Refer China: Why are brand-name drugs exiting the China market?

While widely misinterpreted as a mass exodus of imported drugs, the reality of the recent shift is more nuanced.

On October 15, 2025, China's National Medical Products Administration (NMPA) announced the cancellation of 80 drug registration certificates, including well-known products such as loratadine tablets. Notably, many of these were long-established medicines from foreign pharmaceutical companies. This raised some important questions: Why are foreign firms choosing to pull so many long-standing products from the market? And which domestic companies might benefit from their exit?

This change comes at a time when China's pharmaceutical industry is being closely watched, as the country transitions from a huge pharma market to a global pharma innovation hub. China's Volume-Based Procurement (VBP) policy has played an important role in reducing costs for patients and encouraging innovation across the industry. Yet these recent cancellations also prompt a further reflection: What untapped potential still lies within China's generic drug market and its procurement system?

In this article, Professor of Marketing at CEIBS and Director of the CEIBS Healthcare Sector Research Centre Dongsheng Zhou, together with CEIBS Research Fellow Liyang Ruan, offer their insights into these questions and more.

Zhou, Dongsheng

Professor of Marketing, CEIBS

Director of CEIBS Healthcare Sector Research Centre

Ruan, Liyang

Research Fellow of CEIBS Healthcare Sector Research Centre

The Purpose and Impact of VBP

The recent deregistration of 80 drugs has been widely misinterpreted as a mass exodus of imported drugs. The reality is more nuanced. Most of these cases involve older drugs that have already been pulled from markets abroad, generic medicines facing fierce market competition, or underperforming copy-cat products. True shortages — where patients would have no alternative treatment — are extremely rare. In other words, this isn't a mass exodus of brand-name drugs, but rather a normal market-driven process of weeding out less competitive products.

In recent years, as China's national Volume-Based Procurement (VPB) has become routine, there have been occasional reports of certain patent-expired originator drugs disappearing from public hospitals after failing to win procurement bids. In some cases, these drugs have even left the Chinese market entirely. Such stories are often framed as China's VBP causing shortages of high-quality brand-name drugs, which raises public concerns about drug quality.

However, this view only tells part of the story. The absence of originator drugs from mainstream hospitals isn't just a result of forced supply cuts under VBP pressure. Instead, it reflects a broader structural change in China's pharmaceutical industry which is being driven by government policy.

Some argue that because brand-name drugs require huge R&D investments, low prices under VBP are unfair to their manufacturers. In fact, these drugs have enjoyed years of patent protection, during which they have largely earned substantial profits; gross margins were already relatively high, typically ranging from 60% to 90% or even higher before entering VBP. After patents expire, many of these drugs still command premium prices, despite facing a crowded market of generics, and the cost is often covered by national health insurance.

This model clearly has issues. Like any product, drugs have a lifecycle. Once their patents expire, generics typically take their place. At the same time, payers use strategic procurement to manage costs, ensuring that public insurance remains sustainable while patients continue to have access to medicines. This approach is standard practice in mature healthcare systems around the world and is not unique to China. For example:

In Germany and the Netherlands, reference pricing ties reimbursement to the lowest market price after patent expiry. Patients must pay the out-of-pocket difference if the manufacturer refuses to lower its price.
In the US, pharmacy benefit managers (PBMs) negotiate rebates for brand-name drugs post-patent, with generics substituted if agreements fail.

The goal of VBP isn't just about "pressuring prices." It's part of a broader strategy of structural optimisation. For generics to take part in VBP, they must pass the Generic Drug Consistency Evaluation. This regulatory check ensures that selected generics are bioequivalent to their counterparts, aiming to replace brand-name drugs with high-quality generics, rather than cheap, low-quality substitutes.

The billions of yuan saved through VBP are strategically used in two key areas. First, they help fund innovative drugs. Through national health insurance negotiations for National Reimbursement Drug List (NRDL) inclusion, many clinically valuable but expensive medicines are added to the reimbursement system, making them more accessible to patients. Second, the savings allow for higher pricing of medical services, boosting healthcare professionals' pay and ensuring that the value of their work is properly recognised.

VBP has had a deep impact on China's pharmaceutical industry beyond controlling costs and clearing the market for new arrivals. For years, the sector has struggled with structural weaknesses, with many players but few that are truly strong or specialised. China has nearly 10,000 large pharmaceutical companies, not to mention countless smaller regional manufacturers. By comparison, the United States has around 5,000 pharmaceutical firms in total, of which just over 2,000 produce branded drugs. This means China's industry is much larger in number but far less concentrated than mature markets like the US. About 95% of China's drug registrations are for generics, with dozens, sometimes hundreds, of companies producing the same product, resulting in widely varying quality. In contrast, in the US, innovative drugs dominate the market, accounting for over 70% of total sales (compared with less than 30% in China), while generics are controlled by a handful of giants, creating a highly concentrated industry.

Moreover, China's pharmaceutical manufacturing sector has long faced issues such as overcapacity, intense homogeneous competition, and high selling costs. VBP has therefore become a key tool for driving supply-side reform and speeding up industry consolidation.

By breaking an old model dominated by kickback-driven sales, VBP has shifted competition back to cost control and quality. Companies that focus on product quality, efficiency, cost, and compliance are rewarded with stable, long-term orders. At the same time, by pushing generic drug prices close to production costs, VBP leaves little room for kickbacks and forces smaller, less efficient, low-tech firms to exit the market. For stronger companies, this shift is a reminder to think long term. Instead of staying in low-value, low-differentiation competitions, they are working to improve production efficiency and investing more resources into innovation and higher-end manufacturing, such as complex generics, modified new drugs, and innovative medicines. This process acts like a form of natural selection in China's pharmaceutical industry, accelerating both innovation and upgrading.

How Multinational Companies Are Adapting

As VBP becomes the norm in China, it's no surprise that some patent-expired originator drugs choose to withdraw after losing bids. For pharmaceutical companies, this is simply a strategic option. Every firm must respond to shifting market conditions, and long-term survival and growth depend on innovation and the value they can create. Behind these "exits" triggered by VBP and other healthcare reforms lies a more meaningful shift: multinational pharmaceutical companies are systematically rethinking their strategies in China.

In terms of strategic positioning, China is no longer just a sales-driven market where companies profit from patent-expired products. Instead, it is transforming into a global hub for innovation and collaboration.

In practice, some multinationals have chosen to step back from VBP and public hospitals. Their decisions are often tied to concerns such as protecting global pricing systems, maintaining brand image, or covering costs. Relying on the strong brand trust they have built among patients over the years, these companies have shifted their focus to off-hospital channels like retail pharmacies, online drug platforms, and high-end private medical institutions. In these settings, they can continue serving self-paying patients who are less sensitive to price and more loyal to established brands, even at higher price points.

A small number of brand-name drugs have, on the other hand, exited the Chinese market entirely. Some of these products were already withdrawn overseas or had safety issues, while others simply lost their competitiveness. As mature products become less central to their business, some multinationals have spun them off into separate companies, or sold or licensed them to domestic manufacturers. This allows them to free up resources and concentrate on high-growth, high-barrier, innovative medicines.

In recent years, many multinationals have moved China up their global agenda for R&D and product launches, with some even choosing China for the global debut of innovative medicines. Once these innovative drugs enter the market, companies move quickly to participate in NRDL negotiations by lowering prices, rather than waiting several years as they often did in the past. They also work with commercial insurers and charitable foundations to pilot new payment models that reduce out-of-pocket costs and improve patients' access to innovative medicines.

At the same time, as Chinese pharmaceutical companies become stronger, multinationals increasingly see China as a major source of innovation. Many are continuously licensing in Chinese-developed drug pipelines, taking advantage of the country's high efficiency and the lower R&D costs of domestic firms to enrich their global product portfolios.

In 2024, China recorded close to 100 overseas license-out deals (i.e., Chinese pharmaceutical companies licensing the rights of innovative drugs to overseas firms) for innovative drugs, with a total transaction value of about USD 50 billion. The pace only accelerated in 2025 — in the first quarter alone, more than 40 deals were completed, worth over USD 35 billion. Collaboration models are also evolving. Many multinationals are no longer satisfied with simply licensing Chinese innovative drugs for global development and sales. Increasingly, they are building innovation ecosystems and R&D collaboration platforms within China. Through investments and equity participation, they incubate and support domestic innovative drug companies. These initiatives have driven the development of China's pharmaceutical sector and further deepened the localisation of multinational drug companies in the country.

Opportunities and Challenges in China's Generics and VBP

Although China's VBP system is largely well designed, many clinicians and patients still worry about one key question: In clinical practice, why do some domestic generics seem less effective than imported brand-name drugs? Part of this concern comes from psychology. Originator drugs have built strong trust over years of clinical use and heavy marketing, while China's pharmaceutical industry has faced severe issues in the past, leaving a lingering sense of doubt. The low prices achieved through VBP can also encourage a "you get what you pay for" mindset among some patients. But there are also more objective factors at play. Quality differences do exist among generic manufacturers, and ensuring consistent oversight after VBP remains a real challenge.

The core criterion of China's Generic Drug Consistency Evaluation is bioequivalence, which means that the active ingredient in a generic must behave in the body much like the originator drug. To meet this standard, any drug's bioequivalence must fall within the internationally accepted range of 80% to 125%. However, being bioequivalent does not mean having an identical formulation. A medicine is much more than its active ingredient; in fact, excipients can make up over 80% of a tablet. The quality of these secondary materials, along with the formulation process and the particle uniformity, plays a crucial role in the drug's therapeutic effect. Even small differences can influence how quickly the active ingredient dissolves and releases in the body, which is why some patients sense that certain generics are weaker or less reliable.

On top of that, formulation processes such as compression and coating are crafts that take years to perfect. If the process is not precise enough, some generics may not perform as consistently as the originator version, especially for specific groups of patients or under particular conditions.

The good news is that China now has several leading companies whose generics match, and sometimes even exceed, the quality of the originator drugs. However, across the industry, the quality gap between brand names and generics remains noticeable.

In addition, some people worry that regulatory authorities cannot test every batch of drugs after they hit the market, leaving room for companies to exploit the system. In other words, there's a risk that a drug might pass the consistency evaluation once but be produced at lower quality afterward. To address this, China's NMPA has taken a series of measures. VBP-winning drugs are prioritised in the following year's national sampling and testing plan, with full inspections of their manufacturing facilities and product batches. Any violations are handled according to the law. Annual reports from these inspections show that the overall quality of these drugs remains strong.

Looking ahead, the system has scope to become even more robust. Introducing professional third-party evaluations, using real-world data, and improving public oversight would increase transparency and information disclosure, giving patients more confidence about VBP-winning medicines.

Of course, China's VBP system is not perfect and needs ongoing reflection and refinement to avoid the pitfalls of an approach focused solely on providing the lowest price at all costs. Recent policies have already sought to tackle some of these challenges. For instance, anchor prices have been set to prevent deliberate underbidding and excessive competition. Winners offering extremely low prices must commit to not selling below cost. Requirements have been added on production experience and manufacturing compliance. Hospitals can now declare procurement volumes by brand, allowing them to respect physicians' clinical prescribing habits.

In short, the goal of VBP is not about driving expensive brand-name drugs off the shelves, and is not the reason that many well-known brands have recently left the market. Its real purpose is structural optimisation. Think of it as "clearing the cage to welcome new birds" — making space for better medicines while keeping them accessible and the system sustainable.

To navigate this change, it's important to understand and adapt to its underlying logic. For pharmaceutical companies, VBP offers both challenges and opportunities. Multinationals need to rethink their strategies in China, while domestic innovators are encouraged to speed up their global expansion. In the future, China's pharmaceutical industry is poised to potentially be driven by innovation and value, achieve better coordination across the sector, and become more deeply integrated into the global industrial chain.