China Relaxes Price Caps for Low-Cost Drugs

China’s top economic planning agency has relaxed mandatory retail price caps for a list of low-cost drugs in a move to encourage more manufacturers to produce the commonly used medicines and prevent supply shortages.

Price limits for 283 Western drugs such as the antibiotic amoxicillin, and 250 types of traditional Chinese medicines will be partially eased effective immediately, the National Development and Reform Commission announced on its website today.

China has imposed price controls on most medicines through caps and other methods such as state-run tenders as it seeks to contain health-care costs. Easing the guidelines will allow retailers such as Shanghai Pharmaceuticals Holding Co. (2607) and Tong Ren Tang Technologies Co. (1666) to raise some prices, said Johnson Sun, an analyst at Guotai Junan Securities in Hong Kong.

“Tong Ren Tang especially could double some product prices as they’re a well-known and trusted brand in China, and as their products on the mainland currently sell for about half that in Hong Kong due to the government’s price caps,” Sun said in a telephone interview.

Shares of Tong Ren Tang rose 0.2 percent to HK$21.90, while Shanghai Pharma lost 0.7 percent to HK$13.66 in Hong Kong trading. The Hong Kong Hang Seng Index was up 0.4 percent.

Stock Shortages

The relaxed guidelines will apply to Western drugs with a daily cost to patients of not more than 3 yuan ($0.48) and traditional Chinese drugs that don’t exceed 5 yuan, according to today’s announcement. The National Development and Reform Commission will reimpose retail price caps for any drugs that exceed those daily cost limits, it added.

The National Health and Family Planning Commission first announced the plan last month, which it said will prevent depletions of important drug stocks. The health agency will also refine the country’s system of medicines reserves to prevent shortages, it said.

To contact Bloomberg News staff for this story: Daryl Loo in Beijing at dloo7@bloomberg.net

To contact the editors responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net Gregory Turk

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