China Healthcare:36drugs included in NRDL through negotiation

Hengrui and CMS should benefit from the new additions as well. Wekeep apatinib estimates unchanged as we have already assumed NRDLinclusion, while we increase our Xinhuosu estimate for 2018 by 34%.

    We also believe the inclusion of Seroquel is positive for HCM but negativefor Fosun, as Fosun markets a generic version. Also, the inclusion ofVictoza should be slightly negative for 3SBio.

    Inclusion of numerous MNC cancer drugs, especially Avastin, Herceptinand Rituxan, is likely to be negative for the entire biosimilar space asconsensus estimates will probably be revised down. This is negative forcompanies engaged in TKI as well. As such, we reduce our top salesestimate for anlotinib from RMB4bn to RMB3.6bn.

    We also highlight the significance beyond the aforementionedquantitative measures. For example, for domestic companies, it will beincreasingly challenging or even impossible to identify patient populations(mainly 3L metastatic cancer) that they hope to enroll for China-specificinnovative drugs.

    On July 19th, results from NRDL negotiations on 44 selected drugs werereleased, with 36 drugs included in the NRDL as manufacturers agreed toprice concessions. Among these, 22 were from MNCs and 14 from domesticcompanies. On average, the ASP erosion was 37% compared to the most recenttender ASP, with Avastin/Revlimid/Tarceva registering the highest price cuts of61%/60%/58%, respectively.