Photographer: Xaume Olleros/Bloomberg

Drugs, China, And the Curious Case of Dragon Pharmacy Knock-Offs

  • Medicine access not meeting demand for China's epidemics
  • Lower prices & distrust drawing Chinese tourists to Hong Kong

The Dragon City Pharmacy has become a cult favorite for Chinese visitors to Hong Kong, selling everything from medicines to mascara. Even so, the owners of this mom-and-pop business were bewildered when copycat drug stores bearing its brand began popping up across the city.

The original Dragon City Pharmacy in Tsim Sha Tsui
The original Dragon City Pharmacy in Tsim Sha Tsui
Photographer: Xaume Olleros/Bloomberg

In recent years, outlets named after the 60-year-old store -- but with no affiliation -- have opened up alongside a slew of other tiny pharmacies in Hong Kong’s prime tourist districts, minutes away from the Louis Vuitton and Chanel stores that dot the town. Often decorated in rainbow neon lights, these smaller outlets advertise sales of tax-free medicines.

Their line-up includes muscle rubs, painkillers, aphrodisiacs and traditional Chinese medicine. But if you ask quietly, many will also sell you something else: cancer and hepatitis C drugs -- no prescription necessary.

For years, Hong Kong was known as the place where Chinese shoppers picked up the newest fashions from luxury retailers like Gucci and Prada. Now, prescription drugs are also an attraction.

Treatments such as Gilead Sciences Inc.’s Sovaldi for hepatitis C and Roche Holding AG’s breast-cancer treatment Herceptin are either unavailable or more expensive in China. Many visitors from the mainland also prefer to buy their medicines in Hong Kong because they believe it is likely to be better quality.

“Every time I’m here for one of my shopping trips someone or the other will ask me to bring them back some medicine. We all know Hong Kong has better-quality products,” a 52-year-old woman surnamed Chen said in the Tsim Sha Tsui tourist district, where she was stocking up on make-up and shampoo.

The most urgent item on her shopping list was the liver cancer medicine Nexavar, although she didn’t have a prescription. She planned to stroll around and ask for the drug made by Bayer AG in the dozens of drug stores in the area. Chen had bought similar medicines before and it was pretty easy, she said, holding a Rhinestone encrusted iPhone in one hand while packing a wheeled suitcase with her purchases. Also on her list: a Rolex watch.

Chinese shoppers like Chen are traveling across the border in search of cheaper drugs as changing lifestyles have put China in the grips of a cancer epidemic. The World Health Organization says that 3 million new cases are added each year. Estimates of China’s hepatitis C population range from 13 to 44 million: among the highest in the world.

Surging Prices

The cross-border trade in Hong Kong also highlights the problems facing China’s prescription drug market, which by the estimates of research firm Frost & Sullivan had total sales of 1 trillion yuan ($157 billion) last year. That is expected to double by 2019.

Even as regulators apply pressure to lower costs, mainland Chinese patients pay some of the highest prices for treatments worldwide. Drug supply chains are complex, and Frost & Sullivan consultant Neil Wang estimates there is a 5 to 7 percent mark-up at various levels of the distribution system that drives up prices. Also, taxes on imported medicines can add up to 17 percent in China, according to Wang, while Hong Kong doesn’t tax drug imports.

Most Chinese rely on government insurance, and that coverage is often not enough. While China has signaled it would like to reform its insurance laws, millions are still left scrambling for access to life-saving treatments. Meanwhile, a lengthy approval process for new drugs and their patents has stalled the entry of some of the newest blockbusters from overseas.

Neither Gilead’s Sovaldi nor AbbVie Inc.’s Viekira Pak -- two treatments that can cure hep C -- are approved for sale as yet in China, even though the companies have made registration applications. Both drugs are approved for sale in Hong Kong, which has a separate approval process. Calls to China’s health ministry and Food and Drug Administration weren’t answered.

Estimated number of new cases to reach 5.5 million by 2035
Estimated number of new cases to reach 5.5 million by 2035

How It Works

After a series of scandals around food safety, including milk tainted with melamine that caused deaths in 2008, many Chinese have greater trust in products bought overseas. So, even while Hong Kong retail sales have slumped, these pharmaceutical sales are helping some of the tiny stores in the tourist district stay afloat.

This is how it works: A customer goes in and asks for a certain drug -- perhaps with a photograph of the bottle. Store workers look up the treatment, call around, look at inventory and provide a quote. They ask for half or full payment. Many only take cash, while a few accept credit cards.

Bloomberg visited 40 pharmacies in Hong Kong and found several willing to dispense treatments such as Viekira Pak, Herceptin, Sovaldi, Bayer’s Nexavar for liver cancer, and Novartis AG’s Glivec for leukemia, without a prescription. Some quoted prices that were cheaper than those listed by pharmacies on the mainland; the charges for some treatments not available in China tracked those in the U.S. One pharmacy offered to sell Sovaldi for about $2,800, a fraction of the U.S. price of $84,000, which rendered the merchandise suspect.

A banner warning customers of copycat branches is displayed at the "original" Dragon City Pharmacy.
A banner warning customers of copycat branches is displayed at the "original" Dragon City Pharmacy.
Photographer: Xaume Olleros/Bloomberg

The real Dragon City Pharmacy says it will only provide drugs to those with a Hong Kong prescription. This was corroborated by customers who had just visited and asked for treatments.

The original Dragon City also says it has had complaints of customers mistakenly going to copycat branches and ending up paying too much. “All we have is our brand and we feel it’s being tarnished," said Kwong, Dragon City’s manager, who asked that only her last name be used. "But even if we complain, one after another keeps popping up."

The original Dragon pharmacy has signs outside its doors saying that it only has one branch.  

The Hong Kong government conducts routine inspections of pharmacies, and also buys and tests prescription drugs to fight illicit sales, the health department said in an e-mailed response to questions. From 2011 to 2014, the department conducted 4,775 inspections of pharmacies and convicted 67 for illegal sales of prescription medicines. In Hong Kong, the maximum penalty for illegal possession and sale of prescription medicines is a fine of HK$100,000 ($13,000) and two year’s imprisonment upon conviction, according to the health department.

Reputation

Hong Kong has long had a reputation for selling quality health products, and many stores doing legitimate business have flourished. Watsons, a retail pharmacy chain controlled by Hong Kong’s richest man Li Ka-shing, has over 200 stores in the city and continues to add more. “At Watsons, we only sell prescription drugs to customers or patients with doctor’s prescription and our registered pharmacists will check each case thoroughly," the company said via e-mail.

But there are others who don’t follow the same rules. On Aug. 13, Hong Kong’s Consumer Council, a government-funded body, cited seven outlets for their “disgraceful” practices, including charging exorbitant amounts for products, saying the stores hurt Hong Kong’s reputation as a “shopping paradise.”

Lagging Behind

William Chui, president of the city’s Society of Hospital Pharmacists of Hong Kong, estimates that 90 percent of cancer drug sales at Hong Kong drugstores are to mainland tourists, since most local patients can get their supply through hospitals or their doctors (in China and Hong Kong, physicians can dispense as well as prescribe medicines).

“How can they survive and pay the salary of a pharmacist and the rental cost?” said Chui, referring to the mom-and-pop stores opening up in some of the city’s high-priced neighborhoods. “You think they can get by just selling toilet rolls, formula milk powder,
shampoo? Of course not.”

Roche spokeswoman Nina Schwab-Hautzinger says its main customers in Hong Kong are the Hospital Authority and oncologists, though it monitors market demands and would alert authorities to any “unusual activity.” Novartis spokesman Dermot Doherty said in an e-mail that the company is “committed to preventing the diversion and counterfeiting of all our products to protect the safety of patients in all countries.” Oliver Renner, a Bayer spokesman, echoed the sentiments, adding: “We manufacture prescription drugs, ones that need to be prescribed by doctors.

AbbVie expects pharmacies to dispense Viekira Pak to patients only when presented with a doctor’s prescription, in accordance with Hong Kong regulations, spokeswoman Adelle Infante said in an e-mail. Gilead said its drug has been available for prescription in Hong Kong since July, primarily through gastrointestinal specialists and hepatologists, spokeswoman Sonia Choi said in an e-mail, adding it’s working to get access for patients in China.

On a smoggy Friday in Hong Kong, one mainland Chinese woman surnamed Li said she had just put a down payment on Herceptin for a cousin from the northern Hebei province. The drug was costing her HK$20,000 ($2,500), and she could pick it up the next day. The price they quoted her is about 30 percent lower than in some parts of China.

“When we found out she had cancer, I rescheduled my trip and came here earlier,” she said, standing on Nathan Road, Hong Kong’s version of New York’s Times Square. "This is life or death, so of course we will do all that it takes to get the best treatment."

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