China Reforms Welcome, But More Needed – Frazier

Visiting Beijing, PhRMA chairman Kenneth Frazier noted the need for drug companies to adopt flexible pricing practices in the Chinese market, and urges China to adopt regular reimbursement review after regulatory approval and more timely updates to government drug lists.

BEIJING – While encouraged by China's recent moves to streamline drug review processes and accelerate new product approvals, Kenneth Frazier is hoping for more.

As chairman ofthe Pharmaceutical Research and Manufacturers of America and chairman and CEO of Merck & Co. Inc.(known as MSD outside the US and Canada), Frazier made it clear that rewarding innovation and providing timely reimbursement for new drugs are high on his wish list.

"Chinese patients would be best served by a model that allows new drugs to be reviewed for government reimbursement on a regular, or rolling, basis after receiving regulatory approval," he said at a media roundtable Nov. 10, after meetings with top officials at the China FDA, the National Health and Family Planning Commission and the Ministry of Commerce.

"And we recommend an accelerated update to the national and provincial reimbursement drug lists, followed by the establishment of a transparent and predicable rolling reimbursement review."

China's national list includes two categories of drugs: Category A products are essential drugs that are fully reimbursed, and Category B containing a larger number of drugs, which are only partially covered.

Last updated six years ago in 2009, the list as a result excludes many innovative new drugs that have gained approvals since then, and even certain drugs approved before that date were excluded. Despite expectations of update, the list remains the same.

Calling this situation "a great uncertainty,", Frazier urged the Chinese authorities to give equal attention to the reimbursement barrier as they have done to drug review lags.

"While quicker regulatory review and approval of new innovative medicines is a very important first step, government reimbursement is equally critical to ensuring patient access to new innovative medicines," he emphasized. Frazier took over the PhRMA chairmanship early this year from Ian Read, Pfizer Inc‘s CEO.

Pricing Link To Reimbursement

In the run up to the US presidential elections and ripples from the Turing Pharmaceuticals AG affair, drug pricing has recently drawn the ire of both regulators and the public in the US, and big pharma has had to defend its practices by stressing value (Also see "PhRMA Takes Aim At Valeant In Defense Of Drug Pricing By ‘Innovative’ Firms" - Pink Sheet, 26 Oct, 2015.).

"Let's say that my company tries to take a responsible approach when pricing drugs," said Frazier. The factors that have to be taken into pricing decisions include value provided to patients and to the whole healthcare system, he added.

“We charge different prices in markets to ensure that intended patients are not prevented from getting access to our medicines because the price is so high that no patients in that country could possibly afford [them]” – Kenneth Frazier

The key is to strike a balance, noted Frazier, a balance to facilitate today's patient gaining access to today's drugs, while allowing pharma companies to pursue sustainable R&D.

In China, the government has routinely slashed drug prices via centralized tenders for products that are listed on the national reimbursement list.

In a market like China where patients don't have the same affordability criteria as in the US, Frazier said that a flexible pricing approach is needed.

"We charge different prices in markets to ensure that intended patients are not prevented from getting access to our medicines because the price is so high that no patients in that country could possibly afford [them]," he said.

Pricing, however, is not the only issue, noted the CEO, adding that increased government funding and timely reimbursement would also help make drugs more accessible to patients in China.

Compared to close to 10% on average for industrial nations’ spending on health care, China devoted 5.5% of its GDP to health care in 2014, according to its annual Healthcare Yearbook.

“The narrow definition [of a new drug] I don't think supports the government's goal of having innovative companies in China” – Kenneth Frazier

"It's also important for the government to increase investment, to ensure that when new drugs are approved, they are meaningfully available because the government provides the coverage," Frazier said.

One Step Forward, Half Step Back

Despite China's recent regulatory moves to accelerate new drug approvals, the reform measures still have certain aspects that need addressing, the CEO said.

One is the definition of a "new drug." According to an August proposal by the CFDA, new drugs are defined as "products that are not marketed inside and outside China." Previously, they were defined as "drugs never marketed in China" (Also see "CFDA Unveils Milestone Plans To Accelerate New Drug Approvals" - Scrip, 24 Aug, 2015.).

The new definition means, for example, that a drug marketed a day earlier outside China will not be eligible to be considered as a new drug in the country, a situation that has the Merck CEO raising the alert and voicing deep concerns

"The narrow definition I don't think supports the government's goal of having innovative companies in China," he declared.

“I understand that CFDA and others don't consider these medications that are just brought here after many, many years and decades as innovative new drugs…[but] if we work together, we can come up with definitions that serve the purpose of the government without cutting off a lot of new innovative medicines” – Kenneth Frazier

"What we are asking for is opportunities to interact with them [CFDA] and have a dialogue with them, to ensure that definition meets their goals of stimulating more innovation in China, without preventing companies like mine, to say foreign companies, that just have these breakthroughs introduced in the US, Europe and Japan [coming] to China because these patients need these medications," Frazier added.

"I understand that CFDA and others don't consider these medications that are just brought here after many, many years, decades, as innovative new drugs," he continued. "I believe, if we work together, we can come up with definitions that serve the purpose of the government without cutting off a lot of new innovative medicines because they are not new in the world."

Even with the CFDA introducing a more streamlined review system, many products are still pending approval in China after years of knocking on the door, including Merck's human papillomavirus vaccine Gardasil (Also see "A Closer Look: The Wait For HPV Vaccines Could End Soon In China" - Scrip, 2 Jul, 2013.).

Approved in the US back in 2006, Gardasil has been waiting in vain for years after completing trials in China, and the lengthy wait has the Merck CEO disappointed.

"The lag of approval to our Gardasil is an unfortunate thing. That kind of delay is not encouraging foreign direct investment."

As a result, more women in China will suffer and die of cervical cancer as the delay continues, he emphasized.

“The lag of approval to our Gardasil is an unfortunate thing. That kind of delay is not encouraging foreign direct investment” – Kenneth Frazier

Call For Cooperation

Indeed, a lack of reimbursement for newer drugs and the significant drug lag aside, there is still much more to be done in the pricing and policy areas in China, PhRMA believes. Throughout the year, authorities running provincial drug tenders have been busy slashing drug prices, forcing many wonder to whether "there is no lowest price, only lower."

Hit hard by the squeeze and coupled with a "second-round negotiation" at hospitals, multinational drug makers suffered a drastic business slowdown in the second quarter (Also see "A Hard Look: How Did China Pharma Growth Fall So Fast, So Steeply?" - Scrip, 1 Sep, 2015.).

"We want to work with the government, both at national and provincial level, to ensure the processes of setting prices, bidding and carrying out the bidding are transparent, predictable and open," Frazier proffered. "We believe it's necessary to not guess that we are multinationals trying to succeed in business here in China."

Due to the heavy price focus, the available medicines in the provinces may also not be the best medicines for patients, he stated.

Still, the CEO said his company still thinks of China as an attractive market. During this trip, he also attended a ceremony in Shanghai to unveil a new company campus.

"As we allocate our capital across geographies, we still see China as attractive for our investment," Frazier concluded.

[Editor's note: This story is also published in PharmAsia News. "The Pink Sheet" DAILY brings selected complementary coverage from sister publications to our subscribers.]