Taking P drug and oseltamivir as an example, let's talk about the logic of national talk and national procurement 'mixed double killing'

National procurement and national talks are important grasps of the National Health Insurance Administration as a super VIP, grasping innovation with the left hand and imitation with the right hand.

Accelerate the entry of innovative drugs into the catalog through medical insurance negotiations to address unmet clinical needs; Obtain more generic drugs with improved quality through volume procurement to ensure the market coverage of essential drugs.

The simultaneous efforts of national procurement and national talks have achieved the effective supply of medicines.

In the 2022 national health insurance negotiations, Pfizer's Paxlovid finally flowed, and a thousand waves were stirred up with one stone.

In 2023, in the eighth batch of national organization drug centralized procurement variety reporting catalog, large varieties of oseltamivir dry suspension will usher in a "soul quotation".

What is the game logic behind the "mixed double killing" staged before and after this wave of years?

The economic logic of national talk and national procurement

The overall goal of national talks and national procurement is to reduce drug prices to benefit more patients, and they are both chips of "price for volume" and "volume and price linkage".

The difference between the two is that the success of the national negotiation means that the drugs can enter the medical insurance catalogue and be paid by the medical insurance fund, but the purchase volume has not been determined, and the selected enterprises still have to achieve sales through the promotion of the commercialization team; The success of national procurement means directly determining sales.

From an economic point of view, "price for volume" can be explained by demand elasticity, which indicates the degree to which changes in demand for a commodity respond to changes in the price of that commodity over a certain period of time.

The price elasticity of demand can be divided into completely inelastic, inelastic, unit elastic, elastic and infinitely elastic.

The two special cases of infinite elasticity and unit elasticity are generally uncommon.

Completely inelastic means that the demand is constant regardless of the price change, for example, for diabetics, insulin is necessary to maintain life, regardless of the price change, the overall demand does not change much.

Elasticity and inelasticity are more common, the degree of elastic demand change is greater than the degree of price change, and the degree of inelasticity change of market demand is less than the degree of price change.

For innovative drugs, most of them are elastic products, which can be "small profits but quick turnover" to a certain extent.

That is, when the price of these innovative drug products decreases, the demand (sales volume) increases more than the price decreases, so the total sales increase. But for products with different demand elastic coefficients, its "thin profit" has boundaries.

Taking Pfizer's Paxlovid as an example, considering the current continuous ravages of the new crown epidemic, it is difficult to find a "special drug", and its demand elasticity coefficient will be relatively high.

We take the demand elasticity coefficient of 2 as the model parameter, and assume that when 5,000 yuan per treatment course, the total demand is 100 million courses to make a brief model calculation, and the simulation results are shown in Table 1.

Table 1 Estimation and simulation of Paxlovid demand elasticity model

It can be seen that when the price gradually declines, the demand is increasing rapidly, which drives the increase in total sales.

However, when the price per treatment fell below 2,000 yuan, the demand continued to rise rapidly, but the total sales remained basically unchanged.

This reflects that at this time, the increase in demand only barely offset the decline in prices.

Further, assuming that the overall cost of Paxlovid is 400 yuan / treatment, the corresponding total profit can be calculated.

It can be seen that when the unit price is more than 2000 yuan / treatment, the price reduction not only drives the total sales increase, but also drives the total profit, but when the price is below 2000 yuan / treatment, the total profit is declining.

Because the cost of innovative drugs has been scaled up, the overall level has basically remained unchanged.

However, the rapid shrinkage of profit margins after the decline in unit price is still not enough to offset after the increase in sales volume, thus showing a decrease in total profit.

Therefore, it is not difficult to understand why Pfizer's Paxlovid is unwilling to reduce prices in the 2022 medical insurance negotiations, basically maintaining it at about 2,000 yuan / course of treatment.

Because after the sharp price reduction, although "price for volume" can be realized, it has not achieved an increase in total sales and total profit.

For the company's performance, sales and profit are the "hard currency" in the report, and Pfizer's choice is self-evident.

For other innovative drugs, if the elasticity coefficient of demand is not so high, that is, there are some alternatives, such as some anticancer drugs, then the measurement of elasticity models can show greater room for price reduction.

For generic drugs, most of them are basic drugs and conventional drugs, which are inelastic products, and the path at this time should be "thick profits and less sales".

Similarly, we take oseltamivir, an anti-influenza miracle drug, as an example to make a demand elasticity model measurement.

As an anti-influenza miracle drug, oseltamivir has maintained strong demand all year round, and the number of domestic declared manufacturers is close to 80, which is a fully competitive product in the market, so it is assumed that the demand elasticity coefficient is 0.5.

From the model calculation, it can be seen that the price is falling, and the demand is continuing to increase, but the increase is not as large as the price reduction.

The increase in sales was not enough to offset the price cuts, resulting in a sluggish total sales performance.

Assuming that the cost of oseltamivir per piece / capsule is 0.3 yuan, the calculated total profit basically resonates at the same frequency as the total sales, and sales and profit decline together.

But if you do not participate in the procurement of volumes, I am afraid that the market will not be gone, which is a typical dilemma.

For the purchaser, because it has the right to determine the purchase volume and pricing, this is in line with the expectation of medical insurance control costs, so the normalization of volume procurement has the motivation to implement.

The eighth batch of national procurement is coming soon, oseltamivir dry suspension has 2 specifications into the eighth batch of national procurement catalog, it is expected that 7 companies will compete, will continue to test the company's quotation strategy.

Participating in volume procurement in a short period of time is to generate cash flow, but to truly enjoy the dividends of the policy, we must understand the policy and business logic of "price for volume".

brief summary

Every year, medical insurance negotiations for innovative drugs and new indications continue to improve the accessibility of new drugs and promote the penetration rate.

The annual procurement of generic drugs continuously improves the market coverage of basic drugs and solves the problem of expensive drugs.

But every negotiation, every price cut, will be a moment that hits people's hearts.

In the face of the slowdown in economic growth and the urgent need for medical insurance funds to improve quality and efficiency, the two grasps of national talks and national procurement are expected to become tighter and tighter.

As the largest and single payer in the pharmaceutical industry, the strategic purchase of medical insurance promotes the supply-side reform of the pharmaceutical industry, and the development of the industry is oriented to "high-quality development, intensive cultivation and value orientation".

In the future, multiple policies such as medical insurance negotiation, payment methods, review and approval, volume procurement and commercial insurance will profoundly affect the development of the pharmaceutical industry during the 14th Five-Year Plan period, and also bring many opportunities for enterprises.

Which companies and products can seize strategic opportunities and stand out? We look forward to it together.