China Establishes Initial Pricing Mechanism for New Drugs to Boost Innovation Returns

China's National Healthcare Security Administration (NHSA) has officially announced the establishment of an initial pricing mechanism for newly launched drugs, representing a fundamental shift in the country's healthcare policy approach from cost-control to innovation encouragement. This marks the first time the administration has publicly confirmed the mechanism's establishment at the policy level.

Wang Xiaoning, Director of the Department of Pharmaceutical Prices and Bidding Procurement of the NHSA, stated that the policy supports "high-level innovative drugs in achieving returns commensurate with high investment and high risk during their initial market entry, which essentially means a satisfactory price level." The mechanism also proposes "setting a certain period of price stability for high-level innovative drugs."

Addressing Innovation Investment Challenges

The absence of an initial pricing mechanism has historically led innovative drugs to lose their "window period monetization" capability, which represents the most critical stage for investment returns in new drug development. For small and medium-sized biotech companies, inadequate initial pricing not only severely undermines confidence in pipeline conversion but also affects companies' ability to invest in subsequent new drug projects.

The pricing disparities between Chinese and international markets highlight this challenge. Yifan Pharmaceutical's Efbemalen Pegol injection carries an end-user price in the U.S. market nearly 14 times higher than in China, while JUNSHI BIO's anti-tumor PD-1 (搜索)搜索该药品 drug shows a price difference of more than 30 times between Chinese and U.S. markets.

Mechanism Structure and Implementation

According to the February 2024 draft notice, when new chemical drugs are first listed on provincial drug procurement platforms, companies can self-assess their products using an evaluation scale published by the medical insurance department across three dimensions: pharmacology, clinical value, and evidence-based medicine. Higher self-assessment scores correlate with greater innovation value and increased freedom in setting initial drug prices.

For drugs with high self-assessment scores, the initial price stability period extends to five years, during which they are excluded from centralized procurement and listing prices remain largely uninterrupted. This protection facilitates companies in obtaining corresponding returns during the early stages of the innovative drug product life cycle.

Streamlined Market Access

The NHSA will provide active support through a "joint review and processing" model where one province's approval is recognized across all regions, helping new drugs quickly enter clinical use. This cross-provincial mechanism is considered a key operational tool to be implemented alongside the pricing mechanism.

"For Biotech companies, time is cost. Once provincial listing accelerates, it means that companies can receive feedback from doctors earlier, plan sales strategies sooner, and gain valuation recognition in both primary and secondary markets faster," explained Gu Xianfeng, Deputy Secretary-General of the Anhui Pharmaceutical Industry Association.

Broader Technology Support

Beyond drug pricing, the NHSA has added over 100 price items related to new medical care technologies across 30 batches of project guidelines. For neurological systems, the guidelines have established price items such as "brain-computer interface implantation fee" and "brain-computer interface adaptation fee." Once brain-computer interface technology matures and receives clinical approval, it can quickly enter clinical application with established billing structures.

The guidelines for otolaryngology include "cochlear implant fee" and "speech device installation fee," while radiation therapy guidelines cover "proton therapy" and "heavy ion therapy," promoting clinical application and transformation of high-end medical equipment.

Industry Response and Market Impact

Stocks related to brain-computer interface technology increased following the announcement, with Innovative Medical closing 7.72 percent higher, followed by gains in Jiangsu Apon Medical Technology Co and Sanbo Hospital Management Group.

"As a leading Chinese company in non-invasive BRI and neuro-regulation technology, we believe the National Healthcare Security Administration's support presents both opportunities and challenges," noted Cai Shengan, CEO of Wuhan Yiruide Medical Equipment New Technology Co. "The opportunities primarily lie in the policy addressing the issue of 'hospitals' reluctance to procure' and accelerating technology monetization."

Clinical Breakthrough Context

The policy announcement coincides with significant clinical advances in China's medical technology sector. A Chinese patient who lost all four limbs in a high-voltage electrical accident 13 years ago can now play chess and racing games using only his mind, following a revolutionary brain-computer interface implantation procedure in Shanghai. This represents China's first-in-human clinical trial of an invasive BCI and makes China the second country, after the United States, to advance invasive BCI technology to the clinical trial stage.

Since the device's implantation in March 2025, it has operated stably in the patient's brain with no infection or electrode failure reported to date, according to the research team from the Center for Excellence in Brain Science and Intelligence Technology at the Chinese Academy of Sciences and Huashan Hospital affiliated with Fudan University.

Policy Significance

Healthcare reform expert Xu Yucai emphasized that previous policies requiring "new drugs to undergo significant price reductions through various means to enter the medical insurance directory severely dampened the innovation enthusiasm of pharmaceutical companies." The new mechanism aims to encourage drug innovation and protect pharmaceutical companies' innovation enthusiasm while improving national medical insurance negotiation policies.

Industry leaders express optimism about the policy environment. Zou Jianjun, General Manager and CEO of JUNSHI BIO, indicated that with the implementation of full-chain policies supporting high-quality development of innovative drugs, policy dividends are converting into industry chain momentum. The current payment environment undergoes deep reforms aimed at precisely balancing commercial "volume for price" needs with innovation value returns through dynamic adjustment mechanisms.