China: There’s a New NRDL in Town
China’s Quest to Encourage Pharma Entry Continues
Since the Chinese government brought a deluge of reforms to their pharmaceutical sector in 2018, it is no surprise 2019 is shaping up to be another game-changing year. Following their previous efforts to incentivize manufacturers to enter the Chinese market (easing evidence standards and streamlining regulatory approval), China is now embarking on its most significant pharma reform to date: a revitalization of its National Reimbursed Drug List (NRDL).
Formerly, the NRDL was a rather opaque registry of all the products that were lucky enough to gain national reimbursement in China and was only expected to be updated every five years. Now, under significant public pressure for improvement on reimbursement, China will move to an annually adjusted NRDL list and more transparent process, creating huge new opportunities for innovative medicines. Medicines listed on China’s NRDL tend to enjoy much faster market growth than drugs that are not.
The Evolving NRDL in China
This year’s reform will build on the existing, smaller, expansions of the NRDL. The previous expansions have brought in new products in an ad-hoc fashion. In 2017, China added 36 premium-price drugs to the NRDL B-List (i.e., partial reimbursed with out of pocket 20-40%), mainly including innovative drugs with mid-range prices, drugs for catastrophic illnesses (e.g., cancers, hematological disorders, HIV), and pediatric medications. In 2018, partially due to the public outcry for lower oncology treatment costs, China carried out a special update, adding another 17 cancer drugs onto the NRDL B-List. Both of these expansions allowed Chinese payers to test the waters and accumulate negotiation experience before the State Medical Insurance Administration (SMIA) announced that they will now adjust the NRDL every year. However, the NRDL update will factor in the local medical insurance fund budget limitation.
The new update goes beyond simply updating the list, as it will now change how the list is updated. The NRDL will henceforth be updated annually, via a process outlined in a recent work plan from the SMIA in 2019, summarized in the graphic below:
Implications for Manufacturer Negotiations
This new workplan has several important implications for manufacturers going into NRDL negotiations:
- Minimal direct industry influence: Manufacturers are not allowed to apply for the NRDL listing. New products are instead identified via an expert nomination process; the process is subject to experts’ opinion (among ~300 key opinion leaders covering different disease areas) and voting results (random pick from a pool of ~25,000 local experts)
- Quick negotiation: Once a manufacturer has been informed that their product is being considered, there is very limited time to prepare for negotiation submission. Therefore, we have seen many companies start to prepare for their hopeful products already (e.g., strategic pricing discussions, negotiation tactic planning, preparing economic value dossier, etc.)
- High price discount: It is anticipated that the high price cuts seen in recent negotiation rounds will continue in 2019 (after an average of 44% price cut in 2017 and 57% price cut in 2018). Manufacturers need to consider their pricing strategy and know when to walk away
- High competition: Due to budget restraint, it is expected that in each indication, there may be a limited number of treatments which enter the negotiations, e.g., there are currently four PD-1/L1 inhibitor drugs approved in China, including two products by Chinese local manufacturers, but maybe only one or two brands will become winners
Products Likely Targeted for 2019 NRDL Inclusion
For the 2019 list expansion, the Chinese government has remained relatively tight-lipped about which products are being targeted for negotiations and inclusion. While they have offered some high-level insight into their prioritization, it is difficult to be more specific when compared to the general therapeutic areas. We know that priority will be given to pharmaceutical products treating catastrophic illnesses such as cancers and rare diseases, chronic illnesses like arthritis, chronic obstructive pulmonary disease (COPD), and diabetes, and also pediatric medications.
From this context, it seems likely that insulin, anaplastic lymphoma kinase (ALK), and glucagon-like peptide 1 (GLP-1) targeting products will be prioritized at the mechanism of action level. We also believe this may be the case for PDx products. Given there are several home-grown products as well as foreign products in contention, it is possible that the government will drive competition among manufacturers.
Strategic Considerations for pharmaceutical manufacturers
In light of these moves from the Chinese side, it is important that manufacturers develop a strategic response. It is helpful to consider both a near-term and long-term perspective to this challenge.
- Unfortunately, there is little that can be done before the 2019 negotiation invitations are out later this year. Manufacturers should survey their portfolios to identify any high-likelihood targets, considering both the analysis above and the prior expansions as signals of government policy
- For any likely negotiation targets, a pricing negotiation strategy should be developed. This will allow rapid response and clear pricing positions:
- Key points to align on early in the process are: discounts; establishing how significant of a discount is permissible, as well as when you would draw a line and walk away
- Proactively introducing minor price cuts, ahead of negotiations, could improve the likelihood of consideration for inclusion – several manufacturers have already adopted this approach for their hopeful assets
In the longer-term, manufacturers can improve their opportunity by pursuing a variety of relationship-building and negotiation-preparation activities:
- Key opinion leader advocacy: Given NRDL’s expert-driven nomination process, it will be crucial to map KOLs in the relevant disease space, leverage KOL advocacy, as well as establish positive relationships with providers across the country; educational partnerships will help increase brand awareness and real-world utilization
- Understanding selection criteria: When the NRDL committees are selecting products, each therapeutic area or class could have different criteria which will drive selection (pure price, unmet need, efficacy, etc.); tailoring the early access profile and activities to meet these criteria will boost potential selection in the ultimate NRDL access negotiations
- Empowering economic analysis: Chinese payers at both the regional and local levels are sharpening their Health Technology Assessment (HTA) capabilities, including cost-effectiveness and budget impact analyses. If manufacturers are unable to deliver the CHN-specific data necessary for these calculations, that will significantly hinder their ability to gain robust access as payers grow more sophisticated. Local evidence generation plans will be an important endeavour to power access in CHN.