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China wants commercial insurance firms to invest in the development of homegrown medicines, Beijing’s latest bid to support its burgeoning biotech and pharmaceutical sector.

Commercial insurers have been encouraged to set up investment funds to provide long-term financing and “patience capital” to nurture the creation of innovative drugs, according to a by China’s National Health Security Administration, which overseas its state medical insurance fund.

The 3.5 trillion yuan ($486 billion) fund — which covers medical expenses for roughly 95% of China’s 1.4 billion people — will also set up a catalog of innovative drugs that can be reimbursed by commercial insurers, according to the document. The list could lead to higher pricing for new, innovative drugs, helping shore up Chinese biotechs’ finances.

Shares of Chinese drugmakers, including Thalys Medical Technology Group, Staidson Beijing Biopharmaceuticals Co. and Lepu Medical Technology (Beijing) Co., rallied following the announcement.

Faced with an aging population and limited coffers to pay for expensive new treatments, Chinese authorities have for years aggressively negotiated price cuts for innovative drugs to make them reimbursable through state medical insurance. Most Chinese currently rely on state insurance to reimburse medicines, while commercial insurers have played a marginal role in subsidizing drugs.

That’s led to thin profit margins in the mainland for both Chinese and foreign drugmakers, raising concerns that the prospect of limited returns could eventually stifle domestic innovation.

Many Chinese firms have sought to develop their new treatments for Western markets through partnerships with global pharmaceutical giants — rather than focus on China — in part because low prices at home may not allow them to recoup research and development costs.

The stakes are high for China to boost its pharmaceutical companies, many of whom have developed innovative drugs that could rival blockbusters developed by global rivals. Sustaining the sector’s growth — and catching up with the West — hinges in large part on ensuring viable commercial returns for domestic biotechs developing competitive drug candidates.

Among them are Innovent Biologics Inc., which last week got approval for its weight-loss drug mazdutide, a turning point in China’s efforts to challenge heavyweights like Novo Nordisk A/S and Eli Lilly & Co. at home.

Photograph: Vials in a laboratory in Shanghai. Photo credit: Qilai Shen/Bloomberg

Topics Carriers Commercial Lines Business Insurance China