China’s National Healthcare Security Administration (NHSA) recently released the outcomes of its 2019 National Reimbursed Drug List (NRDL) negotiations: 70 of 119 new therapies were successfully listed. This record outcome more than doubled the number of therapies reimbursed through China’s negotiation pathway, which was formally implemented in 2017. For global pharmaceutical companies, the beginning of the NRDL negotiation era in 2017 marked an inflection point in the outlook for innovative therapies, and likewise for the focus that China has received from global leadership. In the past two to three years, we’ve heard global pharma commercial leaders increasingly emphasize ex-U.S. volume expansion as a growth driver, with China playing a key role in these ambitions. But until last November, these leaders had less than half of the data points they have now for understanding China’s evolving negotiation approach and market access priorities. The 2019 NRDL outcomes provide new insights into how global pharma companies need to evolve both their global and local commercialization models to be successful in China.
Last year marked the establishment of a new normal for entering the Chinese market with an innovative therapy. There’s now a consistent cadence and increasingly transparent process for true country-level access. Average time from launch to reimbursement has decreased by more than half since 2017, but while a record number of therapies were approved in record time, the success rate and average price cut worsened from 2017 and 2018. While 17 of 18 oncology therapies that entered 2018 negotiations were successful in getting listed, therapies didn’t do as well in 2019, with high-profile products such as Keytruda, Opdivo, Lenvima and Ibrance missing from the reimbursement list. Moreover, 26 previously listed drugs from global pharma manufacturers went through renegotiation, with four failing to maintain their listing. These outcomes reflect NHSA’s evolving approach to budget management and therapy evaluation.
The 2019 negotiations revealed new insights about how China is bringing pricing and budget management into line with developed markets in some areas while charting its own course in others.
1. Pricing approach:
- International reference pricing (IRP): Like many markets, the Chinese government refers to prices in a set of reference markets to inform NRDL pricing negotiations. What was interesting for 2019 was that Turkey was added to the reference list, thus lowering the reference floor for many products. Final 2019 negotiated prices were generally below the lowest IRP for each product, contributing to the increase in average price cut vs. 2017 and 2018. We also know that in some cases where generics or biosimilars are already or soon to be launched, manufacturers conceded prices below the lowest IRP (such as Humira). However, offering a price at or below IRP did not guarantee an NRDL listing.
- Continued application of the 15% rule: As in 2018, the Chinese government had two separate groups of procurement and HEOR experts setting a target price for negotiation, accounting for financial impact on the reimbursement fund. If a company’s offer was not within 15% of that value, negotiations were terminated. This creates a clear but limited premium window for companies to pursue.
- Competitive bidding: In the 2019 NRDL negotiations, China implemented competitive pricing and volume agreements in HCV DAA therapies. Although the government already uses competitive volume-based procurement for branded generics and experimented with competitive bidding during the 2016 negotiation pilot, 2019 was the first major application of the practice in innovative pharma. The Chinese government committed to only two winners and will not admit new HCV treatments to the NRDL for two years. In exchange, the winners conceded average price cuts of 85%, one of the largest observed.
2. Budget management:
- Total budget management: For the first time, a total reimbursement budget was allocated to all products subject to negotiation. As a result, indications with both a broad population base and high pricing fared poorly. Among the four PD-1 drugs that qualified for negotiation—Opdivo (NSCLC); Keytruda (melanoma and NSCLC); Toripalimab (melanoma) and Tyvyt (CHL)—only Tyvyt was successful. CHL has a relatively small patient population of several thousand in China, thus limiting the budget impact.
- Stronger central control: This year also showed stronger central coordination, with the NRDL being rolled out across all 31 provinces without further provincial or local approval required. In the past, provinces had the flexibility to adjust 15% of the NRDL list (adding or removing therapies) based on local needs. This provided a separate channel for manufacturers to seek partial access, which is now disappearing.
The Chinese government is now offering broader and faster access, but it’s bringing a target price to the negotiation table that is at or below the lowest IRP. With both procurement and HEOR experts informing government target price, the NRDL process has become both more transparent and more sophisticated. As a result, China will need to rise in priority for both launch sequencing and global value strategies. Likewise, global market access and HEOR teams will need to collaborate closely with their Chinese affiliates to maximize value realization in negotiations.
With NRDL updates becoming more frequent and local access channels disappearing, global pharma manufacturers need to ensure that their Chinese affiliates are able to respond quickly at scale to both listing and delisting. (The 2019 winners will be up for negotiation again in just a couple of years.) While localized execution will always be a key success factor in China, we expect that companies will need to “nationalize” elements of their resource allocation model to keep pace with NRDL wins and losses.
China has a history of springing new surprises on the pharma industry, and we expect the next decade to be no exception. While we don’t know what twists and turns are next, the overall direction is clear: China is steadily increasing national access to innovative therapies.