The Zhitong Finance App learned that, according to market news, on February 5, the National Health Insurance Administration issued a letter to relevant industry associations requesting comments on the “Notice on Establishing a Initial Price Formation Mechanism for Newly Launched Chemical Drugs to Encourage High-Quality Innovation (Draft for Comments)”. The main purpose is to insist that drug prices are determined by the market, better play the role of government, improve the overall efficiency of new drugs online, and support high-quality innovative drugs to obtain “profit returns consistent with high investment and high risk.”

In summary, when newly marketed chemicals are declared online for the first time on drug procurement platforms in various provinces, enterprises can choose to take seats and self-evaluate from the three aspects of pharmacy, clinical value, and evidence-based evidence according to the evaluation scales published by the health insurance department, and enter the three categories of high, medium, and low according to the score. The higher the self-evaluation score, the higher the innovation value content of the drug, the higher the degree of freedom in the initial price of newly launched drugs, and policy support such as green channel connectivity and stable period protection is provided in terms of connected services. Conversely, drugs with lower points need to provide more adequate information disclosure to support price rationality.

Industry insiders said that this move is to encourage innovative drug research and development, which is beneficial to protecting the enthusiasm of pharmaceutical companies to innovate, and is also an improvement on procurement policies previously negotiated. Previously, as soon as a new drug was launched, it was necessary to cut prices through various means, seriously dampening the enthusiasm of pharmaceutical companies to innovate. Now, a new “Draft for Solicitation of Comments” is aimed at returning the pricing power of the drug price market to the market and enterprises to some extent.

Huang Weiwen, director of the Primary Care Research Institute of the China Pharmaceutical Resources Association, said that there is no doubt that the purpose of the “Draft for Solicitation of Comments” is also to encourage innovation in chemical drugs. The draft for comments specifically indicates that “production costs” and “early R&D investment” of enterprises are taken into account, which is a good sign and trend. If this policy is successfully introduced, it will be a win-win situation for the government, enterprises, and patients.

In fact, in recent years, China's innovative drug research and development pipeline has shown a booming trend, and domestic innovative research and development capabilities have been continuously strengthened. Recently, the “2023 Drug Evaluation Report” issued by the State Drug Administration shows that in 2023, the number of drug registration applications accepted and processed increased by 35.84% and 28.80%, respectively, over the same period last year, both reaching new highs in the past 5 years. Throughout the year, 40 varieties of innovative drugs, 45 varieties of drugs for rare diseases, and 92 varieties of pediatric drug products were approved for marketing, and clinical drug needs were better met.

In 2023, China's drug research and development innovation will be active. According to the report, according to statistics on registration application categories, in 2023, the Drug Evaluation Center of the State Drug Administration accepted 2,997 applications for clinical trials of new drugs, an increase of 33.56% over the previous year; 170 applications for confirmatory clinical trials, an increase of 32.81% over 2022; and 470 new drug marketing license applications, an increase of 40.72% over the previous year.

Of the 40 innovative drugs that were finally approved for marketing, the indications for 15 products were concentrated in the field of anti-tumor treatment. Other product indications also involved chronic hepatitis C, stomach acid, diabetes, and psoriasis in adults. In terms of drug types, 19 are chemicals, 16 are biological products, and 5 are traditional Chinese medicines.

Furthermore, the ability to go out to sea has also improved markedly. Take drugs approved for marketing by the US FDA as an example. The number of approved drugs worldwide increased from 24 in 2008 to 55 in 2023.

Cinda Securities believes that after a period of recent adjustments, the valuations of many innovative drug-related targets have declined sharply and ushered in a reasonable allocation range. Combined with the 2024 Federal Reserve interest rate cut, Cinda Securities believes that the innovative drug sector is expected to usher in a beta market in 2024. Major drugs are the core logic of investing in innovative drugs. In terms of innovative drug allocation ideas, looking ahead to 2024, we are optimistic about major pharmaceutical products and the direction of going overseas.

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Editor/Corrine