BOCOM INTL: The tenth batch of national procurement has started to report volumes, bullish on sector sentiment improvement + valuation repair after medical insurance negotiations land.

BOCOM INTL released a research report stating that on November 1st, the Drug Procurement Joint Office issued a notice on the information filling work related to the tenth batch of nationally organized drug centralized procurement, announcing the official start of the tenth batch of national procurement. The tenth batch of national procurement includes a total of 62 varieties and 263 specifications, with a total of 37 large varieties of injections (about 60%). The report mentioned that the on-site negotiations for the adjustment of the national medical insurance drug list in 2024 have ended. The new version of the medical insurance drug catalog is expected to be released to the public at the end of November and will be officially implemented from January 1st next year. The negotiations took place from October 27th to 30th noon, involving a total of 127 companies and 162 kinds of drugs, including 117 drugs outside the medical insurance catalog and 45 drugs negotiating renewal within the medical insurance catalog. The number of varieties included in the tenth batch of national procurement is the highest in history, with the highest threshold for inclusion. It is expected that there will be greater elimination pressure in the future, bringing certain competitive pressure to pharmaceutical companies. At the same time, the proportion of injections in this round of national procurement also reached a historical high, as a type of drug that relies heavily on in-hospital development, the competitive landscape for relevant pharmaceutical companies may change in the future. The pharmaceutical sector has slightly rebounded after a significant volatility recently. Considering that the sector's valuation is still at historical lows, coupled with the upcoming favorable macro policies and liquidity improvement, the bank believes there is still room for further recovery. The bank stated that it will continue to focus on recommending potential beneficiaries of medical insurance negotiations, including AKESO (09926), SIMCERE PHARMA (02096), Legend Biotech Corp. Sponsored ADR (LEGN.US), EVEREST MED-B (01952), HUTCHMED (00013) and other innovative drug targets with abundant short-term catalysts, high profit growth or clear breakeven points, and large valuation recovery potential. It also recommends paying attention to: 1) privately-owned medical service and medical aesthetic targets with strong consumer attributes; 2) medium and small-sized innovative pharmaceutical companies with significant deviation in market value and fundamentals, as the rebound potential after liquidity improvement will be considerable.