A pilot tendering scheme which has successfully reduced the prices of essential drugs in China's rural areas could be extended nationally and cover all prescription drugs, forcing research-based drugmakers to compete on price with generics manufacturers.

The pilot programme, which is being tested in five provinces in China, involves competition between drugmakers for state contracts on price and quality, and in Anhui, the country's fourth-poorest province, it has been successful in reducing the prices of medicines by as much as 90%. But widening the programme and extending it beyond the essential drugs list would force brand-name firms to cut their prices, according to the Research and Development-based Pharmaceutical Association Committee (RDPAC), which is based in Beijing.

In Anhui, the tendering system has resulted in an average 53% drop in the prices of drugs included on the government's list of 307 essential medicines below the maximum retail prices set by the state for these products. While essential drugs account for just 10% of the domestic pharmaceutical market in terms of value, their volume sales are high.

"We can understand if some poorer regions need to use this process, but for those regions with better finances, they should not be restricted by the government to just low-priced generics," Bloomberg reports RDPAC head Joseph Cho (and chairman of Astellas Pharma in China) as stating. If the "Anhui Model" were to be fully implemented throughout China, patients in the wealthier provinces of Jiangsu, Zheijiang and Guangdong who currently use medicines manufactured by overseas firms would no longer be able to do so, he adds, according to the report. 

It also quotes OSK (Asia) Securities Hong Kong analyst Jason Sui as warning: "the concern is that the price cuts will affect profits along the entire supply chain, from finished drugs to retail stores and drug distributors."

Some drugmakers in the wealthier provinces have threatened to boycott any proposed price tenders, the report adds.

Meantime, China is set to lower the retail price of 82 drug products by an average of 14% on September 1, the National Development and Reform Committee (NDRC), has announced. The move follows a price cut averaging 21% on 162 medicines, which was introduced in March with the aim of saving Chinese consumers nearly 10 billion yuan.

And in January, the Health Ministry announced that, by the end of this year, a national essential medicines system would be implemented, "where drugs would be sold with zero mark up."

The Ministry said the programme will focus on streamlining the centralised procurement and distribution of essential medicines and making sure they are sold at "no more than cost price."