Earlier this year, China’s National Healthcare Security Administration (“NHSA”) issued the Notice on the Establishment of an Initial Price Formation Mechanism for Newly Listed Chemical Drugs to Encourage High-Quality Innovation (the “Proposal”) for comment from industry associations, but not the general public. NHSA officials disclosed that the Proposal was introduced in response to innovators’ calls for increased policy support, particularly monetary incentives to reward the substantial investment and risk associated with drug research and development. The primary stated objective of this Proposal is to establish a drug pricing mechanism that fosters innovation in drug research and development while ensuring equitable access to innovative medicines.
Since 2015, China has largely abandoned government price-setting and instead started to establish a system wherein drug prices can be primarily determined by the market. However, the government can still influence drug pricing through the National Reimbursement Drug List (“NRDL”) and drug procurement process. In practice, provincial healthcare security authorities generally have the authority to regulate online drug procurement, approve the admission of drugs for online procurement, and adjust online drug procurement prices.
While pharmaceutical companies have had some authority to set pricing strategies for innovative drugs since then, the Proposal appears aimed at facilitating the procurement process for innovative drugs and giving innovative drug companies more flexibility in determining procurement prices. Under the Proposal, the initial pricing for chemical drugs that are for the first time being listed on a procurement platform will consider self-evaluations provided by pharmaceutical companies (described below). Companies will be responsible for ensuring the authenticity and accuracy of the pricing materials. Other stakeholders, such as medical institutions and industry associations, will participate in the drug pricing process by providing opinions on therapeutic value, clinical need, and procurement intentions for these products. They will also offer recommendations on whether the economic analysis aligns with industry standards.
To guide the self-evaluation process, the NHSA has introduced a comprehensive form comprising three sections: Pharmacology, Clinical Value, and Clinical Evidence of Safety and Efficacy, along with 34 detailed items. Each item corresponds to a score that can be totaled up to a maximum of 150 points. The self-evaluation form takes into account various factors, including whether the drug features new mechanisms of action or targets, routes of administration, or indications. Different levels of novelty will add different points. For example, having new mechanisms of action or targets will add 50 points, and drugs that are new to the world will add 10 additional points. If a drug is already approved or does not conduct clinical studies in China (i.e., bases its application solely on foreign data), the score can be adjusted downward. Additionally, the self-evaluation considers whether the drug provides breakthrough treatment, addresses rare diseases, or is urgently needed due to shortages in clinical supply.
While drugs with low scores will be subject to more stringent regulatory measures regarding drug price formation and admission to the procurement platform, newly listed chemical drugs with high innovative value (i.e., those that obtain a high score in self-evaluation) will be entitled to:
- Simplified Application Process: These drugs will enjoy benefits when applying for admission to procurement platforms, including submitting fewer application materials and proceeding through an expedited application review process.
- Exemption from Detailed Pricing Component Materials: These drugs will be exempt from providing certain materials related to how they arrived at their initial market price, which allows greater discretion in setting the price on procurement platforms.
- Early Marketing Price Application: These drugs can apply for the initial market price on procurement platforms as soon as their marketing application is accepted by the Center of Drug Evaluation under the National Medical Products Administration, which will accelerate the marketing application review process.
- Price Stability Period: These drugs will be granted a stability period of one to five years. During this time, their price will generally remain unaffected by government interventions, such as volume-based procurement (i.e., procurement of a specific volume for a province, provided the drug price is sufficiently low).
The Proposal has not been finalized, so it is advisable to closely monitor for developments in this area.
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Contributors for the China & APAC Food, Drug, Device, and Cosmetics blog:
John Balzano, Julia Post, Muyun Hu, Kaixin Fan, and Kexin Yang.