Despite Recent Updates on Chinese Healthcare Policy, Our Long-Term View Remains Unchanged

China’s National Medical Products Administration issued another supportive pilot policy earlier this week. Similar to other updates since the beginning of 2024, the policy aims to support innovative biological drugs, from regulatory approvals to manufacturing processes. While the policy could affect CSPC Pharmaceutical (narrow moat), China Resources Pharmaceutical (narrow moat), Shanghai Pharmaceuticals (narrow moat), Innovent Biologics (no moat), and Sino Biopharmaceutical (no moat), which derive most of their revenue from China and whose businesses develop or manufacture innovative biologic drugs, we don’t believe it's enough to change our fair value estimates for biotech companies or big pharmaceutical names. In our view, the fundamental shifts depend on (1) fewer price cuts on innovative drugs, (2) more customized public healthcare reimbursement policies, and (3) less uncertainty about whether an innovative drug will be adopted by hospitals once it is included in the public reimbursement.