How China Is Getting Drug Companies to Slash Prices

China has been overhauling its health-care system with the aim of providing broader access to quality drugs for its enormous population. The result: Drug prices are tumbling and the once-high profit margins of drugmakers, both local and foreign, are eroding. For manufacturers, the pressure is set to intensify as China hones its strategy of demanding mega-discounts in exchange for access to the world’s No. 2 pharmaceuticals market.

It has a two-pronged campaign. The first approach is to add top-of-the-line new treatments to its so-called National Reimbursement Drug List only if drugmakers agree to drop their prices. That’s a bitter pill to swallow for pharmaceutical companies that have spent billions of dollars developing treatments. New medicines developed by giants including Pfizer Inc. and AstraZeneca Plc as well as domestic biotech companies, treating everything from cancer to autoimmune diseases and dementia, have made it to the list in recent years. In 2021 it expanded again to add drugs for rare diseases developed by companies including Biogen Inc. -- but only when the companies agreed to more than halve the price charged in China, effectively making them among the cheapest anywhere.