China Adds Eli Lilly and Pfizer to Its First Private Insurance List — Is This a Buying Opportunity for Biotech Investors?

TradingKey - China officially unveiled its first list of innovative drugs covered by commercial health insurance on December 7, greenlighting 19 high-priced therapies previously excluded from the National Reimbursement Drug List (NRDL).

Multinational pharmaceutical giants such as Eli Lilly (LLY.N), Pfizer (PFE.N), Johnson & Johnson (JNJ.N), and Bristol Myers Squibb (BMY.N) were included, with Eli Lilly's Kisunla and Eisai and Biogen's co-developed Alzheimer's drug Leqembi drawing global attention.This landmark move signals a structural shift in China's innovative drug payment system, transitioning from a state-dominated market to a dual-driven model powered by both national and commercial health insurance.

Market analysts believe China's healthcare system is effectively diverting some financial pressure to its rapidly expanding commercial health insurance sector. This not only eases the strain on the national medical insurance fund but also preserves higher net price margins for multinational pharmaceutical companies.

For the past seven years, it has been common practice for China's NRDL negotiations to slash innovative drug prices to among the lowest globally, often resulting in average reductions exceeding 60%, with some products seeing cuts of up to 80%. Consequently, many multinational pharmaceutical firms had chosen a "strategic abandonment" of the Chinese market. The introduction of the commercial health insurance catalog effectively opens a new door for these companies.

What does this initiative mean for multinational pharmaceutical companies?

Market observers believe this initiative presents an opportunity for multinational pharmaceutical companies to achieve profit margin restoration and the revitalization of incremental markets.

Take Eli Lilly's Kisunla as an example: its net price in the U.S. is approximately 180,000 yuan per year, making it virtually unprofitable under the NRDL pathway in China. However, by entering the commercial health insurance catalog, even with a 40% discount, the actual realized price remains significantly higher than NRDL levels. Crucially, commercial insurance premiums are ultimately paid by middle-to-high-income families, rather than being government-subsidized. This demographic precisely represents the strongest willingness to pay for drugs targeting conditions such as Alzheimer's, oncology, and rare diseases.

Analysts, however, advise against excessive optimism, suggesting that this initial catalog is unlikely to significantly alter the overall landscape of China's innovative drug market just yet.

Yuan Weihao, an analyst at Daiwa Capital Markets, noted that selecting 19 out of 24 drugs that entered final negotiations indicates a limited success rate and hints at a cautious approach by regulators in the inaugural year of implementation.

Meanwhile, analysts at Macquarie Securities anticipate the catalog could expand to 300 drugs by 2027. They view commercial health insurance as a potentially excellent solution to the current shortcomings of the single-payer NRDL system.

Looking ahead to the end of 2025, China's innovative drug payment system is continually evolving, with a binary structure emerging where national health insurance covers basic needs, and commercial health insurance drives innovation. This shift is not only a boon for drug accessibility for Chinese citizens but also marks a turning point for global pharmaceutical giants to regain pricing power in the Chinese market.

For multinational pharmaceutical companies, this represents a prime opportunity to expand their footprint in China's innovative drug market. For retail investors, this presents a protracted structural trend, with significant long-term potential in the global innovative drug market. The most compelling immediate opportunities lie with two types of companies: those already listed in the first batch, such as Eli Lilly, Pfizer, and Johnson & Johnson; and those with robust R&D pipelines holding blockbuster drugs, poised for participation in the next round of negotiations.