CITIC Securities: Policy optimization trends such as procurement are definitely strengthening, and the pharmaceutical sector is expected to improve steadily in the second half of the year

The Zhitong Finance App learned that CITIC Securities released a research report saying that since 2025, the government has repeatedly proposed relevant policies such as optimizing drug collection and supporting innovative drugs. At the same time, the commercial insurance innovative drug catalogue is about to be launched, and the pharmaceutical policy environment is improving. The eleventh batch of national drug collection has begun the process of filling in drug information. CITIC Securities believes that the rules and price reductions for the eleventh batch of national drug collection are expected to be optimized. The anti-internal volume will no longer anchor the lowest price, strictly control quality, and scientifically select collected varieties.

In 2025, the adjustment of the National Basic Medical Insurance Catalogue and the Commercial Health Insurance Innovative Drug Catalogue was initiated. The biggest change in the current national negotiations was the addition of a commercial insurance innovative drug catalogue and the formation of a “double catalogue” parallel model to the basic catalogue. The commercial insurance innovative drug catalogue is expected to be a buffer platform for high-value innovative drugs. At the same time, the payment side will provide “three exceptions” support, which is expected to help open up commercialization space for innovative drugs in China. In terms of the basic catalogue, optimizing renewal rules, reasonably controlling drug price reductions during the agreement period, and stabilizing price expectations for new drugs are expected to increase the enthusiasm of pharmaceutical companies to develop new drugs. The basic catalog is normalized and adjusted, and the import and exit rules are “tight balance”.

Continuing previous industry views, CITIC Securities strengthened certainty in policy optimization trends such as collection, etc., the restoration of market sentiment after collection optimization, and the return in the era of true pharmaceutical innovation and true internationalization. The autonomous and controllable industrial chain layout in the context of tariffs will all usher in more catalysts in the second half of the year, thus driving the steady upward trend of the sector. From a horizontal perspective, it is recommended to continue to focus on the three areas of innovation-driven and internationalization+autonomous control+out-of-hospital marketing model reform.

CITIC Securities's main views are as follows:

Review of nationally organized drug collection and medical insurance drug catalogue adjustments:

Drug collection organized by the state has become normalized, and the collection coverage continues to expand steadily. Affected by industry competition and policy changes, the tenth round of national drug collection prices fell more than the previous level. A total of 435 varieties from the first ten batches of national drug collection won the bid, and the number of collected varieties increased steadily. Among them, the tenth batch in 2024 was the largest since the start of national drug collection. A total of 62 varieties won the bid. Affected by industry competition and policy changes, the tenth round of national drug collection prices fell more than the previous level. According to Shanghai Sunshine Pharmaceutical Procurement Network, the average drop in the winning bid price of the first nine batches of national drug collection was generally stable in the range of 50% to 60%; according to industry media “Medical Trend” statistics, the average price drop in the tenth batch was as high as 70%. We believe that the high drop in the tenth batch of national drug collection was mainly due to industry competition and policy changes. For example, this round adopted a guaranteed price reduction mechanism that could be selected by eliminating the previous 50% reduction. At the same time, the 1.8 times fuse mechanism made the price drop downward.

In the 2024 medical insurance drug catalogue adjustment, 76% of drugs were successfully negotiated, and the average price drop of 63% was the same as in previous years. More innovative drugs are included in medical insurance, and the share of domestic pharmaceutical companies continues to rise. According to data from the National Health Insurance Administration, the share of newly marketed drugs in the medical insurance catalogue within 5 years increased from 32% in 2019 to 98.9% in 2024. Of the 91 new drugs, 38 were “new global” innovative drugs. The medical insurance basket “exchange cages for birds”. The number of new products in the catalogue continues to increase, continuing to reduce the burden on patients. According to data from the National Health Insurance Administration, as of October 2024, the drugs negotiated during the agreement period had benefited a total of 830 million people, reducing the burden on patients by more than 880 billion yuan. The National Health Insurance Administration expects the new version of the National Health Insurance Catalogue to reduce the burden on patients by more than 50 billion yuan in 2025.

Overview of nationally organized drug collection and medical insurance drug catalogue adjustments in 2025:

Policy changes: Optimizing drug collection. The commercial insurance innovative drug catalogue is about to be launched to support the development of innovative drugs. In 2025, the government proposed several policies related to optimizing drug collection and supporting innovative drugs: 1) The 2025 two government work reports indicated that it is necessary to improve the drug price formation mechanism, draw up a catalogue of innovative drugs, and support the development of innovative drugs. 2) The 2025 two-session government work report indicates that drug collection policies should be optimized, quality assessment and supervision should be strengthened, and people can use medicines more at ease. 3) The “Opinions on Further Safeguarding and Improving People's Livelihood and Focusing on Resolving People's Urgent Needs” issued by the General Office of the CPC Central Committee and the General Office of the State Council was announced on June 9. The health care section focuses on “strong infrastructure projects” and “basic medical insurance+commercial insurance.” 4) Premier Li Qiang of the State Council presided over an executive meeting of the State Council on June 13 and studied measures to optimize the collection of pharmaceuticals and consumables. 5) On June 27, 2025, the 16th session of the Standing Committee of the 14th National People's Congress reviewed the “Medical Security Law of the People's Republic of China (Draft)”. We believe that the most important point of this draft is that the formulation of the scope of health insurance fund payments will comprehensively consider the opinions of multiple departments. The trend of collection optimization may continue, and future collection pricing may be more market-based. 6) On June 30, the National Health Insurance Administration and the National Health Commission jointly issued “Certain Measures to Support the High-Quality Development of Innovative Drugs”, which is conducive to further improving and supporting the high-quality development of innovative drugs. 7) On July 10, the National Health Insurance Administration announced the “2025 National Basic Medical Insurance, Maternity Insurance and Work Injury Insurance Drug Catalogue and Commercial Health Insurance Innovative Drug Catalogue Adjustment Work Plan” and other relevant documents. 8) The Joint Procurement Office of State Organization Drugs initiated the filing of drug information related to the eleventh batch of centralized procurement of state-organized drugs, and announced the selection status of the eleventh batch of collected varieties. In accordance with the principles of “stabilizing clinical practice, ensuring quality, preventing encirclement, and counteracting internal reporting”, medical institution reporting work will soon be carried out.

Changes in national procurement: Anti-domestic procurement no longer anchors the lowest price, strictly controls quality, and scientifically selects collected varieties. The eleventh batch of national drug collection will begin the process of filling in drug information on July 16. According to Shanghai Sunshine Pharmaceutical Procurement Network and media reports such as Xinhua News Agency, First Finance, Health Daily, etc., we believe that the 11th batch of national drug collection rules and price reductions are expected to be optimized. The summary of key points includes: 1) scientific screening, “collecting non-new drugs, not collecting new drugs,” and linked to medical insurance catalogue negotiations. 2) Strictly control quality, raise the bidding qualification threshold, raise production quality inspection requirements, and conduct targeted inspections on drugs selected at low prices. 3) Optimize reporting and dosage rules, respect clinical medication choices, and can report according to brand. 4) Anti-internal rotation optimizes bidding rules, no longer simply anchors the lowest price and implements a low price statement system. The eleventh batch of national drug collection involved 55 varieties. According to data from the Mi Intranet, the total terminal sales of public medical institutions were nearly 44 billion yuan. The number of overrated varieties from companies such as Beite Pharmaceutical, Colon Pharmaceutical, Fosun Pharmaceutical, Shijiazhuang Siyao, Chia Da Tianqing, Fuan Pharmaceutical, Shiyao Group, Qilu Pharmaceutical, and Xinhecheng was greater than or equal to 10 varieties.

Changes in national negotiations: The commercial insurance innovative drug catalogue was added, the “three exceptions” on the payment side supported innovative drugs, and basic catalogue renewal rules were optimized. The adjustment process for the 2025 National Basic Medical Insurance Catalogue (hereinafter referred to as the “Basic Catalogue”) and the Commercial Health Insurance Innovative Drug Catalogue (hereinafter referred to as the “Commercial Insurance Innovative Drug Catalogue”) commenced. The biggest change in the current national talks is the addition of a commercial insurance innovative drug catalogue and the formation of a “double catalogue” parallel model to the basic catalogue. The commercial insurance innovative drug catalogue is expected to be a buffer platform for high-value innovative drugs. At the same time, the payment side will provide “three exceptions” support, which is expected to help open up commercialization space for innovative drugs in China. The key points of the commercial insurance innovative drug catalogue include: 1) Scope of selection: New generic names or exclusive drugs for rare diseases approved for marketing within 5 years can be declared. 2) Scope of use: The commercial insurance innovative drug catalogue recommends reference use for multi-level medical insurance systems such as commercial health insurance. 3) Formulation procedure: The catalogue of innovative commercial insurance drugs is organized by the National Health Insurance Administration and carried out simultaneously with the basic catalogue adjustment work. Commercial insurance experts have important decision-making power over whether drugs are included in the commercial insurance innovative drug catalogue and price negotiations. At the application stage, enterprises are allowed to choose to separately declare the basic catalogue or commercial insurance innovative drug catalogue, or apply at the same time according to their own wishes. 4) Support commercial insurance innovative drug access for patients: Drugs included in the commercial insurance innovative drug catalogue are not included in the basic medical insurance self-rate index and the scope of monitoring of alternative varieties selected from collection, and innovative drug application cases covered by eligible commercial health insurance coverage are not included in the scope of payment by disease type. In terms of the basic catalogue, optimizing renewal rules, reasonably controlling drug price reductions during the agreement period, and stabilizing price expectations for new drugs are expected to increase the enthusiasm of pharmaceutical companies to develop new drugs. The basic catalog is normalized and adjusted, and the import and exit rules are “tight balance”.

Risk factors:

Geopolitical frictions heighten risk; risk of macroeconomic recovery falling short of expectations; risk of volume procurement; risk of declining financing popularity of high-value consumables; risk of price reduction and collection progress exceeding expectations for high-value consumables; risk of failure in clinical research and development of innovative drugs; health insurance policy risk; risk of medical accident risk; risk of industrial policy changes falling short of expectations; risk that medical AI development falls short of expectations; risk that commercial insurance progress falls short of expectations, etc.

Investment Strategy:

We continue our previous industrial views, and policy optimization trends such as collection have strengthened with certainty. We believe that the restoration of market sentiment after harvesting optimization, and the return in the era of true pharmaceutical innovation and true internationalization will all usher in more catalysts in the second half of the year, thereby driving the steady improvement of the sector in the second half of the year. From a horizontal perspective, it is recommended to continue to focus on the three areas of innovation-driven and internationalization+autonomous control+out-of-hospital marketing model reform.