affordable price, then you can have a huge market.”Negotiating discounts may be drugmakers’ best alternative to the situation in neighboring India, where the government has weakened patent protections from products made by Novartis and Pfizer Inc. (PFE) in the name of providing affordable care to patients. While such “compulsory licensing” shouldn’t be abused, Chen said, its use couldn’t be ruled out in China.

The comments came in a wide-ranging interview in which Chen, 59, said he sensed an openness to new anti-smoking regulations among Chinese leaders, brought on by rising lung- cancer rates. The country, the world’s largest emerging market, also has “significantly strengthened” its readiness for an infectious disease outbreak since coming under criticism during the SARS pandemic 10 years ago, he said in the April 5 interview.

Flu Outbreak

Chinese officials yesterday asked citizens to avoid contact with live poultry, as they try to stem an outbreak of a new bird-flu strain that has so far claimed seven lives. China’s Center for Disease Control and Prevention said it was preparing a vaccine in case the H7N9 virus starts spreading among humans.

In contrast to past outbreaks, when Chinese officials were accused of withholding information, there’s a new commitment to transparency and better procedures for reporting infections, Chen said.

Chen, a hematologist who has done pioneering work on leukemia treatment, was in Washington to present an award given by the nonprofit National Foundation for Cancer Research. He is now a vice chairman of the National People’s Congress, China’s legislature.

$1 Trillion Market

Facing slowing sales in the West, companies including New York-based Pfizer and Novartis, based in Basel, Switzerland, have set their sights on China, now the world’s third-largest pharmaceutical market. Driven by an aging population and expanded insurance coverage, health-care spending in the country is expected to almost triple by 2020, to $1 trillion a year, according to an August report from McKinsey & Co.

While government insurance programs have increased coverage of cancer treatments, there’s still a gap, especially in rural areas, Chen said in his interview. Closing it means drugmakers may have to give up some profit margin on their drugs, he said. Access to China’s 1.3 billion people should more than cover the loss, Chen said.

Novartis’ deal on Gleevec, struck with the government in Jiangsu province, may offer one model, he said. The pact — which Chen dubbed “buy one, give three” — lowered the cost of an annual regimen to about 72,000 renminbi, or $12,000.

In the U.S., a year’s supply of the drug costs about $77,000 wholesale, Julie Masow, a Novartis spokeswoman, said in an e-mail.

Patent Fight

India’s Supreme Court on April 1 denied Novartis’ request for patent protection for Gleevec, allowing the nation’s generic-drug makers to continue to sell lower-cost copies.

China, by contrast, has reserved the use of compulsory licenses to “national emergencies” like bird-flu outbreaks, Chen said. “We keep the right of using this measure, but it has to be studied carefully.”

On tobacco, Chen said he was “pushing very hard” to enact tougher smoking policies. While the country banned public smoking in 2011, the law lacks penalties, hampering enforcement. The government, while regulating the industry, also owns China National Tobacco Corp., the world’s biggest cigarette maker.

Cancer is now the country’s top killer among major diseases, Chen said. That has made the national government more open to the idea of tougher regulation, he said. So has the experience of other countries that have banned outdoor smoking without a steep drop in revenue from tobacco taxes.

“We are still a country that’s developing,” he said. “We need to consider government revenue to be able to invest more in people’s livelihoods. So we need a balanced approach.”

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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