The recent policy changes and drug list expansion and price cuts in China's healthcare sector are set to benefit drugmakers from the fourth quarter of 2017 and continue into much of 2018, analyst reports said.

In February, Beijing expanded its drug reimbursement list to include more medicines in its medical insurance coverage, and in July, it negotiated price cuts for 36 innovative drugs.

The moves are aimed at making expensive medicines more affordable and accessible for patients.

Drug manufacturers, such as 3SBio Inc., Sino Biopharmaceutical Ltd, and CSPC Pharmaceutical Group Ltd, are expected to benefit from these changes throughout 2018, according to an Aug. 17 Citi Research report.

Innovative drug makers with strong research & development portfolios and generic makers will stand to gain from policy changes like an accelerated drug approval process, a June 21 note from BOCOM International said.

Meanwhile, public sector hospitals are expected to see more M&A activity as the government continues to reform the industry. About 3,000 state-owned hospitals established by non-healthcare entities will be either reformed or spun-off by the end of 2018.

These facilities may be potential M&A targets for local governments, state-owned enterprises in the healthcare sector, or social capital, Citi said, highlighting CR Phoenix as a potential buyer.

In the distribution sector, the two-invoice pilot system, designed to streamline drug distribution channels, will continue to pressure the sector to consolidate in the second half of 2017.

Top distributors with well-established national distribution network will benefit from M&A opportunities and market share gains at the expense of smaller players, BOCOM International said.

According to Citi, Sinopharm Group Co. Ltd. may have a stronger second half of the year while a contract sales organization such as China Medical System Holdings Ltd will face increasing sales pressure and regulatory risk from the two-invoice policy.