Bank of China International: The Medical Insurance Bureau clarifies that centralized procurement is against involution, focusing on re-evaluation opportunities in the pharmaceutical sector

According to the Zhitong Finance APP, BOC International released a research report stating that recently, the State Council Information Office held a series of themed press conferences on "Successfully Completing the 14th Five-Year Plan," introducing the deepening of medical insurance reform during the "14th Five-Year Plan" period and its relevance to economic and social development. The Medical Insurance Bureau proposed that in the 11th batch of centralized procurement, it will adhere to the principle of "anti-involution" and further optimize the procurement rules. At the same time, companies offering the lowest prices must publicly explain the reasonableness of their quotes and commit to not quoting below cost. In the past, centralized procurement had a significant impact on drug prices in the pharmaceutical industry. As price expectations gradually stabilize, the profitability of the pharmaceutical industry is expected to improve, and it is recommended to pay attention to the re-evaluation opportunities in the pharmaceutical sector.

BOC International's main viewpoints are as follows:

The Medical Insurance Bureau clarifies "anti-involution" in centralized procurement

During the meeting, the Medical Insurance Bureau pointed out that the 11th batch of centralized procurement has been launched. According to the optimized procurement measures approved by the State Council's executive meeting, the Medical Insurance Bureau will adhere to the principles of "stabilizing clinical use, ensuring quality, preventing collusion, and anti-involution," and further study and optimize specific procurement rules, no longer using simple lowest prices as a reference. Although the Medical Insurance Bureau has previously stated multiple times that centralized procurement is not aimed at the lowest price, this meeting has made the relevant specific measures clearer. In terms of selection rules, the "anchor point" for price difference calculation has been optimized, and companies offering the lowest prices must publicly explain the reasonableness of their quotes and commit to not quoting below cost. Under these rules, the centralized procurement prices in the pharmaceutical industry are expected to gradually improve.

"Anti-involution" in centralized procurement is expected to gradually enhance the profitability of pharmaceutical companies

So far, the national level has conducted 10 batches of drug centralized procurement, covering 435 types of drugs. However, the previous centralized procurement methods were mainly based on "exchanging price for volume," where low-priced companies gained more market share, leading to relatively low quotes from companies. The result was twofold: on one hand, it affected the profitability of companies; on the other hand, some companies compromised on quality to control costs. However, as the Medical Insurance Bureau's "anti-involution" measures for centralized procurement gradually improve, the competition for drug prices among companies is expected to return to a healthy state, and with the stabilization of drug prices, the profitability of pharmaceutical companies is expected to gradually increase.

Pharmaceutical companies are gradually emerging from the impact of centralized procurement; pay attention to re-evaluation opportunities in the pharmaceutical sector

Currently, in the pharmaceutical sector, on one hand, the policy stance is gradually shifting, and the centralized procurement rules are being optimized; on the other hand, after several years of R&D investment, the research pipelines are gradually entering a harvest period. Additionally, the recent trend of overseas business development in the pharmaceutical industry is accelerating, further demonstrating the competitiveness of China's innovative drugs globally. The pharmaceutical industry is gradually emerging from its low point, and with the subsequent improvement in policies and corporate profitability, the pharmaceutical sector is expected to welcome re-evaluation opportunities.

It is recommended to focus on three main lines

1) Areas with stable growth. Medical devices and pharmaceuticals are the first sectors to experience centralized procurement, and the impact on many varieties has gradually cleared. Especially in the medical consumables sector, the industry's growth potential is expected to continue with the launch of new products, so continued focus is recommended. In the device sector, it is suggested to pay attention to BaiRen Medical (688198.SH), SanYou Medical (688085.SH), KangWei Century (688426.SH), DaBo Medical (002901.SZ), AiKang Medical (01789), and Weigao Orthopaedic (688161.SH); Ophthalmology: Aibo Medical (688050.SH); Cardiovascular and Cerebrovascular: Huitai Medical (688617.SH), Xinmai Medical (688016.SH), Lepu Medical (300003.SZ); In the pharmaceutical field, it is recommended to pay attention to: Hengrui Medicine (600276.SH), Xinlitai (002294.SZ), Jingxin Pharmaceutical (002020.SZ), Xianju Pharmaceutical (002332.SZ), Kangchen Pharmaceutical (603590.SH) and other targets.

2) In 2025, the CXO sector and medical device sector are expected to gradually welcome a reversal with the improvement of domestic investment and financing as well as fiscal policies. It is recommended to pay attention to CXO: Sun-Novo (688621.SH), Yinuosi (688589.SH), Zhaoyan New Drug (603127.SH), Mediso (688202.SH) and other targets; for the equipment sector, it is recommended to pay attention to: United Imaging Medical (688271.SH), Mindray Medical (300760.SZ), Kaili Medical (300633.SZ) and other targets.

3) In the innovative field, with the gradual implementation of national medical insurance negotiations in 2024, it is recommended to pay attention to related targets that are entering the realization or volume stage, as well as companies with future overseas capabilities, such as: Innovent Biologics (01801), Canfuo Biologics (09926), Kelun-Biotech (06990), Baillie Tianheng (688506.SH), Betta Pharmaceuticals (300558.SZ), Maiwei Biologics (688062.SH), and Nuocheng Jianhua (688428.SH) and other targets.

In other aspects, it is recommended to pay attention to Traditional Chinese Medicine: Tongrentang (600085.SH), Kunming Pharmaceutical Group (600422.SH), Tasly (600535.SH), MYL (600993.SH) and others; Active Pharmaceutical Ingredients: Huahai Pharmaceutical (600521.SH), Sitai Li (603520.SH), Puluo Pharmaceutical (000739.SZ) and others; Medical Services: Aier Eye Hospital (300015.SZ), Tongce Medical (600763.SH), Haijia Medical (06078), SANXING Medical (601567.SH) and others; Vaccines: Baike Biological (688276.SH), Zhifei Biological (300122.SZ), CanSinoBIO (688185.SH) and others; Retail Pharmacies: Jianzhijia (605266.SH), DSL (603233.SH), Yifeng Pharmacy (603939.SH) and others.

Risk Factors

Risks of the implementation of centralized procurement policies exceeding expectations, risks of corporate R&D falling short of expectations, risks of product sales not meeting expectations