Zhitong Finance APP has learned that GTJA released a Research Report stating that the opening of the bidding for the third batch of national Chinese Patent Medicine procurement has seen a decrease slightly above expectations. Currently, the procurement of Chinese Patent Medicine is still in the early stages, and quality improvement and expansion are expected to continue. The procurement has reduced enterprises' marketing costs, helping to eliminate unreasonable "water content" in the pharmaceutical circulation link, enhance the concentration of the Industry, and promote the innovative development of Chinese Patent Medicine.

GTJA's main opinions include:

The opening of the bidding for the third batch of national Chinese Patent Medicine procurement has seen a decrease slightly above expectations.

On December 30, 2024, the first batch of Chinese Patent Medicine procurement led by Hubei will continue, along with the national expansion and the opening of the third batch of Chinese Patent Medicine procurement. A total of 54 varieties across 37 procurement groups will be involved in these two batches, covering a Chinese Patent Medicine sales market worth over 30 billion yuan, with 373 representative products from 297 enterprises selected and a selection rate of 75%. Looking solely at the third batch of procurement, this time the procurement rules have more stringent requirements on the decrease rate, and while emphasizing the decrease, a K-value adjustment for price absolute values is introduced. Based on a rough calculation of the product winning price and the lowest online price before announcement, the maximum decrease for the third batch has reached 97.5% (SHINEWAY PHARM - Double Yellow Decoction Injection), with an average decrease of about 68%; while the first and second batches of national Chinese Patent Medicine procurement led by Hubei have maximum decreases of 82.6% and 76.8% respectively, and average decreases of 42.3% and 49.4%, highlighting a more evident decrease in the third batch. The results of this procurement are expected to be implemented nationwide by April 2025, and based on the purchase amounts of medical institutions and the results of this procurement, it is estimated that over 10 billion yuan can be saved annually nationwide.

The rules are continuously explored and improved, and it is expected that procurement rules tailored to the characteristics of Chinese Patent Medicine will gradually take shape.

Chinese Patent Medicine has certain particularities compared to chemical drugs, and there have been many difficulties in procurement previously: ① Many varieties make coverage difficult; ② Many exclusive products make price negotiation difficult; ③ Significant price differences among products with the same name and specification make bidding difficult; ④ Difficulty in quality evaluation in procurement, etc. Since 2021, various provinces, cities, and alliances have successively explored the procurement of Chinese Patent Medicine, continuously improving groupings, bidding, and winning rules: ① The Chinese Patent Medicine procurement led by Hubei has introduced technical scoring based on medical institution recognition, pharmaceutical company ranking, and innovation capability; ② The Guangdong alliance procurement has introduced daily average costs, linked the quantity to the victory price; ③ The ShanDong alliance procurement has comprehensively considered clinical needs and quality safety, introducing the proportion of total days of medication. The continuous pilot explorations in multiple provinces and cities aimed at creating procurement rules that match the characteristics of Chinese Patent Medicine have already achieved certain results, and further optimization is expected in the future.

The collective procurement of Chinese Patent Medicine is currently still in its early stages, and quality improvement and expansion are expected to continue.

In May 2024, the National Healthcare Security Administration issued a document stating that it will strengthen the quality improvement and expansion of collective procurement. The progress of collective procurement for Chinese Patent Medicine has been accelerating since 24H2: ① In September 2024, the special collective procurement of Chinese Patent Medicine in Anhui Province will start; ② In October 2024, the nationwide third batch of collective procurement led by Hubei Province will start and the proposed selection results will be announced by the end of December 2024; ③ In December 2024, Guangdong Alliance will carry out follow-up work for the procurement of Chinese Patent Medicine such as Qingkailing. Currently, there are fewer than 150 varieties of collective procurement for Chinese Patent Medicine (a total of 1,336 Chinese Patent Medicines in the 2024 healthcare catalog), and it is still in the early stages. It is expected that collective procurement will continue to improve quality and expand in 2025.

Leading Traditional Chinese Medicine prescription drug companies are expected to benefit, while OTCs are relatively less impacted.

Collective procurement has reduced marketing costs for companies, which helps eliminate unreasonable "water" in the pharmaceutical distribution process, enhance industry concentration, and promote the innovative development of Chinese Patent Medicine. The firm believes that with the quality improvement and expansion of collective procurement of Chinese Patent Medicine: ① Leading prescription drug companies are expected to benefit from advantages in brand, scale, and cost control in collective procurement, and continue to strengthen their innovation capabilities; ② Leading OTC brand companies have strong advantages in outpatient channels and brand effects, and will be relatively less affected by collective procurement in the short term.

Risk reminder: The progress of collective procurement exceeds expectations, and the price reduction exceeds expectations.