(Bloomberg) — The Dragon City Pharmacy has become a cult favorite for Chinese visitors to Hong Kong, selling everything from medicines to mascara. Even so, the owners of this mom-and-pop business were bewildered when copycat drug stores bearing its brand began popping up across the city.
In recent years, outlets named after the 60-year-old store — but with no affiliation — have opened up alongside a slew of other tiny pharmacies in Hong Kong’s prime tourist districts, minutes away from the Louis Vuitton and Chanel stores that dot the town. Often decorated in rainbow neon lights, these smaller outlets advertise sales of tax-free medicines.
Their line-up includes muscle rubs, painkillers, aphrodisiacs and traditional Chinese medicine. But if you ask quietly, many will also sell you something else: cancer and hepatitis C drugs — no prescription necessary.
For years, Hong Kong was known as the place where Chinese shoppers picked up the newest fashions from luxury retailers like Gucci and Prada. Now, prescription drugs are also an attraction.
Treatments such as Gilead Sciences Inc.’s Sovaldi for hepatitis C and Roche Holding AG’s breast-cancer treatment Herceptin are either unavailable or more expensive in China. Many visitors from the mainland also prefer to buy their medicines in Hong Kong because they believe it is likely to be better quality.
“Every time I’m here for one of my shopping trips someone or the other will ask me to bring them back some medicine. We all know Hong Kong has better-quality products,” a 52-year-old woman surnamed Chen said in the Tsim Sha Tsui tourist district, where she was stocking up on make-up and shampoo.
The most urgent item on her shopping list was the liver cancer medicine Nexavar, although she didn’t have a prescription. She planned to stroll around and ask for the drug made by Bayer AG in the dozens of drug stores in the area. Chen had bought similar medicines before and it was pretty easy, she said, holding a Rhinestone encrusted iPhone in one hand while packing a wheeled suitcase with her purchases. Also on her list: a Rolex watch.
Chinese shoppers like Chen are traveling across the border in search of cheaper drugs as changing lifestyles have put China in the grips of a cancer epidemic. The World Health Organization says that 3 million new cases are added each year. Estimates of China’s hepatitis C population range from 13 to 44 million: among the highest in the world.
The cross-border trade in Hong Kong also highlights the problems facing China’s prescription drug market, which by the estimates of research firm Frost & Sullivan had total sales of 1 trillion yuan ($157 billion) last year. That is expected to double by 2019.
Even as regulators apply pressure to lower costs, mainland Chinese patients pay some of the highest prices for treatments worldwide. Drug supply chains are complex, and Frost & Sullivan consultant Neil Wang estimates there is a 5 to 7 percent mark-up at various levels of the distribution system that drives up prices. Also, taxes on imported medicines can add up to 17 percent in China, according to Wang, while Hong Kong doesn’t tax drug imports.
Most Chinese rely on government insurance, and that coverage is often not enough. While China has signaled it would like to reform its insurance laws, millions are still left scrambling for access to life-saving treatments. Meanwhile, a lengthy approval process for new drugs and their patents has stalled the entry of some of the newest blockbusters from overseas.
Neither Gilead’s Sovaldi nor AbbVie Inc.’s Viekira Pak — two treatments that can cure hep C — are approved for sale as yet in China, even though the companies have made registration applications. Both drugs are approved for sale in Hong Kong, which has a separate approval process. Calls to China’s health ministry and Food and Drug Administration weren’t answered.
How it works
After a series of scandals around food safety, including milk tainted with melamine that caused deaths in 2008, many Chinese have greater trust in products bought overseas. So, even while Hong Kong retail sales have slumped, these pharmaceutical sales are helping some of the tiny stores in the tourist district stay afloat.