Hunan Province Initiates Price Negotiations for Six Non-winning Antibiotics Including Blockbuster Products from Pfizer and MSD

On January 25, the Hunan Provincial Healthcare Security Administration issued a letter inviting manufacturers of certain drugs listed in the Linked Procurement Catalog for antimicrobial agents to engage in negotiations. The administration plans to conduct price negotiations for drugs that were previously included in the Linked Procurement Catalog after failing to win bids in the original antimicrobial drug tendering process and that have incurred substantial procurement expenditures. If negotiations are successful, these drugs will be included in the中标 (winning bid) catalog for procurement, and the negotiated prices will remain confidential.

Notice: Relevant enterprises are required to send representatives (carrying the original power of attorney from the legal representative and their own original ID cards) to Bid Opening Room 15 on the 3rd floor of the Hunan Provincial Public Resources Trading Center at 9:30 a.m. on January 28, 2021, to participate in negotiations. The number of personnel attending the on-site negotiations shall not exceed three. Failure to appear on time will be deemed as automatic waiver.

Six Non-Winning Antibacterial Drugs Enter Price Negotiations!

Notice Letter indicates that Hunan Province plans to conduct price negotiation for six antibiotics in the linked directory, namely: Pfizer's Cefoperazone Sodium and Sulbactam Sodium for Injection (specification: 1g) and Fluconazole Injection (specification: 100ml:200mg); Shanghai No.1 Biochemical&Pharmaceutical Co.,Ltd.'s Polymyxin B Sulfate for Injection (specification: 500,000 units); Sumitomo Pharma (Suzhou)'s Meropenem for Injection (specification: 0.5g); Hangzhou MSD Pharmaceutical Co., Ltd.'s Imipenem and Cilastatin Sodium for Injection (specification: 1.0g (0.5g:0.5g)); and VIANEX S.A. (PLANT C)'s Vancomycin Hydrochloride for Injection (specification: 0.5g).

On April 15, 2020, the winning bid results for Hunan Province’s special centralized procurement of antibiotics were announced. Among the 52 drug varieties, 47 were successfully negotiated, with a total of 86 companies awarded bids. Notably, the only foreign enterprise to secure a bid was Bayer, with its product moxifloxacin. The winning bid results officially took effect on May 1, 2020.

Most of the products subject to separate price negotiations in this round are originator drugs. Data from Menet shows that among the top 10 systemic anti-infective drugs in public hospitals in Hunan Province in 2019, Meropenem for Injection had the highest market share, and Cefoperazone Sodium and Sulbactam Sodium for Injection ranked fifth, both being high-volume products.

Taking meropenem as an example, Chongqing Shenghuaxi Pharmaceutical won the bid in last year’s Hunan Provincial Specialized Centralized Procurement, with a winning bid price of RMB 9.48. Among the non-winning products, meropenem from Shenzhen Huayao Nanfang Pharmaceutical, Shenzhen Haibin Pharmaceutical, and Sumitomo Pharma (Suzhou) fell into different categories: the lowest runner-up quote in Group A evaluation; no winning product under the same generic name and dosage form in Group B evaluation; and off-patent drugs that failed to win the bid, respectively. Their proposed linked prices were RMB 24.525, RMB 82.07, and RMB 155.9, respectively. There is a significant price disparity among the same product.

In accordance with the requirements of Hunan Province’s Special Procurement Plan, antibacterial drugs whose generic names, dosage forms, or specifications are not included in the volume-based procurement catalog shall be subject to price linkage with the lowest provincial-level winning bid (listed) prices from other provinces (excluding prices from Guangdong Province, Fujian Province, and Chongqing Municipality), thereby forming a linked listing catalog. The procurement amount for these drugs shall be controlled within 20% of the total procurement amount of antibacterial drugs by medical institutions in the previous year. In addition, drugs that have passed the consistency evaluation but were not selected as winners, drugs whose procurement agreements have expired, and reference listed drugs are permitted to enter the linked listing catalog based on enterprise quotations. In the event of new lowest provincial-level winning bid (listed) prices emerging in any province, enterprises with products in the linked listing catalog shall declare the latest lower prices via the provincial procurement platform within one month.

Under the current notification plan, Hunan Province intends to conduct price negotiations for drugs that were previously included in the linked procurement catalog after failing to win bids in antibacterial drug tenders and that have high procurement volumes. Drugs successfully negotiated will be included in the winning bid catalog for procurement, with prices expected to decline further for these six products. The renewed price negotiations are likely aligned with the lowest winning bid prices in other provinces. Regarding the statement that “successfully negotiated drugs will be included in the winning bid catalog for procurement,” it remains unclear whether products priced at the lowest winning bid level will also secure substantial procurement volumes.

National Price Linkage Trend Is Evident

"Pressuring" Originator Drug Companies to Reduce Prices

Notably, in Hunan Province’s centralized procurement of antibiotics, most antibiotic categories include more than two products, with cephalosporins comprising as many as 24 varieties. This broad range of alternatives, coupled with the frequent clinical interchangeability among different antibiotic classes, results in a low risk of clinical drug shortages due to non-selection in the bidding process.

Previously, antibiotics in Hunan Province were subject to key monitoring as pharmaceutical products, with artificially inflated prices. In the special centralized procurement program for antibiotics in Hunan Province, among the 154 antibiotic products included, over 90 had bid prices below RMB 10, including cefazolin, cefazoline, and cefotaxime; more than 20 drugs had unit prices under RMB 1, such as ceftriaxone, ampicillin, and cefotaxime. The most notable aspect of this centralized procurement was that only one originator pharmaceutical company won a bid, while most originator companies adopted a wait-and-see attitude.

Pharmaceuticals that failed to win bids were required to undergo price linkage, and the market share of drugs included in the linkage catalog is expected to shrink significantly. Relevant data show that in 2018, the online procurement of antibacterial drugs by public medical institutions in Hunan Province totaled RMB 5.2 billion, accounting for 20% of the total annual procurement amount of chemical drugs, making it the largest category in terms of procurement volume among chemical drugs. Based on the cap that the total procurement amount shall not exceed 20%, the market size for antibacterial drugs included in the linkage listing catalog is basically controlled within RMB 1 billion.

Many originator pharmaceutical companies have been reluctant to participate, either to safeguard their global pricing systems or because the procurement volumes in local centralized procurement programs are not yet substantial. However, as national centralized procurement becomes normalized and local initiatives continue to pilot various models, a diverse range of procurement approaches is emerging. The nationwide linkage of the lowest prices is imminent, and significant progress has been made in controlling healthcare insurance expenditures. Within the hospital market, generic substitution for imported drugs is becoming increasingly evident, particularly for injectable products. In the future, originator pharmaceutical companies will likely have no choice but to join these programs, unless they opt to completely exit the relevant markets or optimize their product portfolios.

Appendix: Winning Bid Results of the 2020 Hunan Provincial Special Centralized Procurement of Antibacterial Drugs

(Unit: CNY; * indicates adjusted prices, which are not disclosed)