The phrase that strikes the most fear into most farmers hearts in China is Volume Based Procurement or VBP. That is a scheme where the government pits the originators as well as all of the generics into a volume based price bidding system for committed volumes within the public hospitals. This BBP is unlikely to go away. It is working right.
It has reduced the cost to procure these drugs each time you know, the government announces the savings with a discount of 50% plus on average for a drug. Since the the launch of the pilot program in 2018, the government has saved over $60 billion in the drugs cost. And this is just from the reimbursed portion that the government pays and let along all the the patient savings from the out of pocket that they don't have to spend. About 80% of this actually goes to innovative drug funding, which is what the government would like to do, keeping the total portfolio cost the same and shifting more of the resources into the innovative drugs.
So you can't really fault the government to drive very hard on the generic product prices or or drugs that has been generic sized and the product crisis for the benefit of the patients as a whole. Collectively there has been significantly more coverage on both generics as well as the innovative drugs for the patients. So what should a brand do when faced with the situation you have built up perhaps decades of brand equity in your product brand, in your company brand and do you just give up now and then see what happens or do you take the price hit and even then right at a significantly lower volume than perhaps what you had enjoyed before.
So the, the areas that we will consider for this include your brand equity, your positioning within the market, where the product is in its life cycle, to what extent this is supportive of your life cycle management or your entire therapeutic area as well as a number of other factors in the decision. Either case, whether you stay in or if you step out, the market price has dropped. So what do you do in that circumstance with the lower price and the lower margins and and lower volume, right? Because that's not really going to recover.
You will have to change your go to market strategies. So the commercialization model can become more of a partnering, shrinking your own sales force, leveraging others. It can be moving towards more retail and e-commerce. If you're more primary care product, it could be way different focus in terms of hospitals and and physicians, whether that's primary care or specialty care and a number of other approaches.
So can you expect the product and the revenue to fully recover? That's highly unlike. That said, we have seen a large number of examples around how companies manage this and can get through still with a reasonable business intact, particularly if this is part of a broader portfolio you're managing in China. Either way, preparing your playbook is absolutely relevant and very important.
That's before volume based procurement, the actual act of the volume based procurement, as well as the execution afterwards.
