China Securities Co., Ltd.: Optimize the selection conditions for the new batch of drug centralized procurement, continue to be optimistic about innovative drugs and high-barrier generic drugs.

China Securities Co.,Ltd. released a research report stating that on July 15, 2025, the National Drug Joint Procurement Office issued a notice on the information submission for the 11th batch of national organized drug centralized procurement. The timeline progress is as expected, and the detailed trends exceed expectations. This procurement especially emphasized the anti-"inward rotation" principle, optimizing measures through three aspects to further determine reasonable prices, guiding companies to shift from "low-price competition" to "quality competition + cost control + reasonable profit," thereby promoting the healthy development of the domestic generic drug market. The company is optimistic about products with strict quality systems, scale cost advantages, clinical approval, and wide usage to maintain or even expand market share in the procurement. China Securities Co.,Ltd.'s main points are as follows: Event On July 15, 2025, the National Drug Joint Procurement Office issued a notice on the information submission for the 11th batch of national organized drug centralized procurement, preliminarily determining the purchase of 55 drugs, mainly involving treatment areas such as anti-infection, anti-tumor, anti-allergy asthma, diabetes drugs, cardiovascular drugs, and nervous system drugs. I. The launch of the 11th batch of drug procurement, progress as expected, detailed trends exceed expectations On July 15, 2025, the National Drug Joint Procurement Office issued a notice on the information submission for the 11th batch of national organized drug centralized procurement, marking the official launch of the 11th batch of drug procurement. After three rounds of selection, it was preliminarily determined that 55 drugs would be purchased, mainly involving treatment areas such as anti-infection, anti-tumor, anti-allergy asthma, diabetes drugs, cardiovascular drugs, and nervous system drugs. Currently, the national organized drug procurement has completed ten batches and eleven rounds, except for the insulin procurement in the sixth batch, all other batches are chemical drug procurements. The frequency of procurement gradually stabilized at 1-2 batches per year, and the number of drugs per batch stabilized at 40-60 varieties. The launch time and number of drugs for the 11th batch of procurement met expectations, continuing to reflect the stability of procurement policies. At the same time, the National Medical Insurance Administration and the National Drug Joint Procurement Office adhere to the principles of "stability in clinics, quality assurance, anti-collusion, anti-inward rotation," although the complete rules have not been published yet, the detailed trends exceed expectations. II. Optimizing the selection criteria for procurement varieties, aligning with medical insurance negotiations catalog Consistent with previous procurement rules, the 11th batch of procurement continues to adhere to the principle of "procurement of non-new drugs, non-procurement of new drugs." The deadline for selecting varieties is March 31, 2025, and the threshold is to have a total of 7 companies with "reference formulation + consistency evaluation of quality and efficacy" for enterprise numbers that meet the requirements. Based on this, the 11th batch of procurement further optimized the selection criteria for varieties, including (1) excluding varieties that entered medical insurance through negotiations and are still within the agreement period, whereas the previous rule excluded varieties that entered medical insurance in the first year of negotiations. The new rules expand the scope of exclusions from varieties that entered medical insurance in the first year to those still within the agreement period, better aligning procurement with medical insurance negotiations catalog; (2) based on the opinions of the intellectual property departments, varieties with high patent infringement risks are excluded, further protecting industry innovation; (3) adding market size conditions, excluding varieties with annual purchasing amounts less than 100 million yuan on the medical insurance information platform, enhancing the scale effect of procurement; (4) considering clinical usage characteristics, excluding varieties with special clinical usage, such as some key antibacterial drugs under management, drugs with narrow therapeutic indices and low tolerance, drugs with multiple adverse reactions, and others, further stabilizing clinical medication. III. "Stable clinics," two types of reporting methods run concurrently, matching clinical medication selection One of the major changes in this batch of procurement rules is the optimization of reporting rules. In the previous ten batches of drug procurement, except for the insulin procurement in the sixth batch, the remaining nine batches were all drug procurements. In the reporting process, medical institutions only had a single mode of reporting by drug common name, which could not reflect preferences for brands in the selection of medications for clinical use. This 11th batch of procurement adjusted to run two reporting methods concurrently, where medical institutions can choose to report by specific brand, and if the brand is selected, the enterprise can directly become the supplier of that medical institution; at the same time, medical institutions can maintain the previous reporting by drug common name. The purpose of this adjustment in reporting rules is to better align the demands of medical institutions with the procurement results, making the transition in clinical use smoother. It also means that procurement will respect clinical medication selection more and better address patient concerns about brands, fully respecting the autonomy of medical institutions. Additionally, reporting fully respects clinical changes and special needs. To demonstrate the "value-for-volume" effect, medical institutions are generally required to report total quantities for each variety not lower than 80% of the actual usage. However, changes in actual clinical usage will be considered. For medical institutions reporting a reduced clinical demand or unstable demand due to seasonal or epidemic diseases, after explaining, the reporting quantities can be adjusted downwards. For determining the agreed purchase quantity, medical institutions report the total demand for a drug, but only part of it is taken as the target for enterprise bidding competition, i.e., the agreed purchase quantity, while the remaining part is still chosen independently by the medical institutions. IV. Anti-"inward rotation," optimizing auction rules, defining a reasonable price range This procurement will continue to uphold an open and transparent, fair, and impartial market competition mechanism, guiding companies to voluntarily participate and quote independently, and specifically proposed the anti-"inward rotation" principle. In terms of bidding rules, three measures are expected to further define a reasonable price: The first is optimizing price differential control rules. In the past, to ensure fairness, if the price difference between different companies exceeded a certain range, overly high bids could not be selected. This procurement will continue to impose certain restrictions on enterprise price differentials, but will optimize the calculation "anchor point" for price differentials, no longer simply selecting the lowest bid as the reference point. Therefore, even if individual companies bid low prices, it will not affect other companies bidding normally. The second is implementing a "declaration of low prices." For the selected enterprise with the lowest bid for each variety, the National Medical Insurance Administration will require an explanation of the reasonableness of the bid, committing not to bid below cost, issuing relevant declarations to address societal concerns about low-priced selections. The third is strengthening the prevention of collusion. The National Medical Insurance Administration will continue to enhance measures to prevent collusion behavior, exploring the introduction of a "first report leniency" mechanism, where for the first company that provides evidence of collusion and the first company that admits participation in collusion during the investigation, lenient treatment may be provided under the law and regulations, breaking up the alliance of interests between colluding companies. V. "Quality assurance," strengthening quality regulation, expanding real-world research The national organized drug procurement has always prioritized quality over price, insisting on using consistency evaluation as the bidding threshold for generic drugs. This procurement will propose stricter quality requirements. The first is to further raise the bidding qualification threshold. Additional requirements have been added for the quality control capabilities of enterprises, the marketing authorization holder or commissioned production enterprise of bidding drugs should have more than 2 years of experience in producing similar formulations, and the bidding drugs should pass pre-launch GMP (Good Manufacturing Practice for Drugs) compliance checks. Further enhancing production quality inspection requirements, expanding from the previous rule of no violations of GMP requirements for bidding drugs in the past 2 years, to including no violations for the production line of bidding drugs in the past 2 years. The second is to further strengthen quality supervision. Regulatory departments will conduct targeted inspections on low-priced selections, drugs produced under commission, etc., focusing on changes in selected drug raw materials, production processes, and their impact on quality. For enterprises found to have quality issues, the National Medical Insurance Administration will collaborate with regulatory authorities to impose joint penalties, canceling the selection qualification and restricting future bidding qualifications for a certain period. The third is to continue to promote real-world effectiveness evaluations. In order to scientifically and objectively evaluate the effectiveness and safety of selected drugs in procurement, the medical insurance department has commissioned medical institutions to conduct real-world clinical studies, with more than 80 Class 3 hospitals nationwide participating, and over 60 selected generic drugs included in the study. The results indicate that the selected generic drugs are consistent in efficacy with the original drugs. Next, the National Medical Insurance Administration will continue to expand the scope of real-world research, supporting high-level hospitals to conduct real-world clinical effectiveness studies on selected drugs in procurement, encouraging comprehensive clinical evaluations of drugs. VI. Follow-up attention to the release of procurement rule documents According to this notice, from July 16 to July 31, the National Medical Insurance Service Platform will open an information submission channel for enterprises, where marketing authorization holders or manufacturing enterprises with registered generics or bioequivalent drugs through consistency evaluations can participate. The information of various branded drug products approved by July 31 will be used as the selection range for demand quantities reported by medical institutions in this procurement. It is expected that in August, the reporting of demand quantities for the drugs in this procurement will commence for medical institutions. It is recommended to pay attention to the formal release of the procurement documents related to this batch of drugs, as well as the optimization details of the auction rules, and to follow the bidding opening and implementation schedule. VII. Investment Advice: Continue to be optimistic about innovative drugs and high-barrier generic drugs The National Medical Insurance Administration continues to promote normalization of procurement and insurance negotiations, facilitating the transformation of medical insurance funds while optimizing the selection of varieties, reporting, and auction rules on the procurement side, helping to scientifically guide companies to shift from "low-price competition" to "quality competition + cost control + reasonable profit," thereby promoting a healthy development of the domestic generic drug market, ensuring the medication needs of the people to a greater extent. It is optimistic that products with strict quality systems, scale cost advantages, clinical approval, and wide usage will maintain or even increase market share in procurement. On the other hand, innovative drugs continue to receive policy support, with a success rate of over 90% in medical insurance negotiations over 24 years, with domestic products accounting for over 70%, and commercial insurance policies gradually being introduced, providing the potential for incremental payments for innovative drugs; the "Measures for Supporting the High-Quality Development of Innovative Drugs" provide a top-level design for innovative drugs from research and development to payment. The international competitiveness of domestic innovative drug companies continues to improve, new technologies are driving rapid industry development, and the future remains optimistic about relevant innovative drugs and pharmaceutical companies. Risk Warning: Uncertainty in new drug research and development; Industry policy risks; Risks of R&D falling short of expectations.