CITIC Construction Investment: Long-term optimism for innovative drugs and high-end medical devices; expansion of commercial health insurance may become a new engine for the pharmaceutical industry

According to the Zhitong Finance APP, CITIC Securities has released a research report stating that it is optimistic about the innovative pharmaceutical and medical device industry chain and high-end medical care in the long term. The firm believes that the accelerated expansion of commercial health insurance is expected to give rise to a diversified industrial ecosystem, thereby contributing a new growth engine to the pharmaceutical industry. 1) The diversification of business formats may accelerate improvement: As various local benefit insurance and group insurance products gradually take shape, business models such as Meixin Health's PBM are expected to further improve, and related innovative business formats are likely to accelerate incubation; 2) Long-term optimism about the innovative pharmaceutical and medical device industry chain and high-end medical care: As the development of commercial insurance gradually lifts restrictions, significant improvements are expected in the payment and channel aspects of innovative pharmaceuticals and high-end medical care, thereby providing incremental market space for related enterprises and promoting accelerated performance release.

CITIC Securities' main viewpoints are as follows:

Core Viewpoints

Commercial health insurance is an important component of the multi-level medical security system, and its supplementary role is indispensable. The scale is expected to reach 977.3 billion yuan in 2024, with a CAGR of 6.7% from 2019 to 2024, and it is expected to exceed one trillion yuan by 2025.

Product Side: The proportion of disease insurance premiums may continue to decline, while the medical insurance market has significant space, and its synergy with the pharmaceutical industry is strong. Inclusive insurance cultivates residents' awareness, while mid-range insurance provides additional protection, which is expected to contribute nearly 100 billion yuan in incremental value to the pharmaceutical industry.

Market Entity Side: The firm believes that there are still many points of divergence in the industry that are difficult to resolve all at once. The firm looks forward to progress in data sharing, insurance participation rates, direct compensation from commercial insurance, Class C catalog, and penetration rates of mid-to-high-end products, which may bring more increments to the pharmaceutical industry.

China's Commercial Health Insurance: Increased Policy Support, Supplementary Protection Role Indispensable

Positioned as supplementary protection, it supports the development of the pharmaceutical industry. In the past, medical insurance payments dominated the pharmaceutical industry, but with the deepening of aging, the long-term pressure on medical insurance, especially for residents, is quite evident, necessitating various supplementary protections for additional support. In 2024, the National Healthcare Security Administration further clarified the promotion of establishing a "1+3+N" multi-level medical security system, where commercial health insurance is an important component of this system, and its supplementary role is indispensable. It may work in conjunction with medical insurance to support the development of the pharmaceutical industry, reflecting a collaborative support role.

Policies are accelerating implementation, and the supplementary protection role of commercial insurance is indispensable. Since 2016, policies have actively laid out around clarifying the positioning of commercial insurance, strengthening the supply of commercial health insurance products, empowering data to support the development of commercial health insurance products, establishing regulatory mechanisms for the commercial health insurance industry, accelerating the clinical application of innovative pharmaceuticals and medical devices, and increasing support for innovative pharmaceuticals and medical devices in medical insurance payments. In December 2024, the National Healthcare Security Administration issued a document stating that by 2025, the medical insurance department should support and guide inclusive commercial health insurance to timely include innovative drugs in the reimbursement scope, research and explore the formation of a Class C drug catalog, and gradually expand to other qualifying commercial health insurance, further increasing support for commercial insurance.

Market Scale Steadily Expanding, Supply-Demand Transformation Opening Up a Trillion Market

In 2024, the scale of commercial health insurance is expected to exceed one trillion yuan, with a steady increase in proportion. As residents' per capita disposable income grows, coupled with the gradual enhancement of residents' health awareness, the scale of commercial health insurance is steadily expanding, with an average annual compound growth rate of 10.65% from 2018 to 2023. From January to November 2024, premium income further increased by 8.46% to 922 billion yuan, and the annual total is expected to exceed one trillion yuan The expenditure on commercial health insurance claims increased from 10.9 billion yuan to 384.8 billion yuan, with an average annual compound growth rate of 21.89%, and the proportion of direct medical expenditure rose from 1.91% to 6.77%.

Health insurance and medical insurance are divided into two parts, with medical insurance growing rapidly. From 2018 to 2023, the premium income from medical insurance within health insurance premiums increased from 186.6 billion yuan to 433.7 billion yuan, with an average annual compound growth rate of 18.37%, and its share rose from 34% to 48%, mainly due to new insurance products such as Huiminbao and million medical insurance continuously contributing additional increments. The proportion of premium income from disease insurance decreased from 59% to 48%, mainly due to the significant impact of the reduction in insurance agents on disease insurance, leading to a simultaneous decline in the number and scale of new policies. In terms of specific products, there is still room for growth in key varieties such as Huiminbao, individual medical insurance, and group medical insurance.

Product Side: Products are gradually improving, with significant space for medical insurance

Medical Insurance: The pharmaceutical industry has strong synergy, and key products are expected to contribute increments. Commercial medical insurance is mostly supplementary insurance, providing multiple protections for policyholders, including reimbursement for outpatient, hospitalization, and medication expenses. Among them, Huiminbao is a city-type inclusive insurance that provides substantial support for innovative drugs. It is estimated that after the lifting of restrictions, it may bring about an annual increment of approximately 31.9 billion yuan to the pharmaceutical industry. Individual medical insurance meets mid-range demand, and under the new situation, product forms still need to be adjusted. It is estimated that after the lifting of restrictions, it may contribute an increment of 50.1 billion to 75.2 billion yuan to the pharmaceutical industry annually.

Disease Insurance: Critical illness insurance dominates, with weak synergy with the medical industry. Critical illness insurance and other disease insurances are mostly benefit-type insurances, leaning towards life insurance savings products, and are mostly long-term insurances with relatively low payout rates. Moreover, the compensation is not entirely used in the pharmaceutical industry, resulting in weak synergy with the pharmaceutical industry.

Market Entity Side: Multi-party cooperation, gradually lifting restrictions during development

The bank believes that there are still many points of divergence in the industry that are difficult to resolve all at once. The bank expects progress in areas such as data sharing, insurance coverage rates, direct compensation from commercial insurance, Class B catalog, and penetration rates of mid-to-high-end products, which may bring more increments to the pharmaceutical industry.

Risk Warning

Policy risks, drug price reductions exceeding expectations, intensified market competition, product development risks, and significant impairment of goodwill due to the performance of external merger and acquisition targets not meeting expectations