China Healthcare_ 2025 Outlook_ New Wallet Opening Up – Transformation into Multi-Payer System

Key Points Industry Overview - 2025 Outlook: China's healthcare sector is expected to see significant growth in 2025, driven by structural changes and increased innovation. - New Wallet Opening Up: The integration of commercial insurance as a significant payer is expected to drive market recovery and growth. - Out-of-Policy Market Rising: The rise of the out-of-policy market, mirroring trends in the US in the 80s, is expected to benefit private medical services, pharmacies, and online healthcare companies. - Globalization of China Innovation: The globalization of China's innovation is speeding up, with increased out-licensing and BD collaborations. Core Views and Evidence - Commercial Insurance as a New Key Payer: Data sharing between the NHSA and other ministries will improve insurance margins and lower claim validation expenses. - Out-of-Policy Market Rising: DRG/DIP implementation has led to tighter cost control and increased demand for mid/high-end commercial insurance. - Globalization of China Innovation: Growing out-licensing and BD collaborations will benefit innovative pharma/biopharma companies with rich pipelines. - Multiple Inflection Points: Companies that adapted to the challenges in 2024 are set to rebound in 2025. - Import Substitution: Government support for "made in China" devices will accelerate import substitution and benefit domestic equipment/IVD players. - Geopolitical Risks for CDMOs: Short-term US sanction risk has diminished, and market interest in China CDMOs has improved. Investment Highlights - Top Buys: Hengrui, Hansoh, SSY, Akeso, Kelun Biotech, Mindray, Sinopharm, Wuxi Apptec, Wuxi Bio, Gushengtang. - Top Sells: Bloomage, Topchoice. Other Important Points - Hengrui: Innovative drug sales reached Rmb6.6bn in 1H24 (+33% yoy), and 10 more innovative products are expected to be approved in 2025/26. - IQVIA: Indicated faster Rx sales growth since July 2024. - Import Substitution: New policies to boost tender scores of made-in-China products will benefit domestic brands and foreign brands with local fully integrated manufacturing capacity. - Geopolitical Risks: Short-term US sanction risk has diminished, and market interest in China CDMOs has improved. - Top Picks: Hengrui, Hansoh, SSY, Akeso, Kelun Biotech, Mindray, Sinopharm, Wuxi Apptec, Wuxi Bio, Gushengtang.