Drugmakers eye volume growth as China cuts prices by up to 67 pct

(Adds comment from GSK China head and analyst)

SHANGHAI/LONDON, May 20 (Reuters) - Chinese health authorities announced price cuts of up to two-thirds for three drugs on Friday in the latest move to reduce the cost of healthcare for patients in the world's second-biggest economy.

The National Health and Family Planning Commission said the cost of GlaxoSmithKline (Other OTC: GLAXF - news) 's hepatitis B drug Viread would fall to 490 yuan ($75) a month from 1,500, and AstraZeneca (NYSE: AZN - news) 's lung cancer pill Iressa to 7,000 from 15,000.

Icotinib, another lung cancer drug made by China's Betta Pharmaceuticals, will come down to 5,500 from 12,000 yuan a month.

In exchange for the negotiated price reductions, drug companies can expect to sell much bigger volumes in the cost-conscious Chinese healthcare system.

The Commission had signalled its intent in March to cut prices of some medicines used to treat serious diseases, including cancer, but had not named the drugs involved.

Britain's GSK, which has struggled to rebuild sales in China following a damaging bribery scandal that landed it with a record fine in 2014, said it expected the lower price to stimulate substantially increased sales.

At the reduced price, its hepatitis drug will now be covered by Chinese reimbursement policies.

"We are proud that Viread has been included in the Chinese government's efforts to add innovative medicines to the reimbursement policies," said Herve Gisserot, GSK's China head.

"This represents a defining moment in the government's efforts to provide high quality, innovative products at more affordable prices."

Deutsche Bank (LSE: 0H7D.L - news) analyst Jack Hu said other drug companies, such as Celgene (Swiss: CELG.SW - news) and Roche, had withdrawn from the price negotiations for their respective cancer medicines Revlimid and Tarceva, suggesting the cuts may have been too large despite the prospect of volume growth.

The high cost of healthcare is a major point of contention in China, where low levels of state health insurance coverage means patients and their families often burn through savings to buy drugs to treat chronic disease.

China's drive to lower the price of drugs is a challenge for drug firms in the world's second-largest medicine market, where growth has slowed markedly over the past couple of years. Beijing is also supporting domestic firms to take a bigger share of the market.

($1 = 6.5440 Chinese yuan renminbi) (Reporting by Adam Jourdan and Ben Hirschler; Editing by Ruth Pitchford)