Singapore, May 26, 2009: Policies of the new health reform in China have been released after deep consideration and discussion, among which, is one of the most important policies 'The National Essential Drug System'. The purpose of this policy, according to Frost and Sullivan, is to solve the high cost of drugs in China through a government-initiated program. Ideally the program is expected to lower the drug prices that cover a wide range of diseases and meet the majority's basic medical needs.

In essence, the policy states that the provincial government organizes the public bidding to choose the drug suppliers and distributors. The reference price is set by the central government and finalized by the provincial government according to the bidding result. National essential drugs should be available in all healthcare institutes and drug retailers but not necessarily 100 percent used, where the usage rate will be further ruled by the healthcare administration.

According to Mr Kitty Lu, Consulting Manager of Pharmaceuticals practice, Frost & Sullivan China, the healthcare reform will accelerate the centralization of the generic pharmaceutical market.

For generics, being listed as a national essential drug incurs the paradox of a lower price and higher sales. The price is expected to decrease by 20-25 percent, while the increase of sales is dependent on the execution of this policy, which Frost & Sullivan is optimistic about as it is one of the most important parts of this new health reform.

Under this assumption, generics with small sales if included in the essential drug list will have a little space to increase but will definitely decrease if not on the list, causing a dilemma for small generic suppliers. It is expected that 1/3 of the small generic suppliers who lack efficient distribution channels and high-quality products will be pushed out of the market in 3-5 years after the policy's execution. In contrast, the policy will largely boost the increase of products by large generic suppliers; make them stronger even with a lower price.

As a result, the market leaders become even stronger while the smaller players fall behind, accelerating the centralization of the generic pharmaceutical market.

In addition, it has been reported that the draft of "Regulation for Drug Price Administration" is completed and drugs of certain kind, such as patent drugs and first-generics, enjoy preferential policies of individual pricing. This means there is no price change or little change even if listed in the national essential drug list.

"The policy is not finalized but it is very likely to come true since it is highly consistent with the long-implementing policy of encouraging innovation." Mr Kitty concludes, "Such policy enables the listing of national essential drug with little or even no depreciation of patent and first generics which greatly benefits the drug supplier by a huge increase in sales volume. Drug innovation is thus expected to be promoted partly by the new policies for greater profit."