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Psst – Hey buddy, wanna buy some cheap Sovaldi?

20 October 2015 Sophie Cairns

As is widely known, Gilead Sciences' hepatitis C cure Sovaldi sells for USD84,000 for a 12-week treatment course in the United States. But if that's beyond your budget, you can also pick it up in Hong Kong for USD2,800.

In Hong Kong's flourishing black market, costly branded drugs can be bought at a fraction of their market price, according to Bloomberg. Some of the city's less-monitored pharmacies - even tiny, mom n' pop-style affairs - are flogging drugs not yet approved 'upstairs', or which are proving unaffordable to Chinese citizens. Overall though, this flourishing black market reflects one main issue: China's healthcare reforms which should speed up pharmaceutical market access are moving too slowly for its citizens.

Despite promises to cut its infamous red tape and bring down drug prices, foreign drugmakers still wait as long as 7 years or more for regulatory approval and patients are still faced with unaffordable bills. Apart from Sovaldi, Roche's breast cancer drug Herceptin, liver cancer medicine Nexavar and Novartis' leukaemia drug Glivec were available for sale - without a prescription - among the 40 pharmacies visited by Bloomberg reporters. Lack of affordability is a driving factor - the state insurance for most Chinese citizens rarely covers innovative, newer treatments.

Another point highlighted by this development is the disappearance of cheaper but essential drugs from hospital formularies, a consequence of China's drug pricing reforms. Once companies have won a bid for a drug sales license - typically by offering the lowest price, which often leads to cut corners - they take advantage of their greater market share by reducing production of cheaper drugs to focus on more expensive ones, leading to supply shortages.

There's another reason Chinese citizens are flocking to Hong Kong. Thanks to the city's separate legal status and regulatory framework, food and products are more carefully regulated than on the mainland. This is why Chinese patients believe that Hong Kong's cut-price drugs - even back alley, black-market, potentially counterfeit drugs - will be safer than their counterparts at home. China has been home to several high-profile food safety scandals. In 2008, melamine-tainted milk sickened some 300,000 babies and killed dozens in China, causing people to flock to Hong Kong for clean supplies. As one woman put it while hunting for cancer drug Herceptin in Hong Kong: "This is life or death, so of course we will do all that it takes to get the best treatment."

So what does this mean for the pharmaceutical industry?
On the regulatory side, it is debatable how much influence industry associations have in spurring faster healthcare reform. Industry groups like PhRMAand R&D-Based Pharmaceutical Association Committee (RDPAC) have been vocal in their criticism of China's time-consuming and complicated regulatory approval process. However, when China did bring out new rules on clinical trials in late 2014, drugmakers pointed out that the new regulations would actually add another two years to the cumbersome process.

Further, there probably isn't much the pharmaceutical sector can do in practice about illicit cross-border trade such as Hong Kong's black market. Like the trade in counterfeit drugs, the black market is essentially a crime issue, which despite regular inspections by local authorities has flourished. At the same time, soaring rates of cancer and other non-communicable diseases in China mean demand for specialty medicines will only increase. China now accounts for 25% of all cancer deaths worldwide, according to the World Health Organization (WHO), with the disease claiming around 2.2 million lives there every year. And meanwhile, small-scale pharmacies need to make a living, says William Chui, president of Hong Kong's Society of Hospital Pharmacists. "You think they can get by just selling toilet rolls, formula milk powder, shampoo? Of course not."

Sophie Cairns is a senior life sciences analyst for IHS
Posted 20 October 2015

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