Imported drugs are getting cheaper, while locally developed innovative medicines find themselves in an awkward situation.

Recently, a report titled "Why Has This Major Innovative Drug—Which Could Significantly Lower Prices for Imported Medicines—Still Not Been Included in National Reimbursement Programs Nine Years After Its Launch?" sparked strong reactions within the industry.

With the reforms in new drug approval processes and the ongoing advancement of generic drug consistency evaluations, Chinese pharmaceutical companies are growing increasingly enthusiastic about developing innovative medicines. However, for domestically developed innovative drugs, market performance remains a mixed bag—some thrive, while others struggle. For instance, China’s first Class 1.1 fluoroquinolone antibacterial agent—a drug with independent intellectual property rights—has failed to secure inclusion in the national medical insurance catalog or the essential drug lists of public healthcare institutions in most regions, despite being on the market for nearly nine years. Similarly, another pioneering small-molecule targeted anticancer drug called "Erlotinib," which also boasts entirely indigenous intellectual property rights, was eventually added to the 2017 edition of the national medical insurance list. Yet, due to constraints imposed by certain provinces’ pharmaceutical procurement cycles and bidding requirements, it has still faced significant challenges in gaining access to many hospital purchasing lists. On the other hand, some domestically produced innovative drugs have managed to achieve double-digit—or even five-figure—sales growth after being included in the national health insurance system.

It’s actually no surprise to see this kind of polarized phenomenon. Drawing from the experiences of mature pharmaceutical markets like Europe and North America, we find that while some groundbreaking new drugs become blockbuster products with sales exceeding $10 billion within just one year of launch, others—despite their innovative potential—eventually fade away entirely after a few years on the market.

Whether innovative breakthroughs can be translated into commercial value ultimately depends on the market. More importantly, doctors' clinical needs also determine whether a new drug will remain in development—or be discontinued altogether. Meanwhile, healthcare insurance authorities will assess whether an innovative drug should be included in their coverage, based on HTA studies as well as the affordability of the insurance system.

Therefore, for domestic innovative pharmaceutical companies, going public doesn’t necessarily mean success—often, they fail to deliver on their market value as well. As a new round of healthcare insurance negotiations approaches, now is the perfect time for us to take a look back at what exactly happened when domestically developed innovative drugs were included in the national health insurance formulary through these negotiations.

Imported drugs are getting cheaper, while locally developed innovative medicines find themselves in an awkward situation.

Domestic innovative drugs are compared with imported innovative medicines. In March 2016, the National Medical Products Administration (NMPA) formulated a reform plan for the classification of chemical drug registrations, defining Class 1 drugs—innovative medicines that have not been marketed either domestically or internationally—as those containing novel compounds with clearly defined structures and pharmacological activity, and which demonstrate clinical value. Meanwhile, most of the domestically developed innovative drugs launched prior to this reform were not entirely original; instead, they represented, to varying degrees, "Me-too" or "Me-better" developments—or, more accurately, a blend of innovation and imitation.

The patent is obtained by structurally modifying compounds that have already been shown to be active against validated targets. Most of the time, the biggest advantage of China's indigenous innovative pharmaceutical companies lies in pricing. Adopting the aforementioned R&D approach can help these companies largely offset their limitations in R&D capabilities, thereby reducing the risk of development failures and avoiding the uncertainty associated with entirely novel drugs—uncertainty that could otherwise prevent companies from securing predictable returns.

While a new drug's commercial success depends on a variety of internal and external factors, gaining access to national health insurance—and subsequently adopting a strategy that trades price for volume after being included in the coverage—are crucial factors in achieving that success. Since the implementation of national health insurance negotiations, the real test of whether locally developed innovative drugs can win widespread acceptance from both doctors and patients has arrived: when the price gap between domestically produced and imported innovative medicines narrows significantly due to reimbursement policies. After these negotiations, as imported innovative drugs see substantial price reductions, the cost advantage of domestically made alternatives will inevitably diminish.

In this showdown, the most striking example is Kemina, developed by Beta Pharma, and Iressa, created by AstraZeneca. After both drugs were included in medical insurance reimbursement programs, patients no longer end up spending significantly more on the imported medication compared to the domestically produced one. For instance, patients using the imported drug would pay around 10,000 yuan out-of-pocket annually, while those opting for the domestic version would spend roughly 6,000 yuan per year—making the price advantage less pronounced than when patients bear the full cost themselves.

In July 2018, Betta Pharmaceuticals further reduced the provincial online listing prices for the 21-tablet pack of Kemina, adjusting it from 1,399 yuan per box to 1,345.05 yuan per box. A combination of factors—including policy support, hospital access, and the broader market environment—has created an awkward situation for domestically developed innovative drugs.

Me too has no advantage, but Me better looks brighter financially.

Taking two domestically produced innovative drugs with strong sales as examples—Weichuan Biology’s Epuxa (cediranib) and Hengrui’s Aitan (apatinib—neither can be considered "globally new" or absolutely original in their respective disease areas, but they are quintessential "Me better" products."

Apevo is the world’s first subtype-selective histone deacetylase inhibitor, and precisely because of this, it boasts a uniquely powerful anti-tumor mechanism—such as activating patients' immune responses against tumor cells. Globally, only three companies produce similar drugs; two of them are based in the U.S., with monthly treatment costs reaching RMB 280,000 and RMB 140,000, respectively. In contrast, Apevo costs just over RMB 20,000 per month. Additionally, Apevo is administered orally—making it more convenient for patients—whereas the comparable drugs abroad are delivered via intravenous injection.

Hengrui's Aitan is the world's first small-molecule targeted drug for gastric cancer, as well as the globe's first oral anti-angiogenic therapy specifically designed for advanced gastric cancer. It is also the only standard third-line treatment option for patients with advanced gastric cancer, and its convenient oral administration highlights the advantages of this delivery method. Studies have shown that, from the perspective of health insurance payers, Aitan offers significant economic benefits compared to other competing products.

Some experts believe that, with the accelerated approval of new drugs, the lifecycle of many innovative, specialty, and targeted medications will become increasingly shorter, leading to even fiercer competition. A first-generation product may not even stay in hospitals for three or four years before its second-generation counterpart hits the market—while the third generation is already nearing successful development. As a result, patients and healthcare professionals are becoming more discerning; in the field of innovative drugs, if a treatment delivers the best possible outcomes, there’s often little need for alternatives with slightly lesser efficacy.

From a corporate perspective, entering the healthcare market comes with significant hurdles, making it extremely challenging for R&D companies to ensure that their painstakingly developed innovative drugs can promptly meet clinical needs—often resulting in new medicines quickly becoming outdated or even obsolete. At the same time, the difficulty of gaining market access severely dampens the innovation enthusiasm of these companies. While the patent protection period for innovative drugs is only 20 years, the entire process—from research and development to approval—typically consumes 12 to 15 years. Coupled with the prolonged and arduous journey to secure market entry, by the time a company finally starts reaping profits, its patent protection is already nearing expiration. These realities profoundly constrain companies' ability and motivation to sustain continuous innovation. Moreover, pharmaceutical firms must carefully consider how to convince physicians to embrace innovative new drugs—both during the product development phase and after launch. For local pharmaceutical companies that have long relied on generic drug sales, this represents a fresh and critical challenge they now need to address.

The marketing process also needs innovation.

In the pharmaceutical industry, even most major multinational giants often see only a handful of their new drugs become blockbuster products—drugs that not only recoup R&D investments but also deliver substantial profits. For local pharmaceutical companies, once they venture into the realm of innovative medicines, relying on the same sales strategies used for generic drugs and continuing to depend on agents to promote these cutting-edge therapies is likely unsustainable if they hope to achieve truly exceptional market success. Both in practice and theory, agents are primarily driven by profit motives, focusing more on price margins and ease of promotion while weighing short-term gains against potential challenges. Ultimately, depending entirely on agents could inadvertently set the stage for failure in successfully launching and scaling innovative drugs.

Within their limited lifecycles, the reality that "a good product doesn't automatically guarantee strong sales" has become a major challenge for many local pharmaceutical companies. Access and academic engagement are the most critical pillars in marketing innovative drugs—innovation-driven firms must think outside the box, leveraging academic promotion and visibility to secure a commanding position in the academic arena. Yet at the same time, innovators face another significant hurdle: the initial costs of promoting these cutting-edge therapies can be extraordinarily high, and the ramp-up in drug sales may not happen as quickly as expected. As a result, pharmaceutical companies will inevitably endure prolonged periods of financial loss during this process. To navigate this challenging phase, firms must proactively build their own dedicated sales teams and prepare for long-term, strategically managed loss-making initiatives aimed at establishing a robust market presence.