Implementing a basic drug system will change the pharmaceutical industry landscape

The "Draft for Comment" of the new medical reform plan has been released, sparking widespread public debate and prompting industry insiders to look for emerging business opportunities. Analysts suggest that the draft's clear guidelines on "point production," "centralized procurement," and "mandatory use" of essential medicines could favor large state-owned pharmaceutical companies, potentially leading to a major reshuffling of the industry. General medicine vaccines are expected to benefit from this reform. According to the World Health Organization (WHO), essential medicines are those that meet the priority health care needs of the population, ensuring they are effective, affordable, and accessible. China’s "Draft for Comment" aims to determine the types and quantities of essential drugs based on principles such as "prevention and control necessity, safety, effectiveness, reasonable pricing, ease of use, and equal emphasis on traditional Chinese and Western medicines." The core of the essential drug system lies in its actual use. To ensure that these medicines are widely used in clinical settings, the draft mandates that basic medical institutions—such as urban community health centers, township hospitals, and village clinics—must use essential medicines. Other medical facilities are also required to prioritize them and set usage ratios. A medical reform expert estimates that the proportion of essential drugs used in major urban hospitals could reach 40%. As of the end of 2006, there were nearly 300,000 registered medical institutions nationwide (excluding village clinics), including 19,000 hospitals, 23,000 community health service centers, and 206,000 health clinics, nursing stations, and other facilities. This highlights the vast potential for sales once a product is included in the essential drug list. An industry consultant noted that generic pharmaceutical companies, especially those producing traditional Chinese medicines, are likely to gain more benefits under the current selection criteria. “Essential medicines are typically generic, and about two-thirds of the current essential drug list consists of proprietary Chinese medicines,” the consultant said. While the proportion of Western medicines is unlikely to change significantly, the inclusion of certain public health vaccines in the essential drug list could open up new market opportunities. The draft also outlines methods for fixed-point production, centralized procurement, direct distribution, and unified pricing for essential medicines. An official from the price department mentioned that the prices of these medicines may be reduced, with at least the possibility of downward adjustments. The official explained that fixed-point production and centralized procurement would reduce costs, allowing companies to lower prices without sacrificing profits, as the government will ensure reasonable returns. Industry insiders believe that large state-owned enterprises may have more opportunities due to their scale and resources, while foreign firms with higher-priced products may struggle to compete. Private companies lacking size advantages may also find it difficult to win bids. A major point of contention within the industry is the supply and marketing model for essential medicines. Terms like "fixed-point production," "centralized procurement," and "direct delivery" have sparked both excitement and concern. Niu Zhenggan, deputy general manager of Jiuzhoutong Group, warned that this model might lead to administrative monopolies, creating inefficiencies and rent-seeking opportunities. Zhang Xiaolong, general manager of Wuhan Aimin Pharmaceutical Co., Ltd., believes the reform will reshape the entire pharmaceutical landscape, making large-scale mergers and acquisitions inevitable. He further explained that under the new system, pharmaceutical companies no longer need to invest in promotion or marketing, as the state will handle procurement and distribution. This shift could eliminate many small distributors and "medicine professionals" who rely on traditional channels. Only those with strong R&D capabilities, professional academic support, or extensive networks will survive. In the long run, pharmaceutical companies must either achieve large-scale efficiency, innovate technologically, or develop strong distribution networks. Those lacking in innovation, quality, cost efficiency, and promotional capabilities risk being left behind. As the reform progresses, the industry is expected to become more competitive and efficient, reshaping the future of China’s pharmaceutical sector.

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