According to Zhito Finance APP, China Securities Co., Ltd. has released a research report stating that the overall situation of the 2024 medical insurance catalog is stable, as expected, with the number of new innovative drugs reaching a record high, reflecting a balance among fund safety, public medical needs, and support for innovation. Two blockbuster drugs in the ADC field were also successfully negotiated, demonstrating support for new molecular drug forms. Support for the establishment of a diversified payment system. Although the development of commercial health insurance takes time, transitioning from a single payer to a diversified payment model is a significant change in the underlying logic of industry development. There is hope for more comprehensive top-level institutional design in the future to address the incentive issues of all parties involved. It is recommended to adhere to the three investment main lines of innovation + going overseas + improvement.

Main viewpoints of Zhongxin Jiandao are as follows:

Overall situation of the 2024 medical insurance catalog: the results are stable, meeting expectations, with a record high in the number of new innovative drugs, reflecting a balanced consideration of fund safety, public medical needs, and support for innovation.

This year, in the negotiation/bidding stage, a total of 117 drugs outside the catalog participated, among which 89 successfully negotiated/bid, with a success rate of 76% and an average price reduction of 63%. The success rate and price reduction are basically comparable to previous years. The number of innovative drugs included has reached a historical high: among the 91 new drugs added this year, 38 are innovative drugs. The proportion of domestically produced drugs has significantly increased: among the 91 new drugs, 65 are from domestic companies, accounting for over 70%, and this proportion shows an annual growth trend.

The newly added negotiated/bidding varieties cover multiple therapeutic areas, meeting the growing clinical needs of patients.

59 newly added negotiated/bidding compounds in the catalog cover disease areas including tumors, neurology and psychiatry, autoimmune diseases, eye diseases, and metabolism, which can meet patients' needs for innovative therapies in different fields.

Actively support truly innovative products with clinical value. The success rate of negotiations for innovative drugs remains high, with domestic pharmaceuticals occupying the majority. Among the 91 new drugs added, 90 are new varieties launched within the last five years, including 38 innovative drugs that are 'globally new.' The success rate of innovative drugs during the negotiation phase reaches 92%, which is 16 percentage points higher than the overall success rate and is the same as in 2023. Among the 91 newly added drugs, 65 are from domestic enterprises, accounting for more than 70%, with the proportion of domestic pharmaceuticals showing a yearly upward trend.

From the perspective of key varieties of domestic listed companies, Akeso's AK104, AK112, Daje's Shuwo and Golixitin, Zejing's recombinant human thrombin, Heng Rui's Taijili Ding, and Innovent's Tolevamer monoclonal antibody have all been included in the health insurance directory.

From the perspective of key varieties from foreign companies, AstraZeneca/First Pharmaceutical's Dera Gantuzumab, Roche's new drug Faricimab, and Novo-Nordisk's insulin depot preparations have all been included, reflecting the support of health insurance payments for innovation; however, Novartis's PCSK9 siRNA was not successful in this health insurance negotiation.

The two drugs from Akeso that entered the health insurance directory both have excellent clinical data support.

Among them, the HARMONi-2 study of AK112 is the world's first Phase III clinical study comparing with KEYTRUDA that achieved significant positive results. On September 8, 2024, Akeso released related heavyweight clinical data at the WCLC conference, expected to become a new standard scheme for 'de-chemotherapy' in first-line lung cancer treatment. The clinical data of AK104 is also quite outstanding, having been included in the treatment guidelines for cervical cancer and filling the gap of low PD-L1 expression in gastric cancer.

The two new drugs from Daje that entered the health insurance directory have been recommended by authoritative clinical guidelines.

Shuwo is the first domestic innovative drug targeting EGFR Exon20ins NSCLC, included as the only Level I recommendation in the 'CSCO Non-Small Cell Lung Cancer Diagnosis and Treatment Guidelines (2024 version)' for treated EGFR Exon20ins NSCLC. In June 2024, based on global registered clinical research (JACKPOT8B), Golixitin was approved for listing in China for second-line/late-line treatment of PTCL and was recommended in the 'CSCO Lymphoma Diagnosis and Treatment Guidelines (2024 version)'.

In the ADC field, two drugs successfully negotiated, and support for new molecular drug forms continues.

Among them, the highly watched deruxtecan was approved domestically for the first time in February 2023, but it was not successfully included in the medical insurance negotiations in 2023. Currently, Enhertu has been approved for four indications in the domestic market, including HER2-positive breast cancer, HER2 low-expressing breast cancer, gastric cancer, and non-small cell lung cancer. The indications included in the medical insurance are last year's approved HER2+ metastatic breast cancer and HER2 low-expressing breast cancer. Based on past clinical data, Enhertu has become the new second-line standard therapy globally in the field of breast cancer with overwhelming advantages; various clinical efforts are advancing towards comprehensive management of breast cancer, with domestic companies also rapidly following suit.

Innovent Bio's first domestically produced PCSK9 monoclonal antibody has been included in the national negotiation directory.

PCSK9 inhibitors provide both lipid-lowering effects and cardiovascular protection, and they differ significantly from traditional oral lipid-lowering drugs in terms of methods of action and usage, receiving recommendations in both domestic and international guidelines. In this national negotiation, Innovent Bio's toripalimab and novartis ag's inclisiran sodium were included, and among them, toripalimab was successfully included, becoming the first domestically produced PCSK9 monoclonal antibody in the national negotiation directory.

With efforts from multiple parties, the last mile challenge for innovative drugs entering hospitals is being resolved.

Compared to previous years, this year's notification, in addition to deploying the new version of the directory execution, includes more content regarding the configuration and use, new drug recommendations, and management supervision, to ensure that the directory is effectively implemented and better meets patients' reasonable needs. It outlines the support policies for the access and use of innovative drugs in various regions for investors' reference.

Expectations are that commercial health insurance can become a beneficial supplement to basic medical insurance, thereby improving the industry's development outlook.

Basic medical insurance focuses on 'ensuring basic coverage', and under limited resources, it is impossible to directly include all innovative medical products within the scope of basic medical insurance. Commercial health insurance, as an important supplement to basic medical insurance, can meet the diverse needs for the use of innovative drugs and devices to some extent. Although the development of commercial health insurance takes time, the shift from a single payer to diversified payments represents a significant change in the underlying logic of industry development. In the long term, investors have underestimated the positive impact of this change on the industry. Expectations are for more comprehensive top-level system designs in the future to resolve the incentive issues for all relevant parties.

Investment advice: With continued policy support, remain bullish on three main lines related to innovation, going global, and improvement.

Risk warning: Risk of research and development not meeting expectations; Risk of approval not meeting expectations; Risk of macroeconomic fluctuations; Downgrading of performance guidance.