Basic conclusion
Background of the report: on one side, Cinda biological antitumor blockbuster PD-1 ushered in the first tumor drug advisory committee (ODAC) meeting of Chinese pharmaceutical enterprises in the U.S. Food and Drug Administration (FDA approved 18 new antitumor drugs and held 6 ODAC meetings in 2021); On the one hand, the pharmaceutical sector, especially the innovation related sub sector, continued to decline for six consecutive months. At present, is it falling out of the golden bottom or the decline of the industry unchanged? We judge the industry trend from the market and performance, the essential root causes, and then come to the conclusion that the former; At this moment, it is a good opportunity to choose the best layout from bottom to top among the sub sectors with differentiated trend. We believe that innovation is the essential driving force of productivity progress; Only industries that innovate repeatedly can have individual stocks that grow several times; At the same time, the growth of medicine and other science and technology industries will not stagnate due to the regional blocking of the upstream supply chain.
The performance of the pharmaceutical innovation sector has been significantly reduced in recent half a year. We have counted the trading conditions of 181 Hong Kong stocks and 404 A-share pharmaceutical and medical related stocks for nearly 100 trading days. The CXO and biotechnology sub sectors of Hong Kong stocks have fallen by 47% and 42% respectively; In the past 25 trading days, the A-share CXO and biological medicine sub sectors fell by 36% and 16% respectively, while the cdmo and cro sub sectors of A-share CXO fell by 33% and 29% respectively.
Core root causes; (1) The rapid advancement of medical insurance negotiations has raised concerns that the performance growth rate and valuation of some generic and innovative head pharmaceutical enterprises no longer match. In fact, the enterprises in this sector are also divided. Some new drugs quickly make up for the decline in the sales growth of old drugs, and the superposition of innovation weights has brought pulse new growth after being listed one after another. (2) Biotechnology and upstream CXO sectors are affected by geopolitical fluctuations, which makes the market worried about the sustainability of their operations. For the instruments, equipment and consumables necessary for biomedical innovation and R & D, not only alternative products are available in many regions around the world, but also the localization of Chinese enterprises has been promoted for many years. The independent control of the biomedical industry chain will be determined. (3) In addition to the dual impact of the aforementioned medical insurance negotiation and supply chain concerns, it also triggered the market’s concerns about the internationalization of Chinese innovative drugs and the successful commercialization of Chinese innovative drugs. In terms of innovative drugs going to sea, Cinda biology, as the leader of innovative drugs in China, made a very meaningful milestone exploration on the conditions required for China’s innovative drugs to enter the international innovation core market at the ODAC meeting held after the US Food and Drug Administration accepted its listing application of PD-1 monoclonal antibody for non-small cell lung cancer. In terms of commercialization and cash in the Chinese market, there are many poor expectations in the market; For example, for the high-priced anti-tumor drugs for the indications of end-line patients, the market is worried about the restrictions on the commercialization process of patients who are not included in the medical insurance varieties. According to the public data, such innovative drugs as cell therapy, the participation of Huimin insurance and commercial insurance, and the payment power of patients are better than market expectations.
Direction judgment: the above three expected differences constitute a good investment opportunity, but it needs more professional tracking and research investment rather than investment according to the subdivided track in order to obtain a relatively deterministic excess return.
Investment strategy: we believe that international innovation strength, two-way ability of introduction and internationalization and unique barriers are the three entry points to find high-quality innovative stocks from bottom to top. The optional tracking indicators are: cumulative R & D investment, new drug pipeline, platform progress (for example, cell therapy platform, recombinant protein library, etc.), international cooperation (for example, license in / out disclosure), etc.
Focus on: Kingsley biotechnology, Sinocelltech Group Limited(688520) , Baiji Shenzhou, Cinda biology, Shanghai Junshi Biosciences Co.Ltd(688180) etc
Risk tips
Innovative enterprises may face the risk of huge performance fluctuations such as R & D failure, patent and medical legal disputes.
The market is unable to objectively interpret the clinical trial data results of innovative enterprises, resulting in the risk of severe market fluctuations.
