Shanxi Securities: The multi-level payment system for innovative drugs continues to be improved, and the domestic and global market competitiveness continues to be enhanced.

Shanxi Securities released a research report stating that currently, the number of ongoing innovative drugs in China’s pharmaceutical industry accounts for about 30% of the global total. The multi-level payment model of “basic medical insurance + commercial health insurance” provides a commercialization pathway for treatment technologies and products with internationally leading standards, substantially promoting the development of China’s innovative drugs and medical devices. The PE valuation of the pharmaceutical sector is below its historical average. Considering the industry is expected to achieve positive growth by 2026, the sector is projected to generate positive returns in 2026. Key focus areas include: innovative drugs, CROs, AI medical care, brain-computer interfaces, innovative medical devices, recovery in medical equipment bidding, and consumer recovery.

Shanxi Securities’ main viewpoints are as follows:

Policy Support: The Era of Rapid Development for China’s Pharmaceutical Innovation Has Arrived

Since the 14th Five-Year Plan, the National Medical Products Administration has approved 204 innovative drugs and 265 innovative medical devices. From January to July 2025 alone, 50 innovative drugs and 49 innovative medical devices were approved. Currently, the number of ongoing innovative drugs in China’s pharmaceutical research accounts for about 30% of the global total. According to the “Q1-Q3 2025 Pharmaceutical Transaction Trend Analysis” published by Pharma Cube, the total licensing-out value of Chinese pharmaceutical transactions in the first three quarters of 2025 reached $92.03 billion. The rapid growth in licensing-out of Chinese innovative drugs reflects the fast development of China’s innovative drug industry and its increasing international competitiveness.

Commercial Health Insurance Enters a New Era of Development, Multi-level Payment Systems Support Innovation Drug & Device Growth

In July 2024, the State Council approved the “Full Chain Support for Innovation Drug Development Implementation Plan,” which emphasizes developing commercial insurance to jointly promote innovation drug development. The National Medical Insurance Administration has also repeatedly expressed support for exploring diversified payment mechanisms for innovative drugs, encouraging inclusive commercial health insurance to include innovative drugs in reimbursement coverage in a timely manner. On December 7, 2025, the 2025 version of the National Medical Insurance Drug List was released, adding 114 new drugs, including 50 first-class innovative drugs. Simultaneously, the National Medical Insurance Administration announced China’s first commercial insurance innovative drug catalog, which includes 19 drugs such as CAR-T, TCE therapy, and bispecific antibodies. The multi-level payment model of “basic medical insurance + commercial health insurance” provides a pathway for the commercialization of treatment technologies and products with internationally leading standards, substantially promoting the development of China’s innovative drugs and devices.

CRO: Chinese Manufacturing Sets Sail Overseas & Industry Rebounds

Chinese CRO companies and upstream life sciences companies are continuously enhancing their global competitiveness through strong technical capabilities, efficient service advantages, and excellent cost performance. Domestically, as the investment and financing environment for innovative drugs improves, CRO companies have seen a sustained order rebound since 2025. As lower-priced orders are fulfilled, 2026 is expected to see both volume and price increases.

Devices & Services: Technology-Driven Industry Upgrades, Focus on Brain-Computer Interfaces, AI Medical Care, and Other Opportunities

The high-end customized medical consumables OEM industry has moved beyond the initial stage. Leading OEM companies are gaining global competitiveness in product quality, supply chain security and stability, supply efficiency, and cost advantages. The supply chain is accelerating its shift from Europe and the US to China. The technology of brain-computer interfaces continues to advance. Additionally, AI medical care is also developing rapidly, with various vertical models and AI applications expanding quickly.

Risk Warnings: Risks related to macroeconomic environment, market liquidity, pharmaceutical industry policies, geopolitical and international trade risks.