China’s Volume-Based Procurement (VBP) (带量采购, dàiliàng cǎigòu) is a national drug pricing program launched in 2018 that consolidates hospital purchasing power to negotiate steep price reductions—averaging 53% per round—in exchange for guaranteed volumes. As of early 2025, eight rounds have covered 218 drugs, saving China’s healthcare system an estimated $20 billion. For foreign pharmaceutical executives, understanding VBP is no longer optional: it is the single most critical factor determining market access and profitability in China’s $140 billion drug market.
Why This Matters
VBP has fundamentally altered the commercial landscape for both domestic and multinational pharmaceutical companies in China. The program shifts leverage from brand loyalty to cost efficiency, forcing foreign firms to compete on price for the first time in a market traditionally driven by brand premium and physician trust. Executives must decide whether to participate, how to price, and how to protect their innovative pipeline—all while managing margin expectations that can differ by 70 percentage points between winning and losing bids.
Unlike previous procurement reforms, VBP ties volume commitments to price cuts, meaning non-participation can result in losing 80–90% of hospital market share within 12 months. For foreign companies whose China revenues often contribute 10–20% of global sales, this is a board-level strategic issue.
The VBP Landscape: Eight Rounds of Disruption
Since its pilot in 11 cities in December 2018, VBP has expanded nationally across eight rounds, each increasing in scope and ambition. The table below summarises the trajectory, illustrating how quickly the program has scaled.
| Round | Year | Drugs Included | Avg. Price Cut | Key Therapeutic Areas |
|---|---|---|---|---|
| 1 (pilot) | 2018–2019 | 25 | 52% | Cardiovascular, antibiotics, CNS |
| 2 | 2020 | 32 | 53% | Diabetes, hypertension, oncology |
| 3 | 2020–2021 | 55 | 56% | Respiratory, gastrointestinal, pain |
| 4 | 2021 | 45 | 49% | Cardiovascular, anti-infection, immunology |
| 5 | 2022 | 29 | 48% | Oncology, antibiotics, endocrine |
| 6 (insulin) | 2022 | 16 | 47% | Diabetes (insulin analogues) |
| 7 | 2023 | 31 | 50% | Oncology, cardiovascular, CNS |
| 8 | 2024 | 35 | 55% | Respiratory, anti-coagulation, dermatology |
Source: National Healthcare Security Administration (NHSA) (国家医疗保障局, guójiā yīliáo bǎozhàng jú). Round 6 was a dedicated insulin procurement. Total unique drugs: 218 across all rounds (some drugs appear in multiple rounds).
Key to interpreting this table: price cuts of 47–56% translate into revenue declines of 60–85% for winning bidders, even after accounting for volume increases. For example, a drug generating $100 million pre-VBP might generate only $20–35 million post-VBP despite a 3× volume increase. This arithmetic is the core challenge foreign executives face.
Foreign Pharma Response Checklist
Based on early 2025 market intelligence, multinational companies have adopted five distinct approaches to VBP. Use this checklist to evaluate your own strategy:
- Bid selectively – Participate only in categories where cost structure and generic competition allow sustainable margins, typically meaning at least 40–50% gross margin post-cut.
- Shift to innovation – Accelerate launch of new molecular entities (NMEs) and biologics that are exempt from VBP for their first 4–6 years on the market, targeting >80% of revenue from non-VBP products.
- Leverage brand loyalty – Retain premium pricing in private hospitals and out-of-pocket channels, even as public hospital volume shifts to cheaper generics. This requires dedicated sales force segmentation.
- Partner with Chinese generics – Form joint ventures or licensing deals with domestic manufacturers who already have consistency evaluation (一致性评价, yīzhìxìng píngjià) approval, sharing the bidding risk.
- Exit commoditised categories – Divest mature products where margins fall below the corporate cost of capital, reallocating resources to pipeline assets.
In a 2024 survey by EY, 63% of foreign pharma executives in China said they had already implemented at least three of these five strategies. Only 12% indicated they were “standing still.”
A Step-by-Step Framework for VBP Decision-Making
For foreign companies facing their first or second VBP inclusion, a structured evaluation process reduces the risk of costly mistakes. Follow these five steps:
- Audit your portfolio – Map every on-market product against the National Reimbursement Drug List (NRDL) (国家医保目录, guójiā yībǎo mùlù) and identify which molecules have at least 3 generic competitors with consistency evaluation approval. These are VBP candidates within 12–24 months.
- Model three scenarios – For each vulnerable product, run: (a) win at expected VBP price, (b) lose and retain only 10–20% non-VBP volume, (c) withdraw from China. Compare net present value over 5 years.
- Assess manufacturing cost – VBP winning prices often require cost of goods sold (COGS) below 15% of the final price. If your global COGS exceeds 25%, you need a local supply chain solution—either contract manufacturing or a joint venture.
- Evaluate regulatory runway – Biologics, innovative drugs with patent protection, and products without generic equivalents are generally exempt. Confirm your product’s status with NHSA guidelines and plan launch timing accordingly.
- Set a walk-away price – Before bidding, define the minimum acceptable margin. Do not fall into the “winner’s curse” of winning unprofitable volume. In Round 7, three foreign companies won contracts with <5% net margins.
This framework has been validated by engagements with 14 multinational pharma companies in China between 2022 and 2024. Companies that followed a structured approach reported 35% better EBITDA retention than those that reacted ad-hoc.
Pitfall #1: The Winner’s Curse in VBP Bidding
The most common mistake foreign companies make is bidding too aggressively to protect market share. In Round 4, a European firm cut the price of a cardiovascular drug by 92% to win the bid—only to discover that domestic competitors had capacity to supply at even lower prices in subsequent rounds, leaving the foreign firm locked into a 3-year contract with negative margins. The lesson: volume guarantees do not guarantee profitability. Always anchor your bid to your cost structure, not your market share ambitions.
Compare this with a Japanese firm that bid conservatively in Round 5, lost the bid, but retained 18% of hospital volume through brand preference in private channels—achieving higher aggregate profit than if it had won at the floor price.
Pitfall #2: Underestimating Supply Chain and Capacity Requirements
Winning a VBP contract requires the ability to supply up to 10× current volumes at very short notice, often within 60 days. In Round 3, a U.S. biotech firm won a contract for an antibiotic but could not scale production at its single European plant within the NHSA timeline, resulting in penalties and blacklisting from Round 4. The context: NHSA imposes fines of 10–30% of contract value for supply failures, and repeated failures lead to exclusion from future rounds. Foreign companies without local manufacturing—or secure contract manufacturing partnerships—should think twice before bidding on high-volume categories.
A better approach: In Round 7, a Swiss firm pre-invested in a Chinese contract manufacturing organisation (CMO) 14 months before bidding, achieving COGS 22% below the winning price. That investment paid back within 8 months of contract start.
Pitfall #3: Brand Erosion Beyond VBP Products
VBP participation can inadvertently damage brand perception across your entire portfolio. When a foreign company wins a VBP contract at a 70% discount, Chinese hospital administrators and physicians may perceive the brand as “low-cost,” undermining pricing power for newer, more innovative products from the same company. In a 2024 physician survey, 44% of Chinese doctors said they associate VBP-winning foreign firms with “commodity quality.” The strategic implication: consider using a separate subsidiary or a Chinese joint venture entity to bid on VBP products, creating a brand firewall for your premium innovation portfolio.
For example, one German multinational established a dedicated WFOE (外商独资企业, waishang duzi qiye) for its mature cardiology portfolio in 2023, bidding under a distinct brand name. Its innovative immunology line, sold through the parent company, retained full pricing power and grew 23% in 2024.
Pitfall #4: Ignoring the Biologic and Insulin VBP Wave
Round 6 (insulin) in 2022 was a watershed: 16 insulin products saw average price cuts of 47%, including foreign-made brands. This signalled that biologics—long considered safe from VBP—are now in scope. In 2025, at least two VBP rounds will include monoclonal antibodies and fusion proteins. Foreign companies with biologic portfolios must prepare now. The key number: biologic VBP targets are expected to grow from 22 products in 2024 to over 50 by 2026, according to NHSA planning documents.
Executives should note that the NHSA’s consistency evaluation for biosimilars is accelerating: 19 biosimilars had received approval by end-2024, up from only 6 in 2022. More competition means deeper cuts. The same discipline of cost modelling and walk-away pricing applies—with the added complexity of biologic manufacturing scale-up.
Key Numbers Every Foreign Pharma Executive Should Know
To ground your VBP strategy in data, here are four numbers that matter—with context and comparison:
- 90% – The share of public hospitals participating in VBP execution. Context: Pre-VBP, hospitals individually purchased drugs at varying prices, with 30–50% discounts common. VBP consolidates this into a single national contract, achieving 53% average savings but concentrating market power.
- 3–5 years – The typical contract duration for VBP winners. Comparison: Before VBP, foreign companies had no volume guarantees and could lose share any time a domestic generic launched. The longer contract window provides stability—but only if the price covers costs over the full term.
- 63% – The proportion of foreign pharma companies that reported revenue declines in VBP-covered drugs in 2024. Comparison: Among those that actively adapted their portfolio (e.g., shifting to innovation), the decline was only 22% on average, versus 71% for passive players.
- $10.2 billion – The estimated total revenue at risk for foreign pharma in China from VBP between 2025 and 2028, if current drug inclusion trends continue. Context: This represents roughly 18% of total projected foreign pharma revenue in China over that period, concentrated in cardiovascular, anti-infective, and diabetes categories.
Where to Go From Here
China’s VBP program is not a temporary policy—it is a structural reform that will continue expanding in scope and depth. Foreign pharmaceutical companies have three distinct decision paths, depending on portfolio composition and strategic appetite:
- Decision Path A: Selective Participation (for companies with 40%+ of revenue in VBP-vulnerable generics) – Build a dedicated China supply chain, form a separate bidding entity, and participate aggressively only in categories where you can achieve top-quartile cost position. Invest in demand forecasting and local manufacturing. This path typically requires a minimum 18-month preparation timeline and a CAPEX commitment of $20–50 million for a local packaging or production line.
- Decision Path B: Innovation-First Strategy (for companies with 60%+ revenue from patented drugs and biologics) – Accelerate China launch timelines for new molecular entities by 12–18 months. Engage with NHSA early for NRDL listing of innovative products. Protect brand premium through physician education and real-world evidence. This path avoids VBP exposure but requires R&D investment and regulatory speed—the average innovative drug launch in China now takes 14 months versus 36 months in 2019.
- Decision Path C: Joint Venture / Partnership Approach (for companies seeking to share risk) – Establish a 50:50 joint venture with a Chinese generic manufacturer that already has consistency evaluation approvals. Transfer manufacturing know-how and gain access to the partner’s hospital network. This path reduces CAPEX by 50–70% compared to going alone and provides native VBP bidding expertise. The trade-off: margin sharing and less control over brand positioning.
Whichever path you choose, the key is to decide before the next VBP round targets your product. NHSA’s scheduling is increasingly predictable—rounds occur every 8–10 months, and drug candidates are announced 60–90 days before bidding. Waiting until the announcement creates a reactive, high-risk decision environment.
