China’s 4+7 drug procurement policy and its impact on the pharma industry

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procurement policy

It is estimated that China has around 10,000 pharmaceutical companies varying in size, strategy, and technology. Any disruption or impact to such a large industry could have repercussions globally.

The new drug procurement policy in China could lead to a “winner takes all” situation where many small generic pharma companies will struggle for survival. In such a scenario, companies in China will either consolidate or change their strategy to innovation, rather than making generic drugs. Perhaps they could do both. If companies in China start focusing on innovation, then that could have an impact on North America and Europe, geographies where most innovator drugs originate.

Therefore, it is important to follow any changes to China’s pharma industry, since the impact could be global. Certainly, 4+7 procurement policy will have significant on the pharma supply chain in China.

What is the programme?

The "4+7" programme is a procurement initiative of the Chinese government for the purchase of drugs for use in public medical and health institutions. It began as a pilot programme in 2018, covering four municipalities under the direct jurisdiction of the central government (Beijing, Shanghai, Tianjin, and Chongqing) and seven major cities (Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Xi'an, and Chengdu), providing a good geographic coverage in China.  Hence the name 4+7, but the programme has been subsequently extended to several other parts of China, including 25 provinces, each with roughly 25 cities on average. The programme was then further expanded to cover all public medical and healthcare institutions nationwide.

Objective of the programme

In the past decades, there has been strong public criticism over the high prices of drugs from public medical and healthcare institutions.

The aim of the programme is to significantly reduce the prices of drugs used in public medical and healthcare institutions without sacrificing the quality of the drug. The programme plans to do so by consolidating the demand and offering large volume tenders for pharma companies.  Pharma companies winning the tender will have significantly increased and stable demand/volume over a duration of a certain period and are expected to price lower without sacrificing the quality of the drug.

Scope of the programme


Suppliers participating/contesting for the bid in this programme are manufacturers of domestically made drugs, sole nationwide distributors of imported drugs in China, and market authorization holders (MAH) of drugs in China. All participants contesting in this programme should have a clean record of compliance in the past two years.


Not all products sold from the public medical and healthcare institutions are subject to this programme. Products subject to this mandatory government group procurement programme are based on “The List”, which - so far - contains 31 products based on their generic product names. Most of the products on “The List” are for treatment of chronic diseases. It is expected that the agency will update/add to “The List” over time. While the programme’s intention is drive down the cost, it also seeks to maintain/improve the quality of the drugs. Generic products will be expected to have the same quality and performance as the Reference Listed Drug (RLD).


The “4+7” programme aims to procure and supply between 60-70% volume of the products on “The List”.

How does the programme work?

The programme is a bidding process. Companies participating in the programme are competing based on the price of the drug. The process of the programme can be broken down into four steps

I. Bidding
The process for bidding is straightforward

II. Provisional selection
The provisional selection procedure involves the following rules:

  • If only one supplier bids for a specific listed drug, they are automatically provisionally selected.
  • If two or more suppliers apply for a specific listed drug, the supplier with the lowest bidding price is provisionally selected, and the supplier with the second lowest bidding price becomes the backup candidate.
  • If two or more suppliers offer the same lowest bidding price for a specific listed drug, the decision will consider the history of sales both inside and outside of the "4+7" programme to make the final selection.

III. Confirmation of selection
The rules for “confirmation of selection” are as follows:

  • If there are three or more qualified businesses bidding for the same listed drug, the business winning in the provisional selection process is “confirmed” to be the selected supplier.
  • If there are two or less qualified businesses bidding for the same listed drug, a further price negotiation process is triggered, in which the business offered most price reduction will be confirmed to the selected supplier. If the provisionally selected business(es) denies the price reduction negotiation or its result, the bidding for the listed drug will be considered void.

II. Award contract
The confirmed suppliers will then be awarded with procurement contracts. The contracts will be valid for 12 to 36 months, primarily based on the level of competitiveness indicated by the number of the finally selected suppliers. The finally selected suppliers may also be arranged to divide their market geographically.

Impact of the “4+7” procurement policy

Significant price reduction of drugs:

The "4+7" programme has been widely acknowledged as a success with significant business and social impact. Firstly, it has led to a considerable reduction in the procurement and retail prices of drugs, with prices of drugs such as Entecavir Dispersible Tablets decreasing by 90% and Irbesartan Tablets by 60%. The programme is also highly regarded for its direct and visible benefits to patients. Its early success prompted its expansion from "4+7" cities to nationwide implementation within two years. While public medical and healthcare institutions are obligated to participate, private drug stores and medical institutions can choose to join voluntarily to avail themselves of the procurement price set in the programme. The number of drugs under the purview of this programme is also expected to increase in the future.

Pressure to reduce cost/price on the suppliers:

The pharmaceutical industry faces a challenging decision when it comes to the "4+7" programme, as it may require a trade-off between a guaranteed market volume and a reduced price. This impact can be felt upstream to suppliers and even to finished drug manufacturers who participate in the programme. Additionally, declining to join or remain in the programme may negatively affect a business's future chances of re-joining, especially if they lose their previous market share in the region. For multinational pharmaceutical companies, the impact is twofold. Initially, many were hesitant to participate in the programme due to their limited ability to demonstrate their advantages in generic drugs and their lower tolerance for price reduction. However, as the promised market share became more attractive, more MNCs joined the programme, with only two participating in the pilot-run stage and seven in the recent round, including new addition Bayer AG.

Concern of supply chain reliability:

The early version of the "4+7" programm faced a potential issue with supply chain reliability, as a confirmed supplier's inability to meet the committed drug volume could result in a healthcare crisis. The updated programme addresses this issue by allowing multiple suppliers to be selected, with their markets divided by geography. However, this may give rise to another issue of geographical price inconsistency for the same drug. For example, the nationwide selection of three ZYTIGA suppliers shows price variations ranging from RMB2800 to RMB4296, which may lead to inevitable geographical price variations to some extent. It remains to be seen how this issue will develop and be resolved.

Rajendran (Raj) Arunagiri
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Rajendran (Raj) Arunagiri
19 May, 2023