Orient: The first introduction of the commercial insurance directory, the policy trend for the payment of innovative drugs is becoming increasingly clear.

Orient released a research report stating that the introduction of the commercial insurance innovative drug catalog is expected to address the accessibility and affordability issues of high-priced innovative drugs by guiding market forces. Unlike in the past where pharmaceutical companies could only choose to apply for either the Category B catalog or the innovative drug catalog, this year saw the addition of the option for companies to apply for both catalogs, providing them with more decision-making space. Drugs listed only in the B category catalog reflect companies' desire to quickly expand their market space through the medical insurance catalog by lowering prices to achieve "quantity by price"; while drugs listed in both catalogs or only in the commercial insurance catalog reflect companies' lower willingness to lower prices, hoping to reach target patient groups through the differentiation advantages of their drugs. Orient's main points are as follows: Event: Recently, the National Medical Insurance Administration conducted a 5-day negotiation for the medical insurance drug catalog and worked on the commercial insurance innovative drug catalog, with 120 domestic and foreign companies participating. Among them, 127 drugs outside the catalog participated in the bidding negotiation for the basic medical insurance drug catalog, and 24 drugs participated in the price negotiation for the commercial insurance innovative drug catalog. The new catalog is scheduled to be released in early December and will officially take effect on January 1st of next year. The introduction of the commercial insurance innovative drug catalog for the first time opens up the market space for expensive or rare disease drugs. The introduction of the commercial insurance innovative drug catalog is expected to address the accessibility and affordability issues of high-priced innovative drugs by guiding market forces. In terms of the types of drugs, they mainly include drugs for rare diseases, high-value innovative drugs, and exclusive or first innovative drugs. The commercial insurance catalog is expected to break through the existing sales bottlenecks of such drugs and open up restricted market spaces. For example, CAR-T (cell therapy) drugs, which have attracted high market attention, are difficult to cover under the Category B catalog due to annual treatment costs reaching millions of RMB. This time, a total of 5 CAR-T drugs were applied for, bringing hope to the patient population. The use of a "dual catalog" negotiation for the first time has made pharmaceutical companies' application strategies more differentiated. Unlike in the past, where pharmaceutical companies could only choose to apply for either the Category B catalog or the innovative drug catalog, this year saw the addition of the option for companies to apply for both catalogs, providing them with more decision-making space. Taking the imported PD-1 drugs, which the market is more concerned about, as an example, previously, BMS's drug O (Nivolumab) failed twice in the medical insurance Category B negotiation, and this time they chose to apply for both catalogs to ensure entry into the medical insurance catalog; while competing product Merck's drug K (Pembrolizumab) has not made any applications. Drugs listed only in the Category B catalog reflect companies' desire to quickly expand their market space through the medical insurance catalog by lowering prices to achieve "quantity by price"; while drugs listed in both catalogs or only in the commercial insurance catalog reflect companies' lower willingness to lower prices, hoping to reach target patient groups through the differentiation advantages of their drugs. Bi-specific antibodies, ADC, and other drugs focus on the Category B catalog, with domestic innovative drugs becoming the main competitors to imported drugs. For example, the first approved imported TROP2ADC drug, Sacituzumab Govitecan (Gilead), failed in negotiations last year, and this year it is making a second attempt to enter the medical insurance catalog through dual application. In contrast, another TROP2ADC drug, Lurbinectedin (Kolonbo Tai), is participating in the medical insurance negotiation for the first time this year, applying only for the Category B catalog, directly competing with imported drugs. Among bi-specific antibodies drugs, two core products, Enfortumab Vedotin and Padulichazole, are also market focus. Overall, the country is further increasing its support for innovative drugs, the medical insurance payment system is becoming more diverse, and commercial insurance is becoming an important source of incremental demand, opening up new market demand channels for innovative drugs from the payment end. Investment advice and investment targets: The Medical Insurance Administration strongly encourages the high-quality development of innovative drugs, and the policy on payment for innovative drugs is becoming more clear and warm. Domestic pharmaceutical companies are also actively transforming and upgrading towards innovation. Relevant investment targets: Jiangsu Hengrui Pharmaceuticals (600276.SH), Sichuan Kelun Pharmaceutical (002422.SZ), Shenzhen Salubris Pharmaceuticals (002294.SZ), Beijing Aosaikang Pharmaceutical (002755.SZ), Zhejiang Jingxin Pharmaceutical (002020.SZ), Jiangsu Nhwa Pharmaceutical (002262.SZ), Haisco Pharmaceutical Group (002653.SZ), SKB BIO-B (06990), HUTCHMED (00013), AKESO (09926), etc. Risk Warning: Risks such as policies in the pharmaceutical industry exceeding expectations, intensified drug competition, and lower-than-expected drug sales.