CMBC International: The Category C Medical Insurance Directory Will Be Implemented Within the Year and Innovative Drugs Will Open up the Domestic Payment Space.

CICC International released a research report stating that benefiting from overseas interest rate cuts and improvements in the domestic macro environment, the pharmaceutical industry, as a highly elastic industry, is expected to outperform the market by 2025. The National Healthcare Security Administration is set to launch the "Category B Medical Insurance Catalog" within the year, and innovative drugs will benefit from better payment conditions through the coverage of commercial health insurance. The acceleration of medical equipment bidding will drive the profit recovery of domestic medical equipment companies. The industry valuation is expected to improve. Recommended buys include WuXi AppTec (02359), BEIGENE (06160), INNOVENT BIO (01801), Shanghai United Imaging Healthcare (688271), GIANT BIOGENE (02367), 3SBIO (01530), and SKB BIO-B (06990). The main views of CICC International are as follows: The plan to implement the Category B medical insurance catalog within the year, with the help of commercial health insurance, will break through the payment ceiling for innovative drugs. On January 17, the National Healthcare Security Administration proposed that the Category B drug catalog will focus mainly on drugs with high innovation degrees, great clinical value, and significant patient benefits, but are temporarily unable to be included in the basic medical insurance catalog due to exceeding the "basic guarantee" positioning. The National Healthcare Security Administration will adopt various incentive measures to actively guide and support commercial health insurance to include Category B catalog drugs in the coverage scope. The Category B catalog will be updated in sync with the annual adjustment of the basic medical insurance drug catalog, and the first version is planned to be released within this year, with new drugs approved before the end of May eligible for review. The bank believes that the Category B catalog may prioritize drugs that have passed formal review and expert evaluation in the national negotiations but have ultimately not been included in the basic medical insurance catalog, such as CAR-T, ADC, etc. Therefore, domestic innovative drugs are expected to open up payment space. Medical insurance prepayment and real-time settlement system are expected to alleviate the financial pressure on the industry chain. By 2024, the total expenditure of the national basic medical insurance fund will grow slightly faster than its income. The total income of the fund is 3.48 trillion yuan, a year-on-year increase of 4.4% (compared to +8.3% in 2023); the total expenditure is 2.97 trillion yuan, a year-on-year increase of 5.5% (compared to +14.7% in 2023); the accumulated balance of the medical insurance pooling fund is 3.87 trillion yuan (compared to 3.40 trillion yuan at the end of 2023). Medical insurance is accelerating the implementation of the prepayment system, with 943 billion yuan allocated for prepayment in 72% of the pooling areas nationwide in 2024. At the same time, medical insurance is speeding up the realization of real-time settlement, with the goal of achieving basic real-time settlement in around 80% of the pooled areas nationwide by 2025 and achieving real-time settlement in all pooled areas nationwide by 2026. The bank believes that the medical insurance prepayment and real-time settlement system will effectively alleviate the financial pressure on the industry chain, benefiting commercial circulation, medical institutions, and others. Biosimilars may be carried out through regional alliance procurement. On January 14, the Anhui Provincial Healthcare Security Work Conference mentioned that it will lead the national biosimilar drug alliance procurement. On January 17, the healthcare security administration announced the annual procurement plan, with the 11th batch of national drug procurement to be carried out in the first half of the year and the 6th batch of national high-value medical consumables procurement to be carried out in the second half of the year, and new batches of drug procurement to be initiated timely. In addition, it is estimated that around 20 local alliance procurements will be implemented, including Chinese patent medicines, Chinese medicine decoctions, and high-value consumables, etc. It is expected that by 2025, the number of varieties of drug procurement conducted by national and alliance organizations will reach 700.