Thinking this week: where is the way for centralized mining to speed up and expand the surface of high-value consumables?
Event: on April 13, 2022, the Ministry of finance of the people’s Republic of China issued the notice on organizing and applying for the demonstration project of central finance supporting the reform and high-quality development of public hospitals, which proposed to focus on controlling the unreasonable growth of medical expenses, promote public hospitals to actively participate in the reform of centralized procurement and use of drugs and medical consumables, strengthen cost constraints and reduce the burden of expensive medical treatment.
We believe that:
Speed up and expand the face, and centralized mining will come. We believe that centralized procurement will become the basic mode of public hospital bidding in the future. We pointed out in the report “how to treat the centralized purchase of Neurointerventional consumables” on September 17, 2021 that the logic of “difficult centralized purchase without centralized purchase and low domestic substitution rate without centralized purchase” has long been broken, and the centralized purchase of the whole product line is an inevitable trend. Affected by the centralized procurement of coronary arteries, many manufacturers flock to the blue ocean market with low domestic substitution rate and few manufacturers, such as neurointervention, electrophysiology, pacemaker and other sectors. The centralized procurement of pacemakers in 2021 shows that the domestic substitution rate is no longer a measure of centralized procurement, and the centralized procurement has expanded rapidly. Manufacturers of high-value medical consumables should be prepared to find opportunities for survival in the centralized procurement.
Provide bargaining power for product innovation. We always believe that at present, the so-called “micro innovation” no longer has advantages. Only major innovations that can completely solve the clinical pain points can provide the final bargaining power. Taking cardiac electrophysiology products as an example, Johnson & Johnson’s market share in China is nearly 60%, mainly due to its product sales in the field of three-dimensional electrophysiology and its main application of difficult surgery – atrial fibrillation treatment. If there is a centralized purchase of similar pacemakers, the company may have a strong market pricing power. In addition to minimally invasive electrophysiology, Chinese manufacturers have not approved products for the treatment of persistent atrial fibrillation. We believe that product innovation determines the breadth and irreplaceable of clinical application, thus determining the bargaining power in centralized purchase.
The perfection of product portfolio is the top priority. We believe that the innovation of a single product or a single variety of products has been difficult to support the development of enterprises. Perfect product line layout, systematic product innovation and rapid and continuous renewal and iteration ability are the core competitiveness to deal with policy changes. Centralized purchase is a challenge and may also become an opportunity, which will help domestic manufacturers enter more hospitals and promote other innovative supporting products. Perfect product line and innovative product layout can increase clinical acceptance and have the possibility to strive for greater market share in centralized procurement, that is, product improvement is an important competitiveness for clinical promotion and meeting the challenges of centralized procurement. Based on the above analysis, we recommend paying attention to companies with certain clinical foundation and strong product innovation, such as minimally invasive medicine, minimally invasive electrophysiology, Kangfeng biology, Apt Medical Inc(688617) etc.
This week’s performance: shock differentiation, and the growth of traditional Chinese medicine decoction pieces is obvious
This week, the pharmaceutical sector fell 1.33%, 0.34 percentage points lower than the Shanghai and Shenzhen 300 index, ranking 11th in all industries. In terms of turnover, the turnover of the pharmaceutical industry this week was 526.6 billion yuan, accounting for 11.6% of the total turnover of all a shares, down 1.0pct from the previous week, 3.5pct higher than the central level since 2018, and the turnover is still at a historically high level. From the perspective of valuation, the overall valuation of the pharmaceutical sector this week (historical TTM, overall method, excluding negative values) was 28 times, up 0.2pct month on month. The valuation premium rate of the pharmaceutical industry relative to the CSI 300 was 143%, up 3.6pct from the previous week, lower than the central level in the past four years (182.1%).
According to the classification of wind CITIC medicine, the sub sections of medicine were significantly differentiated this week, including traditional Chinese medicine (up 3.5%), Chinese patent medicine (up 2.5%) and medical circulation (0.1%); Other sectors fell significantly, including biomedicine (down 5.3%), medical devices (down 4.9%), medical services (down 4.0%), chemical agents (down 3.6%) and chemical APIs (down 3.2%). According to the classification of key companies of Zheshang pharmaceutical, medical services (up 3.3%) and medical devices (up 1.5%) rose this week, while other sectors showed a decline, including comprehensive generic drugs (down 5.0%), characteristic APIs (down 4.7%), R & D and innovative drugs (down 4.6%), biological drugs (down 4.3%) and scientific research services (down 3.9%). Looking at the performance of individual stocks, Zhejiangtailin Bioengineering Co.Ltd(300813) (up 13.9%) in the pharmaceutical business sector increased significantly, which we believe is due to the expected demand for NC film used in covid-19 testing products Zhejiang Ausun Pharmaceutical Co.Ltd(603229) contrarian growth is more prominent (16.9%). We speculate that it may be related to the valuation repair after the company’s short-term significant adjustment; In addition, we estimate that the strong performance of Walvax Biotechnology Co.Ltd(300142) , Shanghai Junshi Biosciences Co.Ltd(688180) is also related to the expectation of R & D promotion of covid-19 related supporting products. At the same time, we especially emphasize the obvious volatility of covid-19 specific drug theme investment this week, and the obvious correction of Companies with more rise in the early stage this week, which reflects the characteristics of theme investment in the market in the absence of main line at present. In addition, since the short-term performance growth may constitute a catalyst after entering the intensive disclosure period of the annual report in April, we continue to be optimistic about the pharmaceutical manufacturing sector and consumption attribute sector with relatively high growth in 2022q1 and clear medium and long-term industrial upgrading logic, such as CXO, API, pharmaceutical upstream, consumption (vaccine / traditional Chinese Medicine) and other companies.
Pharmaceutical investment strategy in 2022: grasp manufacturing and welcome innovation
We suggest that investors should break the “core assets” and “sector concept” so that they can look at the investment opportunities in the upstream and manufacturing links with the industrial chain thinking, and the innovative pharmaceutical machinery will continue to survive the fittest during the transition period. We believe that in 2022, medicine should adhere to the investment strategy of “grasping manufacturing and welcoming innovation”. Specifically, it is recommended to focus on:
1) manufacturing sector: API, cdmo and other subdivided fields, recommended Nanjing King-Friend Biochemical Pharmaceutical Co.Ltd(603707) , Apeloa Pharmaceutical Co.Ltd(000739) , Wuxi Apptec Co.Ltd(603259) , Asymchem Laboratories (Tianjin) Co.Ltd(002821) , Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) , Porton Pharma Solutions Ltd(300363) , Hainan Poly Pharm.Co.Ltd(300630) , etc.
2) upstream: the upstream: pharmaceutical equipment, reagents, consumables, and other fields of pharmaceutical equipment, reagents, and consumables, and the upstream: the upstream: the fields of pharmaceutical equipment, reagents, and consumables, and the fields of pharmaceutical equipment, and the fields of pharmaceutical equipment, reagents, and consumables. The upstream: the upstream: the upstream: the upstream: the fields of pharmaceutical equipment, and the fields of pharmaceutical equipment, reagents, and consumables, and the fields of pharmaceutical equipment, reagents, and consumables, and the fields of pharmaceutical equipment, and so on the fields of pharmaceutical equipment, such as pharmaceutical equipment, reagents, and consumables, and so on, and the recommendations are recommended in the fields of senszonzonzonzonpine international, the Tofflon Science And Technology Group Co.Ltd(300171) Tofflon Science And Technology Group Co.Ltd(300171) of the Tofflon Science And Technology Group Co.Ltd(300171) 35171 payattention to Qingdao Haier Biomedical Co.Ltd(688139) etc.
3) innovation: equipment and pharmaceutical companies with international capabilities recommend Micro-Tech (Nanjing) Co.Ltd(688029) , minimally invasive medical treatment, etc., and pay attention to Beijing Balance Medical Technology Co.Ltd(688198) , Baiji Shenzhou, Xinda biology, Shanghai Junshi Biosciences Co.Ltd(688180) , kangfang biology, etc.
4) others: Other: consumer attributes, medical services, and innovative supporting industry companies; consumer attributes, medical services, and innovative supporting industry companies; recommending Hangzhou Tigermed Consulting Co.Ltd(300347) ‘ \ , Zhangzhou Pientzehuang Pharmaceutical Co.Ltd(600436) , etc.
Risk tips
Changes in industrial policies; The price reduction of core products exceeded expectations; R & D progress is less than expected.
