The executive meeting of the State Council discussed and deployed work related to promoting the high-quality development of the digital economy on July 5th, and approved the implementation plan of supporting the development of innovative drugs throughout the entire industry chain. Shanghai Securities believes that raising the development of innovative drugs to the status of being related to people's health and well-being shows the country's emphasis on the development of innovative drugs. As a top-level design plan at the central level, the plan helps to drive the commercialization and R&D of innovative drugs from multiple dimensions such as payment, financing, evaluation, and assessment, and it is expected that the development of innovative drugs will enter the fast lane. It is recommended to pay attention to the entire industry chain of innovative drugs, including listed companies in various sectors such as innovative drug companies, CXOs, research services, and circulation.

Specifically, the executive meeting of the State Council pointed out that the development of innovative drugs is related to the development of the pharmaceutical industry and people's health and well-being. It is necessary to strengthen policy guarantees throughout the entire industry chain, coordinate and make good use of policies such as price management, medical insurance payment, commercial insurance, drug allocation and use, and investment and financing. Optimize the evaluation and approval mechanism of assessment and medical institutions, and work together to promote the development of innovative drugs. It is necessary to mobilize technological innovation resources from all aspects, strengthen basic research on new drug development, and consolidate the foundation for the development of innovative drugs in China.

With the frequent occurrence of bullish policies, the innovative drug industry has seen marginal improvement on the payment side.

Since 2024, several bullish policies for innovative drugs have been issued successively. In February, the National Medical Insurance Bureau issued a draft for soliciting opinions on the establishment of a first-issue pricing mechanism for new chemical drugs to encourage high-quality innovation, which provides guidance to enterprises on evaluating the quality of newly marketed drugs and provides policy support at the pricing end. In March, for the first time ever, "innovative drugs" appeared in the"Government Work Report" during the two sessions. In addition, many local government documents have been issued successively in Beijing, Guangdong and other places, supporting the development of innovative drug industries in R&D, registration, payment and other aspects. Specific bullish measures include: innovative drugs are not included in DRG group payment standards (separate payment); accelerate the registration and evaluation of innovative drugs; medical institutions should accelerate the establishment of drug-related meetings, cancel quotas for the number of drugs in medical institutions, comprehensively promote the hospitalization of insurance-covered new drugs, and remove the last kilometer obstacles to the commercialization of innovative drugs.

From the perspective of the industry, the innovative drug industry is trending positively, and innovative drug companies are entering an intensive harvest period.

In recent years, several core products of innovative drug companies have entered a high-speed period of volume increase, such as BeiGene's sales of zanubrutinib reaching 1.29 billion US dollars (+128%) in 2023, Allist Pharma's sales of voruciclibin reaching 1.972 billion yuan (+155%), Akeso's sales of carduzumab monotherapy reaching 1.358 billion yuan (+148%) and Hutchmed's furquidone after being approved by the FDA in November 2023, achieving sales of 15 million US dollars that year. The commercial prospects of excellent clinical varieties both domestically and internationally are bullish. In addition, the amount of License-out in cross-border transactions of innovative drugs surpassed License-in for the first time in 2023, indicating the overall international competitiveness of the industry is further highlighted.

In addition, the loss of biotech companies has narrowed, such as Innovent Bio's net income attributable to shareholders of the parent company being -1.028 billion yuan in 2023 (compared to -2.179 billion yuan in 2022); the significant narrowing of losses is due to the rapid growth of income on one hand, and the optimization of cost rate on the other. In 2023, the quantity of License-out in cross-border transactions of innovative drugs exceeded that of License-in for the first time, and the product going global has become the main theme of local cross-border BD transactions for innovative drugs, indicating the overall international competitiveness of the industry.

Huayuan Securities stated that since the beginning of the year, the national and various local governments have successively promulgated positive policies related to innovative drugs, with Beijing, Shanghai, and Guangzhou taking the lead and major provinces and cities following suit, promoting the development of innovative drugs from the entire chain and systematizing it. Bullish policies are expected to promote the substantive development of innovative drugs, and innovative drug companies and related industrial chain companies with truly innovative strength are expected to accelerate their development.

Kaiyuan Securities pointed out that with the implementation of the implementation plan to support the development of innovative drugs throughout the entire industry chain, policies targeting the development of medical innovation in various regions are expected to be implemented successively, enhancing the confidence of enterprises' layout of innovative drug pipelines, accelerating the development of innovative drug pipelines to the later stage, and it is expected that CXO and upstream company demand-side will see marginal improvement in the domestic market.

Related concepts:

BeiGene (06160): Previously, Pu Yin International pointed out that on the one hand, zanubrutinib's strong growth in the United States in the fourth quarter of 2023 surpassed China and became the largest product sales revenue contribution area for BeiGene. It is expected that the proportion of revenue in the United States will further increase in 2024. On the other hand, the company's cost control is beginning to show results, and operational efficiency is expected to improve. There is confidence that BeiGene is entering the track of profitability.

Innovent bio (01801): Bocom intl believes that the recent intensive publication of clinical data for the company's tumor and metabolism pipelines further validates the company's advantages in the key areas of GLP-1, next-generation IO, and ADC. In the next 12 months, the focus will be on the initial sales of new products such as Mahseetide, ROS1, and KRAS after approval, as well as the follow-up data updates of IL2 and CLDN18.2.

Hansoh Pharma (03692): Huayuan Securities stated that the company has already obtained approval for 8 innovative drugs (including cooperative products) and they are all included in the national medical insurance catalog. In 2023, the revenue from innovative drugs will be 6.865 billion yuan (including upfront payments for authorizations), with a growth rate of +37.1%, and the revenue proportion is expected to reach 67.9%. The goal is to have the revenue contribution of innovative drugs to reach 80% by 2025, and the proportion of innovation continues to increase.