After the implementation of Centralized drug procurement (CDP), the winning pharmaceutical enterprises are faced with the conflict between a significant drop in product profit margins and high investment in innovation. The price of the winning drugs has been significantly reduced, but it remains unclear whether and how the innovative capacity of PE has improved. Based on the data of listed companies from 2012 to 2021 and the first to fourth rounds of CDP as a quasi-natural experiment, this paper investigates the innovation effect of CDP and the corresponding mechanisms using a dynamic difference-in-difference model. Results show that: first, CDP significantly increases the R&D output of the winning enterprises, which initially shows the innovation effect, but does not have a significant impact on their R&D input; second, the improvement of R&D efficiency is an important mechanism for CDP to achieve the increase of R&D output, while the opposing effects of the scale effect and price effect of CDP is a critical reason for the insignificant increase in R&D investment; third, the volume-price equilibrium is a crucial factor affecting the innovation effect of CDP, based on which, this paper further finds that the innovation effect of CDP is more pronounced in enterprises with lower market competition, higher innovation capacity and stronger innovation consciousness. Finally, based on the conclusion, this paper proposes policy recommendations, including balancing the volume-price relationship of CDP, smoothing the channels of innovation effect of CPD, and accelerating the transformation of PE into innovative enterprises to achieve a win-win situation for the pharmaceutical burden reduction of patients and the innovative development of PE.