China’s latest update to the National Reimbursement Drug List slashes prices and favours domestic companies

China has added 119 new drugs to its National Reimbursement Drug List (NRDL) and removed 29 products from the list. The National Health Security Administration (NHSA) considered a total of 162 drugs for admission to reimbursement: 24 products already included in the list (and subject to renegotiation) and 138 new products. The NRDL now comprises 2,800 products: 1,426 Western medicines and 1,374 patented traditional Chinese medicines.

Historically, the NRDL was updated very infrequently: following its introduction in 2000, it was revised in 2004 and 2009. In 2014, however, the Chinese government committed to faster access to innovative medicines. Beginning in 2017, the NHSA has conducted annual updates to the NRDL.

On each occasion, manufacturers have generally had to offer substantial price cuts to secure NRDL listing. This year, the average price reduction is 50.6%, compared with 44% in 2017, 57% in 2018 and 60% in 2019. The NHSA also cut the prices of 14 drugs that have annual sales of more than CNY 1 billion ($153 million) by an average of more than 40%. The new list will take effect on 1st March 2021.

Since 2019, manufacturers have the option not to disclose the negotiated prices of their medicines, and foreign companies (as well as some Chinese producers) generally elect not to publish net prices in the official announcement of the NRDL negotiations. However, net prices may become visible over time because they are the basis for calculating patients’ out-of-pocket contributions.

China uses international reference pricing (IRP) as a key element of pricing negotiation for NRDL inclusion. There are 12 comparator countries, including the United States, Canada, France, Germany and the United Kingdom, but also Turkey and South Korea. An analysis by Simon-Kucher of published price cuts in the 2019 NRDL update found that most were aligned closely with prices in Turkey, the lowest-priced market in the basket of comparator countries.

Drugs included in the NRDL will be reimbursable by the National Medical Insurance Fund, which now covers more than 95% of the Chinese population. NRDL listing can offer a significant boost to a drug’s sales: in the nine months following the 2020 revision of the NRDL, sales of newly reimbursed drugs increased by an average of almost 2,000%, according to research conducted by ICBC International.

All provinces will be required to adhere strictly to the NRDL, but they will have freedom to vary their reimbursement rates for drugs in the NRDL in line with the level of funding they have available. The NHSA reports that reimbursement levels are generally in the range of 60-80%.

Interesting developments in the PD-1/PD-L1 inhibitor market

The updated NRDL will include all of the licensed Chinese PD-1 inhibitors. Cinda Bio’s Daboshu (sintilimab) was already included in the NRDL, for the treatment of relapsed/refractory classical Hodgkin’s lymphoma (cHL). In 2021, it will be joined by BeiGene's Baize’an (tislelizumab) for both cHL and bladder cancer, Junshi Bioscience's Tuoyi (toripalimab) for melanoma and Hengrui's AiRuiKa (camrelizumab) for cHL, liver cancer, oesophageal cancer and non-small-cell lung cancer.

These companies were prepared to offer substantial discounts on their products in the hope of securing significant sales growth as a result of being included in the NRDL. Cinda can certainly attest to the difference that NRDL inclusion can make to a drug’s sales in China. In the first half of 2020, Daboshu recorded sales of CNY 920 million ($141 million), a year-on-year increase of 178%. Sales grew further, to CNY 600 million ($92 million) in the third quarter of 2020. The company’s financial report noted that Daboshu’s status at that time as the only PD-1 inhibitor included in the NRDL allowed faster access to the hospital channel, more extensive coverage in large cities and greater awareness among physicians. Coverage of Daboshu increased from approximately 2,000 hospitals and 500 direct-to-patient (DTP) pharmacies at the end of 2019 to around 3,500 hospitals and 900 DTP pharmacies as of 30th June 2020. (DTP pharmacies purchase drugs from manufacturers and then sell and deliver them to patients, subject to a medical prescription.)

Significantly, none of the global PD-1/PD-L1 inhibitor brands that are licensed in China—Merck & Co.’s Keytruda (pembrolizumab), Bristol-Myers Squibb’s Opdivo (nivolumab), Roche’s Tecentriq (atezolizumab) and AstraZeneca’s Imfinzi (durvalumab)—were added to the NRDL. Exclusion from reimbursement will limit their sales potential in China, but the companies may have concluded that there was little for them to gain from trying to compete with domestic manufacturers of PD-1/PD-L1 inhibitors on price.

Outlook and implications for the pharmaceutical industry

In recent years, Chinese patients have undoubtedly benefited from the combination of regular annual updates to the NRDL and the expansion of the National Medical Insurance Fund to virtual universal coverage. Nevertheless, continuing variations in provincial reimbursement could lead to geographic inequalities in access.

In the PD-1/PD-L1 inhibitor market, the complete dominance of domestic brands in the latest update of the NRDL is a cause for concern to foreign companies and may portend what is likely to happen in other drug classes in the future. The reasons why foreign brands were not approved for reimbursement are currently unclear and may never be fully known. Multinational companies will, however, be concerned that the Chinese government is pursuing an agenda of favouring domestic products over foreign ones—particularly in competitive drug classes. The Made in China 2025 industrial plan identifies biopharmaceuticals as one of ten key sectors in which China first wants to achieve dominance at home and then substantially increase its global market share.

Given the growing size and importance of the Chinese market—now the second largest in the world—multinationals may feel that they have little choice but to compete in this country. However, securing NRDL inclusion could come at a cost, not least because other countries that use IRP may increasingly include China in their baskets of comparator countries. Pharmaceutical companies will therefore need to consider the international repercussions of accepting low prices in China.

In addition, companies that are prepared to meet the exacting requirements for NRDL inclusion need to be aware that this achievement may be short-lived. The prospect of renegotiation of prices every other year—with the likelihood of demands for significant price cuts—will present further challenges for companies in defining their strategy for the Chinese market.