Core Viewpoint - The article discusses the ongoing reforms in China's medical insurance system during the "14th Five-Year Plan" period, emphasizing the shift from price competition to value competition in the pharmaceutical industry, driven by new policies and regulations [2][3][5]. Group 1: Medical Insurance Reform - The National Medical Insurance Administration has successfully completed various reform tasks, focusing on fairness, legal construction, fund security, technological empowerment, and collaborative development [2]. - The recent press conference addressed concerns regarding the improvement of the pharmaceutical industry ecosystem, guiding medical institutions to shift from "scale expansion" to "quality improvement" [2]. Group 2: Industry Restructuring - The deepening of centralized drug procurement aims to eliminate unhealthy price competition, transitioning the industry from a "price war" to a "value war" [3]. - The 11th batch of procurement rules has been optimized, allowing medical institutions to choose recognized brands and requiring lowest-priced companies to justify their pricing [3]. - The initiative to explore direct settlement of procurement and national negotiation drug companies by the medical insurance fund is expected to shorten the payment cycle for pharmaceutical companies from six months to under 30 days, improving cash flow and operational efficiency [3]. Group 3: Support for Innovative Drugs - The support for innovative drugs under the medical insurance policy is characterized by a "full-chain, high-intensity" approach, with 402 new drugs included in the insurance directory since the beginning of the "14th Five-Year Plan" [4]. - The expenditure on innovative drugs is projected to reach 3.9 times that of 2020 by 2024, with an annual growth rate of 40%, indicating rapid acceptance of clinically valuable innovations by the insurance fund [4]. - The establishment of a commercial health insurance directory for innovative drugs will provide supplementary payment channels for drugs not included in the national insurance directory, accelerating the commercialization of innovative results [4]. Group 4: Overall Industry Impact - The precise regulation of medical insurance policies is reshaping the pharmaceutical industry ecosystem by clearing out low-quality production capacity and creating market space for high-quality enterprises [5]. - The shift from "price war" to "value war" and the supportive policies for innovative drugs are expected to unlock growth potential for companies with strong innovation capabilities [5].

Core Viewpoint - The article highlights the strong performance and potential of the Guotai Innovation Drug ETF (589723), which tracks the Shanghai Stock Exchange's Innovation Drug Index, emphasizing its focus on biotech and small to mid-cap stocks, making it well-suited for the current market environment [1][2]. Group 1: Market Performance - The Innovation Drug Index has shown a stronger rebound from September 24, 2024, to June 2025 compared to the broader market and other pharmaceutical indices, indicating higher upward elasticity [1]. - The pharmaceutical sector's recovery is significantly driven by the performance of innovative drug companies, which have outperformed in the recent market rally [1]. Group 2: Policy Support - There is a clear policy inclination towards supporting innovative drugs, with future healthcare policies aimed at reducing the proportion of generic drugs and reallocating saved funds to support innovative drug development [1]. Group 3: Supply Side Developments - Domestic innovative drug companies have made significant advancements in research and development capabilities, leading to increased numbers of research pipelines and technical strength [1]. - The number of domestic drug companies participating in international markets and presenting clinical results at major academic conferences has seen a notable increase [1]. Group 4: Profitability Trends - Innovative drug companies are gradually achieving breakeven and even profitability after years of significant losses, with potential for further performance improvements driven by major business development events and new drug launches [2]. - The pharmaceutical sector currently has substantial room for valuation recovery and increased holdings, suggesting a favorable environment for investors to gradually accumulate shares in the Guotai Innovation Drug ETF [2].