China's pharmaceutical industry to benefit from drug price control

The June 1 removal of governmental direct drug price control will be credit positive for China’s pharmaceutical industry, Moody’s Investors Service said.

Before this reform, drugs in the National Reimbursement Drug List were controlled by the government through a price cap. The reform will lift controls for most drugs, and the government will strengthen price monitoring.

The reform will form a healthier, market-driven pricing system. Prices will be based on quality and supply an demand, therefore will motivate pharmaceutical companies to spend money on innovation and the quality of products, Moody’s Vice President Michelle Zhang said. She co-authored the the newly released Moody's report "Chinese Pharmaceutical Sector: Removal of Direct Government Drug Price Control will Benefit China's Pharmaceutical Industry."

The report said the reform, along with other medical reforms being undertaken by the Chinese government,` will particularly benefit large Chinese pharmaceutical companies with strong R&D capacity and product strength. The majority of drugs made by Chinese pharmaceutical companies are general off-patent drugs and are subject to strong competition in tender, so there will not be much space to higher prices after the lifting of price controls.

“Nevertheless, with an increasing weighting on quality during tender and a market-driving pricing mechanism, there may be some price adjustments in certain high-quality drugs to reflect their higher value,” Ivan Chung, one of Moody's senior vice presidents, said.