According to WHO statistics, as of June 6, 2022, a total of 529,410,287 confirmed cases of COVID-19 have been reported globally, including 6,296,771 deaths. Since the peak on January 26, the global epidemic has shown an overall trend. Downtrend.

(Report producer: Industrial Securities )

1. Meet the challenges and opportunities under normalized epidemic prevention and control and the new medical reform

1.1. The new crown epidemic has been effectively controlled, but epidemic prevention and control must not be relaxed

The national epidemic has Showing a steady downward trend. Since 2022, Omircon mutant strains have added new variables to domestic epidemic prevention and control. Due to the fast spread and stealth characteristics of the Omicron mutant strain, it first spread widely in Europe and the United States at the end of 2021, and triggered a new round of global epidemic outbreaks. my country is also facing greater pressure from "foreign prevention of imported cases." In the first half of 2022, the domestic epidemic broke out in many places. While adhering to the general policy of "dynamically clearing and ", prevention and control measures are also advancing with the times and constantly adjusted. With the scientific and precise implementation of various prevention and control measures, the current domestic epidemic has been effectively controlled. According to the press conference of the Joint Prevention and Control Mechanism of the State Council on June 2, since May 30, the number of new locally infected people nationwide has dropped below 100 for three consecutive days, but there are still slight fluctuations in some areas. The overall domestic epidemic prevention and control situation is improving, but normalized prevention and control must not be relaxed.

The fourth round of the global epidemic has entered a downward trend. The new coronavirus Omicron mutant strain was first discovered in November 2021 and quickly spread around the world and triggered a new round of epidemics. Since the peak of the epidemic in January 2022, the number of new cases globally on that day has dropped significantly. According to WHO statistics, as of June 6, 2022, a total of 529,410,287 new coronavirus confirmed cases have been reported globally, including 6,296,771 deaths. Since the peak on January 26 (4,034,500 new confirmed cases in a single day), the global epidemic has The overall trend is downward.

Omicron has become the current main epidemic strain, and we continue to pay attention to the development of the new coronavirus. Compared with the previous four variants worthy of concern (VOC), research shows that due to partial mutations in the S protein, Omicron variants have stronger transmissibility and immune evasion capabilities; while the reduced utilization efficiency of TMPRSS2 protease makes Omicron The virulence of the mutant strain has also decreased. According to data compiled by Nextstrain, Omicron mutant strains have become the main epidemic strains of the current global new crown epidemic. As of June 6, 2022, Omicron new subtypes 22A (BA.4), 22B (BA.5), 22C (BA.2.12. 1) The overall proportion shows an increasing trend, which is 2%, 8%, and 11% respectively, and needs to be continuously tracked.

The impact of the COVID-19 epidemic has narrowed, and we are looking for the main line of investment in the second half of the year based on our main business. Since the first known case of COVID-19 infection occurred at the end of 2019, the global epidemic has placed a heavy burden on the economy and people's livelihood of various countries and regions. With the joint efforts of all mankind, prevention and control testing has been normalized, COVID-19 vaccines and Drugs are created from scratch; after experiencing the test of mutant strains such as Alpha, Beta, Gamma, Delta, and Omicron, prevention and control measures and response methods are also constantly "evolving". Overall, the impact of the new coronavirus epidemic is being marginal. Zoom out. Therefore, looking forward to the second half of 2022, as an industry closely related to epidemic prevention and control, the main investment line of pharmaceuticals should also focus more on the company's "non-COVID-19" main business, layout industry leaders, and tap potential new talents.

1.2. Policy review and outlook

1.2.1. Review of centralized procurement of medicines and high-value consumables

Overall, with the continuous advancement of multiple rounds of procurement by national organizations and regional alliances, the intensity and depth of centralized procurement are constantly increasing. A normalized pattern of centralized procurement has taken shape. Based on the experience of past rounds of centralized purchasing, the bidding rules, quality, supply, distribution, use guarantee mechanisms and related supporting policies of centralized purchasing have also been increasingly improved and optimized. At a regular policy briefing of the State Council earlier this year, Chen Jinfu, deputy director of the National Medical Security Administration, said that it is necessary to continue to promote the speed and expansion of centralized procurement and strive to achieve an average coverage of 350 per province by the end of 2022 through national organizations and inter-provincial alliance procurement. For more than 1,000 drug varieties, national and inter-provincial centralized procurement will continue to be promoted in an orderly manner in the future, covering more drug varieties with high demand and high value.

With the normalization of centralized drug purchasing, the centralized purchasing agreement periods for past batches of drugs have expired one after another, and the renewal of centralized purchasing contracts has also become one of the focuses of investors' attention.In November 2021, the National Medical Insurance Administration issued the "Notice on the Continuation of the National Organization's Centralized Volume Purchase Agreement for Drugs after the Expiration", which requires each province (autonomous region, municipality directly under the Central Government and Xinjiang Production and Construction Corps) or inter-provincial alliance as a unit , comply with laws and regulations, and carry out continuity work smoothly. Since November 2021, many provinces and regions have actively organized contract renewal negotiations after the expiration of the centralized procurement period. Among them, the relatively influential ones are the "Guangdong Alliance", the "Yangtze River Delta (Shanghai, Zhejiang and Anhui) Alliance", The centralized procurement contract renewal work organized by the three regional alliances of the "Henan and other Thirteen Provinces Alliance" and subsequent contract renewal work in other provinces are expected to be carried out steadily.

Not only medicines, but also high-value medical consumables are continuing to be rapidly promoted through mass procurement by national organizations, regional alliances, and various provinces and cities. At present, high-consumption centralized purchasing mainly involves cardiovascular intervention, ophthalmology, orthopedics and other fields. While achieving substantial price reductions, the coverage has gradually expanded, the categories have become increasingly rich, and relevant rules and policies have also been improved. In the long term, bulk purchasing of consumables will help increase industry concentration. In the future, with the help of policies, it is expected that more medical consumables with high clinical demand will be covered through more diversified alliance procurement methods and a more detailed evaluation and bidding mechanism. This will then promote the import substitution of domestic products, encourage innovation, and promote the upgrading of the industrial structure. Taking the recently launched procurement of orthopedic spine consumables as an example, according to the "National Organized Centralized Procurement Plan for Spine Medical Consumables (Draft for Comments)", this centralized procurement differentiates component products based on surgical type, surgical site, approach method, etc. Procurement is carried out systematically and according to the system, covering a total of 13 product systems and 8 types of materials. The intended purchase amount is not less than 80% of the demand reported by medical institutions, and comprehensively considers the needs of medical institutions, corporate supply capabilities and other factors. Unit bidding. This round of national procurement may change the previous situation in which domestic high-value spinal consumables were dominated by foreign brands, and domestic brands with high quality and low price are expected to further open up the market.

1.2.2, DRG/DIP and related key policies: Reform has entered the fast lane, and new management methods have accelerated supply-side structural reform

my country's medical and health system reform has clear priorities, and the key tasks in 2022 will continue to focus on "comprehensive promotion of health China Construction will further promote the experience of Sanming's medical reform, promote the expansion and balanced distribution of high-quality medical resources, deepen the reform of the three medical linkages, continue to promote the transformation from being centered on disease treatment to centered on people's health, and continue to promote the problem of difficult and expensive medical treatment." Expand. Among them, DRG/DIP, as a refined management tool for measuring the quality and efficiency of medical services and carrying out medical insurance payment, can further improve the transparency of medical services, promote the rationalization of medical expenses and their structures, and promote hierarchical diagnosis and treatment h112.

DRG/DIP Medical insurance payment: New payment methods help hospitals reduce costs and increase efficiency. After the reform of the medical insurance payment mechanism, hospitals adopt a diversified and compound payment method. They no longer set a separate upper limit for the total medical insurance reimbursement of each hospital. Instead, based on the total regional budget of the medical insurance fund, the hospital adopts a policy including acute hospitalization treatment based on different diseases and different departments. Diagnosis related group (DRG)/disease point (DIP) payment, some long-term hospitalization payment by bed day, primary outpatient service and some chronic diseases payment by capitation, outpatient service and case payment not suitable for package payment by project. of various payment methods. Under the new payment method, DRG/DIP for acute hospitalization adopts a "prepayment system" payment method, that is, the medical insurance pays a certain fee in advance, and the hospital controls expenditure within the fee limit given by the medical insurance. The treatment items that occur during the hospitalization process are from The hospital's "revenue" is transformed into "cost". At the same time, hospitals that treat more patients and treat patients with higher disease severity will receive higher medical insurance quotas, rationalizing the allocation of medical resources while promoting hospital cost reduction and efficiency improvement.

Specifically, DRG/DIP guides hospitals from pursuing service volume by adopting a prepayment payment method of "retaining surplus and not covering overexpenditure" (DRG) or "retaining surplus and reasonably sharing overexpenditure" (DIP) under the total regional budget. The adjustment will transform towards the pursuit of medical quality and cost control, thereby promoting rational diagnosis and treatment and better realization of medical value. Medical institutions need to pay more attention to cost-effectiveness in terms of operation and management, and medical decision-makers will also fully consider cost-effectiveness when selecting drugs, consumables, examination methods, and treatment methods. Compared with "payment by project", DRG/DIP encourages hospitals to control treatment items and costs within a reasonable range; compared with "total advance payment", DRG/DIP encourages hospitals to improve efficiency and treat more patients.

According to statistics from " China Medical Insurance ", as of the end of the "Thirteenth Five-Year Plan", the DRG/DIP payment method has covered approximately 36.5% of the insured population, of which DIP has a wider coverage; as of December 2021, 71 nationwide The pilot cities cover a total of approximately 319 million insured persons, accounting for approximately 23.4% of the total insured persons nationwide. The calculation methods of DRG/DIP medical insurance payables in my country are different at the level of each coordinating district, and whether the self-pay part is included in the policy is slightly different in each region. At present, the payment calculation method of DRG/DIP medical insurance funds in various regions has not yet reached a unified approach. In the DRG technical specifications issued by the National Medical Insurance Administration, it is required to consider the patient's self-pay portion when calculating the fees payable by the DRG medical insurance fund. According to this calculation method, under the payment standards of the same DRG group, theoretically, the higher the out-of-pocket expenses incurred by patients during treatment, the lower the expenses paid to the hospital by medical insurance. Therefore, the hospital may take the initiative to reduce out-of-pocket expenses during treatment. project. However, during the implementation process in various localities, some coordinating district medical insurance funds did not consider patients' self-pay when settling settlements with hospitals.

Since the Office of the State Council’s Medical Reform Leading Group issued the “Notice on Application for Public Hospital Reform Pilot Cities” in 2009, public hospitals in various pilot cities have gradually eliminated drug markups, and the proportion of inpatient drugs has also begun to continue to decrease. By the end of September 2017, all public hospitals across the country had achieved "zero markup on drugs", and the proportion of inpatient drug expenses dropped to 27.5% in 2019, a significant decrease from 43.1% in 2010. The proportion of hospital drugs is expected to decline further in the future. With the implementation of DRG/DIP, hospitals are expected to proactively reduce in-hospital drug use in order to reduce costs. Drugs that are not included in the clinical pathway will face greater difficulty in entering the hospital. For inpatient drugs, products with higher potency may be given priority. Hospitals The proportion of medicines is expected to decline further. In-hospital examinations may be gradually transferred between departments within the hospital. Before the implementation of DRG/DIP, the proportion of inpatient examination and examination expenses was increasing year by year. In 2020, the proportion of inpatient examination and examination expenses was approximately 10%. With reference to overseas experience, before the implementation of refined outpatient cost management measures, some inpatient examinations may be transferred to outpatient services under DRG/DIP cost control.

The proportion of inpatient surgery expenses in total inpatient medical expenses in my country is significantly lower than that in overseas countries with more mature medical systems. In 2019, the proportion of inpatient surgery expenses was less than 8%. Germany, which also has a social medical insurance system, accounted for as much as 70% of hospitalization surgery-related expenses1 in the same year. Based on this, it is expected that the proportion of labor expenses in my country's hospitalization medical expenses is expected to further increase. Since the new medical reform , my country has successively issued a number of guidance on the reform of the public hospital salary system. With the implementation of DRG/DIP in conjunction with other medical reform policies, it is expected that the hospital hospitalization fee structure will further tilt towards the core value part of medical services.

DRG/DIP and centralized procurement complement each other, each with its own emphasis. DRG/DIP and centralized purchasing policies complement each other. After centralized purchasing, the prices of some drugs and medical consumables are reduced, providing space for hospitals to control costs and choose products with higher cost-effectiveness under the implementation of DRG/DIP. However, the functional positioning of DRG/DIP and centralized procurement policies are not exactly the same.DRG/DIP focuses on rationalizing medical expenses and cost structure through refined management, and guiding the rational allocation of medical resources by formulating scientific and reasonable disease grouping and payment systems; while centralized procurement focuses more on rationalizing product prices and solving product price inflated prices. High and possible irregularities in circulation order and sales behavior.

Summary: DRGs have a history of development overseas for more than half a century and are an important tool for improving hospital service transparency, measuring the quality and efficiency of medical services, and conducting medical insurance payments. DIP is a localized hospital management and medical insurance payment method derived from DRG and in line with my country's national conditions. In terms of management, DRG/DIP divides cases with similar clinical treatment and resource consumption into the same disease group, which facilitates hospital management and makes medical behavior measurable and evaluable; in terms of payment, medical insurance funds can group patients with the same disease based on DRG/DIP. Hospitals are paid based on comparable costs. DRG/DIP is not an independent policy system. Combining it with other related policies such as pharmaceutical separation , centralized drug consumption and medical service price reform is expected to jointly promote the realization of the new medical reform goals.

1.3. Review of the trends of each segment

Since the beginning of the year, each pharmaceutical segment has shown varying degrees of adjustment. It is expected to be mainly related to factors such as the spread of the epidemic in many places in China and the impact of domestic and foreign macro changes such as the Russia-Ukraine conflict on market confidence. Year to date (as of June 2, 2022), the pharmaceutical and biological (Shenwan) sector has fallen by 24.09% as a whole, and all A-shares have fallen by 13.48%. Medical and biological (Shenwan) has oversold by 10.61% relative to all A-shares . Among the various sub-sectors, the trend of Pharmaceutical Distribution (Shenwan) was relatively good, falling 9.67%. This was mainly due to the relatively low valuation of the Pharmaceutical Distribution (Shenwan) sector among the various sub-sectors of the pharmaceutical industry and its prominent risk-averse attributes; The trends of vaccines (Shenwan) and R&D outsourcing services (Shenwan) in the first half of the year were relatively poor, falling by 36.89% and 33.55% respectively. Among them, the vaccine (Shenwan) sector has been adjusted significantly, which is expected to be mainly due to industry news such as HPV vaccines affecting market sentiment. The substantial adjustment in the R&D outsourcing services (Shenwan) sector is expected to be mainly due to market concerns about geopolitics and the boom in innovative drugs. factors related.

2. Seize the consumption dividends due to rising demand

2.1. Pay attention to the consumption recovery of medical services and pharmacies, and the industry leader Hengqiang

2.1.1. Medical services: Outpatient repairs are faster than inpatient repairs, and the ophthalmology industry chain is booming

Judging from hospital data statistics, after the epidemic, the hospital's outpatient volume in 2021 has exceeded the level of 2019, while the inpatient volume is still recovering. It is speculated that the main reasons are the postponement of demand for elective treatment patients and the reduction of demand for inpatients seeking medical treatment in other places under the normalization of epidemic prevention and control. Looking forward to the second half of the year, it is expected that demand for outpatient and day surgeries will still recover faster than inpatient projects.

The increase in penetration rate of and the launch of new products have brought higher growth to the ophthalmic myopia prevention and control track, and the industry prosperity has continued. Survey data from the National Health Commission show that in 2020, the overall myopia rate among children and adolescents in my country was 52.7%, an increase of 2.5 percentage points from 2019 and a decrease of 0.9 percentage points from 2018; of which 14.3% were among 6-year-old children, 35.6% among primary school students, and 35.6% among junior high school students. The rate is 71.1% for students and 80.5% for high school students. The demand for myopia prevention and control is relatively rigid. The penetration rates of orthokeratology lenses, , and defocal lenses are both less than 2%. The use of low-concentration atropine in-hospital preparations is also relatively limited. In the future, the sinking of supply-side channels and the enrichment of prevention and control methods are expected to drive the industry. sustained high growth.

2.1.2. Chain pharmacies: The operating rhythm has resumed, and the expansion of leading pharmacies has accelerated.

Chain pharmacies have gradually returned to normal operating rhythm this year, demonstrating resilience during the epidemic. In April, social retail data was released. The total retail sales of Chinese and Western medicines were 50.5 billion yuan, a year-on-year increase of 7.9%, and the growth rate ranked second among various commodity retail segments. The cumulative retail sales of Chinese and Western medicines from January to April were 199 billion, a year-on-year increase of 8.8%. %, reflecting strong defensive attributes.

Prescription outflow and increasing concentration are still the main lines of industry growth, and leading chain drugstores have considerable room for long-term growth. In 2021, the concentration of leading drugstore chains will further increase, with CR10’s market share increasing to 27.56%.In 2021, the proportion of terminal drug sales in retail pharmacies will reach 26.9%. It is expected that the value of out-of-hospital channels will be further highlighted in 2022 with the implementation of the dual-channel policy.

It is expected that chain pharmacies are expected to continue the improvement trend in the first quarter in the second half of the year. Looking at the whole year, endogenous growth has recovered, and the integration of and has accelerated, and the leading drugstore is expected to see a recovery in performance and valuation. In the medium to long term, policies such as Internet medical and medical insurance personal account reform are still disruptive. It is recommended to focus on leading drugstore chains with outstanding refined management capabilities and the ability to transcend policy cycles.

2.2, Traditional Chinese medicine consumer goods and brand OTC, gold emerges from the waves

2.2.1 The long-term trend remains unchanged: policy hedging, consumption upgrade, focus on brands, channels, and management capabilities

In the long term, the development trend of the traditional Chinese medicine consumer goods and brand OTC industry For the better. The policy side benefits from the policy support of the traditional Chinese medicine industry and the self-pay attribute of most categories, which has a certain degree of risk aversion; the demand side benefits from consumption upgrades, channels and consumers' attention to brands, which improves corporate brand value and improves the situation. Among them, the development of the brand OTC track is relatively mature, but as the improvement of brand value changes the industry structure, the OTC leading brands with core brand power are expected to obtain structural opportunities; the traditional Chinese medicine consumer goods track will benefit more directly from the consumption upgrade. Demand is growing, and the supply side enjoys the dividends brought by scarcity and brand value. It has the ability to continue to raise prices, and is expected to obtain growth opportunities with both volume and price rising. Among them, the brand value is deep, it has high-quality core varieties, and sales, channels, and management Companies that are comparable to the above are expected to continue their steady growth.

2.2.2 The short-term development is good: the policy environment is friendly, and structural changes are good for the leading

The risk-averse attribute of the policy is highlighted, and OTC varieties are mainly self-paid, with strong independent pricing capabilities. Policies support the development of the traditional Chinese medicine industry, and traditional Chinese medicine consumer goods and traditional Chinese medicine OTC benefit from Friendly industry environment. Since 2021, the implementation of policies related to traditional Chinese medicine has accelerated. In March 2022, the General Office of the State Council issued the " "14th Five-Year Plan" for the Development of Traditional Chinese Medicine ", which is different from the previous "13th Five-Year Plan for the Development of Traditional Chinese Medicine" by Compared with the issuance of by the State Administration of Traditional Chinese Medicine, it can be seen that the development of traditional Chinese medicine has a higher positioning and has received a higher level of attention.

OTC drug sales channels are mainly outside hospitals, the risk of centralized procurement is relatively low, and independent pricing capabilities are expected to be maintained. Retail pharmacies and Internet channels are the more important sales terminals for OTC products, and they are mainly paid at their own expense. According to IQVIA data, in the sales channel distribution of OTC drugs, urban pharmacies and county pharmacies contributed a total of 54.9% of sales, online pharmacies contributed 8.7%, and the three major out-of-hospital channels accounted for 63.6%. Therefore, it is expected to be affected by The impact of medical insurance fee control and centralized procurement is relatively small, and it has stronger independent pricing capabilities.

Channel reform and destocking are gradually completed, and the channel management capabilities of OTC companies have generally improved. With the standardization of pharmaceutical distribution channels, some OTC companies have experienced marketing system reforms and channel inventory clearance. While completing this channel transformation, OTC companies have also improved their channel and terminal inventory management capabilities through information construction, drug traceability code systems and other means. The inventory cycle has been weakened, and the inventory turnover days of some companies have declined.

Driven by rising costs, coupled with high price acceptance on the demand side, a new round of price increase cycle has entered.

Upstream raw materials for proprietary Chinese medicines have continued to increase in price, and rising costs have become the core catalytic factor for price increases. From 2021 to March 2022, the price of Chinese medicinal materials has increased by more than 11%, among which the wild species index has increased by as much as 13%; and the price of natural bezoars with scarce attributes has increased from December 2019 to December 2020. The increase was 21%.

There is a "scissors gap" between residents' income and the price of pharmaceutical consumer goods, which promotes further growth in demand for pharmaceutical consumer goods. The price adjustment range of most pharmaceutical consumer goods is smaller than the growth level of residents' income. Price increases of pharmaceutical consumer goods are supported by demand-side purchasing power.Take Angong Niuhuang Pills of high-end pharmaceutical consumer product Tongrentang as an example. Since 2010, it has publicly raised its terminal sales price three times, with a cumulative price increase of 146%, which is lower than the cumulative increase in per capita disposable income.

Some brands of OTC and traditional Chinese medicine consumer goods, relying on their strong brand power, have successively raised prices under the catalysis of rising costs, driving performance growth. Some of these traditional Chinese medicine consumer goods rely on their scarcity attributes to have a better competitive landscape and greater flexibility in price increases. Since Tong Ren Tang raised the price of its Angong Niuhuang Pills in December 2021, many Chinese medicine consumer goods companies have successively raised prices for some products, and brand OTC companies with strong independent pricing capabilities have also made price adjustments.

State-owned enterprises are reformed, governance is streamlined, incentives are in place, and management improvements drive enterprises into a new stage of development.

Since 2021, some companies in the traditional Chinese medicine industry and OTC companies have made significant positive improvements at the management level, many of which have benefited or are expected to benefit from the reform of state-owned enterprises. Inspur's traditional enterprises may inject new development vitality in the reform process. Existing management-level changes mainly include 1) marked by changes in actual controllers or management adjustments, the enterprise has entered a new stage of development, and is expected to achieve new development dynamics such as resource integration and management efficiency improvement in the new system and governance; and 2) Strengthen corporate development momentum through the implementation of different incentive methods such as equity incentives, employee stock ownership plans, and incentives for core subsidiaries. (Source of the report: Future Think Tank)

2.3. Pay attention to the new changes in the vaccine industry and look forward to the new future development pattern

"Innovation + consumption upgrading" is not only the investment logic of the entire pharmaceutical industry, but also the driving force for the development of the small vaccine industry. As the supply and demand structure of the industry changes, the safety, protective efficacy and scope of domestic vaccines, especially domestic Class II vaccines, continue to improve. Whether it is the packaging upgrade from vials to pre-filled sealing, the process upgrade from Vero cells to diploid cells , or the product upgrade from polysaccharide to polysaccharide combination, single vaccine to combined vaccine, or unit price to multi-price, consumers will Innovative second-category seedlings paid for by investors generally have stronger pricing power. With the general increase in per capita disposable income and public health awareness in my country, the penetration rate of Class II vaccines is also expected to further increase. Domestic vaccine companies with innovative capabilities are expected to see a "rising volume and price" market. At the same time, our country will gradually transform from a "vaccine power" to a "vaccine power".

China’s vaccine market has great potential, with large domestically produced varieties emerging one after another. According to CIC Consulting's calculations, in 2021, China's vaccine sales revenue will account for approximately 17% of the global market (excluding COVID-19 vaccines). The scale of my country's vaccine market (excluding COVID-19 vaccine ) has grown from 25.1 billion yuan in 2015 to 76.1 billion yuan in 2021. The compound growth rate from 2015 to 2021 is approximately 20.3%, with non-immunization program vaccines (category II vaccines) being the main Driving force; It is estimated that by 2030, my country's vaccine market size is expected to reach 215.7 billion yuan, with an estimated compound growth rate of approximately 12.3% from 2021 to 2030. Based on the differences in the target vaccination groups, the competitive landscape of different vaccine varieties can be divided according to the incremental market or the stock market. Among them, children's vaccines (such as the pneumonia polysaccharide conjugate vaccine that is currently highly popular in domestic innovative research and development, Diphtheria-tetanus-pertussis -based multiple vaccine), influenza vaccine , rabies vaccine usually focus on the incremental market, and the theoretical market demand is relatively stable every year; while HPV, herpes zoster vaccine and other varieties are mostly based on the incremental market. The existing market is the main market, and the theoretical market demand has a digestion process. After the digestion is completed, it will enter a competition pattern dominated by the incremental market. There are many large varieties of vaccines under the above two types of competition patterns, but compared with the former, they pay more attention to the opportunities of innovation and iteration. For varieties that are mainly based on the stock market, it is often necessary to pay attention to the market access leadership, production capacity and production capacity ramp-up of the product. , to meet market demand as early as possible and gain a larger share of the existing market.

Demand side: Increased public health awareness is expected to accelerate the increase in the penetration rate of Class II vaccines.Vaccine penetration will increase along with economic development. Occasional events may cause short-term fluctuations in vaccination rates, but will not affect its long-term development trend. The public's requirements for vaccine safety, protection and compliance continue to increase, which will further promote corporate research and development. , guiding the direction of industry development. After hundreds of years of scientific verification and experience accumulation, vaccines play a vital role in disease prevention and eradication of infectious diseases. Humanity has eradicated smallpox with the help of vaccines; it has also caused tens of thousands of children to suffer from whooping cough due to "vaccine hesitancy" in refusing to take the diphtheria-tetanus pertussis vaccine. However, vaccines do have inevitable risks of adverse reactions, limited protective efficacy, and disease areas that are difficult to conquer, all of which depend on the continuous advancement of technology and the continuous upgrading of products. Vaccine R&D companies at home and abroad are also making unremitting efforts to immunize human diseases. The widespread application of the COVID-19 vaccine is expected to increase public awareness of vaccination, comprehensively popularize vaccination knowledge among adults, and significantly improve the accessibility of vaccination information. The focus of China's vaccine market is gradually shifting from infants and young children to adults, and the penetration rate of Class II vaccines is expected to continue to increase.

Supply side: The tide of vaccine innovation has arrived. The technological revolution of and are often an important driving force for the explosion of large varieties of vaccines. Vaccine technology has gone through many changes from live attenuated to inactivated to polysaccharide/polysaccharide combination (mainly bacteria) and recombinant subunits (mainly viruses). The sudden new coronavirus epidemic has greatly accelerated on a global scale. The maturity of emerging vaccine technologies such as viral vector and nucleic acid. These vaccine technologies have also become more timeless with the deepening of research in basic disciplines such as immunology and pathogenic microbiology, as well as the new challenges that infectious diseases continue to pose to humans. In the face of this major public health emergency, the rapid response and cooperation of various domestic scientific research institutes and vaccine R&D and production enterprises are the result of the continuous improvement of the hardware and soft power of the vaccine industry in the past. Although domestic vaccine companies have long been able to meet the basic immunization needs of millions of newborns every year, foreign-funded companies still stand out in the field of high-end innovative vaccines. However, with the advent of domestic HPV vaccines, 13-valent pneumonia vaccines, etc., and the maturation of many domestic vaccine companies’ research pipelines, we believe that in the next few years, domestic innovative vaccines will usher in a small climax in the launch of the vaccine, providing benefits to the Chinese people. Bringing more cost-effective vaccine products. In addition, in the face of the global COVID-19 epidemic, many new technologies have achieved breakthroughs in clinical application, including the widely watched nucleic acid vaccine platform, viral vector vaccine platform, and the new adjuvant .

3. Grasp the innovation dividend and engineer dividend under supply upgrade

3.1. Upstream life sciences has entered a new stage of development, and the advantages of leading companies have gradually emerged

China's upstream life sciences industry is booming

The upstream life sciences industry chain refers to serving life sciences Related industries throughout the entire process of research and production (such as biopharmaceuticals, in vitro diagnostics, etc.), including related instruments and equipment, consumables, raw materials and services, are the core infrastructure for the development of the life sciences industry. The field of biomedicine is developing rapidly, and new technologies are emerging one after another. In the research phase, there is a large demand for biological reagents, consumables, and test instruments and equipment in multiple steps such as target discovery, target selection, antigen preparation, candidate drug screening, and functional identification. The process development and production of biopharmaceuticals is relatively complex, with cumbersome and highly specialized processes. It involves many aspects such as culture medium preparation, seed culture, scale-up, fermentation production, separation, purification, filtration and filling, etc., and also requires a lot of work. Support of professional equipment, raw materials and consumables. The

industry is growing rapidly with the downstream. Driven by the growing demand from the downstream biopharmaceutical industry, it is expected that the next few years will usher in the peak period of biopharmaceutical launches, and the supporting life science support industry is also expected to develop rapidly. The industry as a whole is on the fast track of sustained and rapid development, with future growth The space is vast.

The valuation of the main targets in the upstream life sciences is at a relatively low level in history

The upstream pharmaceutical industry chain has experienced a long period of adjustment in the past year. By summarizing the valuations of some upstream life science companies that have been listed for less than two years, it can be seen that the upstream industry Valuations have declined compared to a year ago. Sub-new stocks that have been listed for less than a year have also experienced valuation adjustments. The adjustment of market value and the rapid growth of upstream company performance have caused the overall valuation center of the upstream industry to shift significantly downward, but it is still higher than the overall valuation level of the pharmaceutical industry.

In the short term, we can pay attention to the performance recovery and recovery after the epidemic turns.

2022 The repeated domestic epidemics in the first half of the year may have a certain impact on the operations of some companies in the upstream life sciences industry from April to May. Some companies themselves are affected by the supply side, while other companies are affected by the demand side (universities, scientific research institutes and pharmaceutical companies). However, as the domestic epidemic situation is expected to improve marginally in the future, we believe that the upstream industry chain of life sciences is also expected to achieve "demand recovery" under recovery in the short term. Looking back, the disruption caused by the epidemic in 2020 mainly affected the operations of some companies in the industry in Q1 2020. Many companies in upstream life sciences and scientific research services companies went public late and lack quarterly data for 2020. Through a review of the quarter-on-quarter revenue growth of some companies for which data can be queried, we found that in Q2 2020, the quarter-on-quarter growth rate of most representative companies increased significantly, which was significantly faster than the quarter-on-quarter growth rate in Q2 2021. This shows that the rapid growth in Q2 performance in 2020 is not simply caused by the quarterly fluctuations in the company's operating conditions. According to our analysis, the substantial increase in Q2 performance growth in 2020 was mainly due to the "recovery of demand" after the epidemic. Life science upstream and scientific research service products are products that are urgently needed in pharmaceutical R&D and production. After the epidemic eased, customers from universities and scientific research institutes caught up with the progress of the projects (graduation time and fund closing time were fixed), and corporate customers worked overtime to complete the established R&D and Production tasks may make up for the demand for products that should have occurred during the epidemic, thus leading to a rebound in performance.

Mid- to long-term: Optimistic about industry leaders that can achieve cross-field development and internationalization

The upstream industry of life sciences has experienced rapid development in the past two years, with relatively large improvements in revenue, profits, and company size, and there have been significant improvements. Few companies have successfully completed IPOs and entered the secondary market. Currently, domestic companies are working hard in all aspects of the life sciences industry and have basically completed coverage of the entire industry chain.

Cross-field capabilities are a necessary condition for industry leading companies to achieve long-term development. my country's life science upstream industry as a whole started late. Currently, most companies in the industry are "small leading" companies that focus on a single segment. In the life science industry, the industrial chain is long and complex, and customers have diverse needs. Therefore, One of the important competitive advantages of the industry is its complete industrial capabilities and complete range of SKUs. Since the subdivided industries involve many different fields such as machinery, materials, and biology, the technical barriers are relatively high and generally require a long period of technology and brand accumulation. It is generally difficult for enterprises to break through the technological thresholds of other sub-industries by relying solely on independent research and development in a short period of time. For example, Thermo Fisher, a leading international company, has acquired capabilities across multiple fields such as biopharmaceuticals, diagnostics, analytical instruments, laboratory products and services through continuous mergers and acquisitions, and is still strengthening its influence in market segments through continuous mergers and acquisitions.

Domestic upstream companies are also actively expanding their capabilities. From the current point of view, most companies are starting from their own business and gradually extending to other directions in the fields related to their existing businesses. For example, Nanotechnology, starting from purification fillers, plans to acquire the protein purification instrument company Sep Instruments to achieve synergy in equipment and consumables in the field of protein purification. Novozant has established multiple subsidiaries to explore various fields such as experimental consumables and instruments and equipment. There are also companies in the industry that are actively developing cross-sector layouts.Tofflon completed the acquisition of 51% of the equity of the filler company Qianchun Biotechnology in 2021; it also invested in the filtration company Hangzhou Saipu (accounting for 25% of the shares); and also formed a team in the field of culture media for layout. Dorning completed the acquisition of Lianghei Technology as early as 2020, making it a company with related businesses in disposable consumables, bioreactors, and culture media; and in March 2022, Dorning successively acquired Le Maple Biotech and SALUS have extended their product matrix to the field of laboratory water purification.

refers to the development experience of international leaders. Cross-field development is also the only way for enterprises to grow and develop in the future and build a moat. Through the development of the past two years, leading companies in various subdivisions of China's life sciences upstream industry have certain advantages over latecomers in terms of capital volume, financing channels, and industry status. Therefore, we believe that in cross-field mergers and acquisitions, Under the development model, leaders in each segment have obvious advantages and are more likely to become industry leaders through integration in the future. Internationalization is another way out for single-product companies. Since the market space in a single segment is relatively small and the demand in a single country or region is relatively limited, it is difficult for a single product-based company to develop into a large company. Therefore, companies that do not have the strength to achieve cross-field development must find another way to break the market ceiling. limit. Most of China's upstream life science companies have relatively small overseas revenue. However, the market size of various global life science upstream subdivisions, such as biological reagents, culture media, purification fillers, etc., far exceeds that of domestic markets, and they have huge potential for tapping. Therefore, international Transformation will naturally become one of the directions that single-product companies need to vigorously develop in the future.

Seizing new opportunities from technological changes

The emergence of new fields of biotechnology provides domestic companies with opportunities to catch up. In relatively traditional fields, domestic enterprises still have considerable room for improvement in the construction of basic capabilities and ecological systems. Every time a breakthrough new biotechnology or new treatment emerges, it has a huge impact on the competitive landscape of the global pharmaceutical industry. For example, the recent rapid development of mRNA vaccine technology has given birth to Moderna, BioNtech and CuerVac in the global pharmaceutical market. Rising stars in the field, a number of fast-rising companies such as Aibo Biotechnology and Si Microbiology have also emerged in China.

New technologies also create demand for new process routes and new related products. For global upstream life science companies, there is almost no shortcut in product development and exploration of new technology routes. For example, the development of the emerging fields of cell and gene therapy has promoted the expansion of demand for viral vectors and plasmids in upstream production. Since this field has not developed for a long time, domestic companies can participate in the most advanced research frontiers and stand on the same starting line as traditional giants in new product fields. In the wave of development of innovative biological drugs, companies in the upstream field of life sciences in China have achieved rapid development and accumulation for the first time. In an era where visible new technologies are constantly coming, China's life science industry and its upstream will face subsequent changes and actively participate in the wave of related technological innovations.

3.2. The prosperity of the CXO track remains

Review of the trend of the CXO sector since 2021 (represented by the CRO index (8841421.WI)). Since October 2021, the sector has entered a downward cycle. The initial inducement is expected to be the monthly fluctuations in investment and financing data. Since then, industry factors, sector valuations, new crown drug orders, industry prosperity, etc. have become important factors that continue to disturb the CXO sector. factor. At present, we believe that the suppression of the sector by these disturbing factors is easing at the margin after early digestion. When partial easing signals are encountered, it is expected to bring upward catalyst. At the same time, as the previous sector decline digested the valuation premium, the current valuation of the CXO sector is at a relatively low level. Based on the current strong order demand and the trend of rapid expansion of production capacity, CXO is still one of the tracks in the pharmaceutical sector with high performance certainty and strong growth potential.

The core driving force of the CXO industry is the urgent need for R&D investment by pharmaceutical companies.

From the perspective of investment and financing data, reviewing overseas markets, we believe that the tightening of overseas liquidity (tightened by the Federal Reserve) will not have an impact on global investment and financing data and CXO company performance. and have a strong negative impact on stock price performance. Starting from the end of 2021, the Federal Reserve plans to launch a "Taper-raising-rate-shrinking" tightening cycle, triggering market concerns that tightening liquidity will suppress investment and financing in the global pharmaceutical industry. Looking back at the past two rounds of Fed interest rate hike cycles and comparing the annual returns of some overseas CXO companies and the Nasdaq Index since 2000, we can see that during the Fed tightening period, the average return of overseas CXO companies in most years was significantly higher than During the 2008 financial crisis and the following three years, the return rate of overseas CXO companies was lower than that of the Nasdaq Index. Based on this, we believe that except for major financial events that disturb the global market, the tightening of overseas liquidity (tightening by the Federal Reserve) has not had a strong negative impact on the performance and stock price performance of CXO companies.

Review investment and financing data, the global and domestic medical and health industry financing amounts have achieved rapid growth in 2020 and 2021. The global year-on-year growth rate in 2021 is approximately 59.5%, and the domestic year-on-year growth rate is approximately 38.8%. This provides strong support for the order sources and performance growth of my country's CXO companies in the short to medium term. Entering 2022, investment and financing data have fluctuated to a certain extent. In Q1 of 2022, affected by the data from February to March, the global financing amount fell by approximately 29% year-on-year, and the domestic financing amount decreased by approximately 34% year-on-year. April data continued the downward trend from February to March.

In 2022, domestic and foreign investment and financing data will perform poorly, but the impact on industry leaders is expected to be limited. We estimate that part of this is due to factors such as the downward valuation of U.S. biotech stocks and the tightening domestic innovation environment. It is also partly due to the certain cyclicality of investment and financing in the pharmaceutical industry, with a certain high base in the same period last year. In the short term, it is expected that the investment and financing data of the global pharmaceutical industry will continue to be suppressed, and the investment and financing situation in the second half of 2022 will continue to be observed. For biotech, continuous investment in research and development after obtaining financing is the main driving force to ensure its own development. At the same time, taking into account the use cycle of cash on the account after the completion of financing, the overall investment and financing data of the industry does have the possibility of cyclical fluctuations to a certain extent. Overall, the current fluctuations in investment and financing data have not yet had an impact on the orders and performance growth of my country's CXO industry. Although the possibility of impact in the future cannot be ruled out, it is expected that the degree of impact may be relatively small, and the impact on industry leaders will be more limited. .

In addition, in addition to investment and financing, big pharma’s R&D expenses serve as the “basic base” for innovative R&D funds, and its stable growth is also an important driving force for CXOs to maintain prosperity. A review of history shows that Big Pharma's revenue has generally maintained steady growth. Although the difficulty of global new drug research and development continues to increase, the overall R&D expense rate maintains a steady upward trend. From the perspective of R&D expenses, after 2013, big pharma's R&D expenses have returned to an overall growth trend.

The development trend of my country's small molecule CDMO industry is sustainable

In recent years, most pharmaceutical companies have been reducing their R&D and production operations in Europe and the United States, and more and more pharmaceutical companies are outsourcing production to Asia. From the perspective of global innovative drug development, considering that the CDMO penetration rate continues to increase, we believe that the overall global market demand for CDMO orders will maintain a stable growth trend. Based on the continued growth of demand, from the perspective of the development space of my country's small molecule CDMO industry, according to WuXi AppTec's public data, as of 2021H1, the number of innovative small molecule drugs in clinical stages in WuXi AppTec's CDMO pipeline has accounted for approximately 14% of the global market. % share. If we consider the number of projects from leading domestic CDMO companies such as Asymchem, Porton Pharma, and Jiuzhou Pharmaceutical, according to our rough estimates and calculations, the number of innovative small molecule drugs in the clinical stage of domestic CDMO companies as of 2021H1 It accounts for more than 25% of the global market share. Overall, my country's CDMO industry currently occupies an important position in the global small molecule CDMO market in terms of the number of projects, but there is still room for growth.

CXO industry development trend continues to improve

For CXO companies, production capacity and orders are important indicators for evaluating the prosperity of the company and the industry. The expansion plan of production capacity depends on the company's judgment on the industry prosperity and the company's order increment in the next few years. As long as the production capacity utilization rate remains high, the expansion of production capacity is a key factor in performance growth. Orders are a guarantee for the company to maintain a high production capacity utilization rate, and can also better guide subsequent development trends. For CDMO companies or related businesses, investment in production bases is the most important factor. With the acceleration of industrial transfer, each company has achieved rapid growth in production capacity or projects under construction. At the same time, capital expenditures of various companies have also increased rapidly, supporting the rapid growth of production capacity. Taking WuXi AppTec as an example, the company's capital expenditure in 2021 will be 6.936 billion yuan, a year-on-year increase of 128.84%. According to the first quarter report of 2022, the company is expected to invest 9-10 billion in capital expenditure in 2022, and the company's production capacity construction continues to accelerate. situation. In addition, from the perspective of reactor volume, taking Asymchem as an example, its production capacity release has also entered an accelerated period. As of the end of 2021, the company's traditional batch reactor volume is nearly 4700m³. The company expects to have a small molecule traditional batch reactor capacity plan by the end of 2022. It will increase by 46% compared to the end of 2021. The 501 workshop of Zhejiang Huishi, a subsidiary of Yaoshi Technology that is mainly responsible for production tasks, was successfully launched in 2022, achieving a 90% increase in production capacity. 502 and 503 are also in the critical stage of construction, providing greater production capacity flexibility and are expected to break through production capacity constraints and restart Back on track for rapid growth.

For preclinical and clinical CRO business, the core of production capacity is mainly the number of relevant personnel. In 2021, the personnel of major companies that are mainly preclinical or clinical CRO or have related businesses will see rapid growth. For example: as of the end of 2021, the total number of WuXi AppTec employees reached 34,912, a year-on-year increase of 32.2%; the number of Pharmaron's laboratory business employees at the end of 2021 was 7,136, a year-on-year increase of 28.4%; the number of Tigermed employees increased from 6,032 at the end of 2020 By the end of 2021, there were 8,326 people, a year-on-year increase of 38.0%; Medicilon's drug discovery sector had 1,067 R&D personnel in 2021, a year-on-year increase of 58.31%, and the pharmaceutical research sector had 326 R&D personnel, a year-on-year increase of 29.37%. Judging from the orders on hand or new orders announced by each company, the orders of each company have also maintained a rapid growth trend, demonstrating the current high prosperity of the industry. Tigermed's new orders signed in 2021 were 9.646 billion yuan, a year-on-year increase of 74.2%, and its orders on hand from January to February 2022 increased by more than 65% year-on-year; Medicilon's new orders signed in 2021 were 2.452 billion yuan, a year-on-year increase of 87.66%; Zhao Yanxin Pharmaceuticals signed orders exceeding 2.8 billion yuan in 2021, of which the amount of domestic orders exceeded 2.55 billion yuan, a year-on-year increase of approximately 65%. At the same time, large orders have also catalyzed the performance growth of many companies. For example, the cumulative contract value of Asymlink's major "Supply Contract" orders was US$481 million + RMB 2.720 billion + RMB 3.542 billion. As of the time of disclosure of the 2021 annual report The company's total orders on hand are US$1.898 billion (a year-on-year increase of 320%); Porton has received a total of US$898 million in major contracts. (Report source: Future Think Tank)

3.3. The growth rate of innovative drug innovation continues unabated, and differentiation, commercialization, and internationalization are still the focus.

3.3.1. Analysis of the entire innovative drug sector.

The concept of innovative drugs.

The definition of "innovative drugs" There were many disagreements initially, although the regulatory agency started from the perspective of developers, and made several revisions during the period, until the document released by CDE on July 2, 2021 - "Guiding Principles for Clinical Research and Development of Anti-tumor Drugs Based on Clinical Value" The solicitation for draft clearly stated for the first time that innovative drugs should "implement the clinical value-oriented and patient-centered research and development concept." Compared with previous definitions, the concept proposed this time judges innovation more from the perspective of clinical value, patient interests and even social value.

Internationalization (liscence out) was at that time

In the markets of developed European and American markets, the transaction of results between Big Pharm and Biotech has become a normal behavior, and together they support the good operation of the innovation atmosphere of the entire pharmaceutical industry.Big pharma introduces the achievements of Biotech, thickens its own pipeline, and relies on its strong commercialization capabilities to achieve rapid launch and large-scale production of new drugs; Biotech avoids the long process and uncertainty of commercial development by licensing its product rights, and quickly earns huge profits R&D returns to invest in the next R&D.

With the accumulation of innovative drug research and development experience, innovative drug projects with differentiation and “Best-in-class” potential are more likely to be favored by overseas pharmaceutical companies. According to incomplete statistics, from 2020 to the end of January 2022, more than 50 cooperative development and equity transfer agreements signed between Chinese pharmaceutical companies and overseas pharmaceutical companies were completed. Among them, the ones with the highest down payments were between BeiGene and Novartis on PD-1 The antibody berzane has a development, production and commercialization cooperation agreement in multiple countries, including the United States, Canada, and EU member states, reaching a total of US$650 million. Rongchang Biotech's ADC drug vedesitomab has reached an agreement with Seagen and successfully refreshed the total The transfer amount reached US$2.6 billion. Good cooperative relationships and synergy between pipelines will also help in the transfer cooperation of subsequent R&D products. BeiGene and Junshi respectively signed the transfer rights of TIGIT monoclonal antibodies with the counterparties of their PD-1 monoclonal antibody transfer transactions. There is a large difference in the down payment or total transaction amount of each transfer agreement, which is mainly related to the cooperation time and potential commercialization value of the project. For very early-stage collaborations with high risk of approval (such as preclinical projects), the down payment is often less than US$100 million, while for those with greater commercial value, such as PD-1 monoclonal antibodies, the total transaction amount is expected to reach US$1 billion. above. Judging from the specific types of projects, there are mainly two types of self-developed varieties. One is a large target with the highest speed (PD-1 type with good market performance/large combination potential); the other is newer targets (SHP2, ROCK2 etc.) and new technology platforms (such as dual antibodies, ADC, etc.).

At the beginning of 2021, we published the first in-depth article on the internationalization of innovative drugs, "The "Internationalization" of Chinese Innovative Pharmaceutical Companies and Pipelines is on the Line, Ready to Go", which discussed the unique internationalization path of Chinese pharmaceutical companies with license-out as the core topic. , 2021 can be said to be the year for the internationalization of China's innovative pharmaceutical companies. From the successful license out of multiple PD-1 at the beginning of the year to the blockbuster transaction of vedicitomab in the middle of the year, many domestic pharmaceutical companies have taken advantage of Related equity transfers set sail on the road to internationalization. 2022 is considered to be a harvest year for domestic innovative drugs to go overseas. However, the ODAC meeting held at the beginning of the year for sintilimab affected investors’ confidence in the internationalization of Chinese pharmaceutical companies to a certain extent. However, we believe that this ODAC meeting The positive significance is that it clarifies the main path for China’s self-developed products to go overseas for clinical research and application. The overseas approval of Legend Biotech's CAR-T therapy Cedar Chiolense demonstrates the FDA's recognition of high-quality and differentiated varieties, and also proves that the road to internationalization of China's innovative drugs is still smooth. Therefore, Chinese companies should pay attention to differentiation in the R&D process and avoid excessive internal friction caused by homogeneous competition.

Looking to the future: new technology + platform effect

New technology gives Chinese pharmaceutical companies new opportunities. In the wave of differentiated and international drug research and development, emerging technologies are an important opportunity for pharmaceutical companies to show their differentiated characteristics and form R&D platform advantages. It was only after 2010 that China truly entered the era of innovative drug research and development. The research and development of innovative drugs based on traditional technologies was decades later than overseas. The start-up time of new technologies was almost the same for Chinese and foreign innovative pharmaceutical companies. This is the new era. Technology can help domestic companies catch up and even take a first-mover advantage in niche areas. Currently, in the fields of antibody-conjugated small molecule drugs (ADC), dual antibodies, cell and gene therapy, mRNA and Protac, domestic pharmaceutical companies have carried out rich layouts and formed differentiated characteristics and advantages in subdivided fields. The

platform effect brings more opportunities to Chinese pharmaceutical companies. Based on the above discussion, not only completely new targets or completely new indications can be successful, but differentiated research and development (same target for different indications, same indication for different generations, etc.) can also have better approval and commercialization prospects.For competitive varieties with limited product differentiation, the value of the platform is particularly critical. A comprehensive platform can make preclinical research, clinical research, CMC, registration application and other processes more efficient. For Chinese companies, domestic patient recruitment is faster, the patient base is larger, and the cost is lower than that of developed countries such as the United States. Therefore, domestic clinical trials have certain characteristics and advantages in terms of advancement speed, and are also expected to be used in China, including China. The speed advantage has been demonstrated in international multi-center clinical trials. Taking BeiGene as an example, it has demonstrated strong international platform capabilities. According to the company's 2021 annual report, the company has a global clinical development team of more than 2,200 people, and has clinical teams in the United States, Europe and Australia. ; The company is executing more than 90 planned or ongoing clinical trials, and has enrolled more than 14,500 subjects, about half of whom are enrolled outside China. Hengrui Medicine has also built a new international team and introduced clinical R&D talents and marketing talents. The company's European and American CMO Joseph Eid is the former BMS global CMO. The company's R&D innovation has been upgraded, and professional clinical teams have been established in the United States, Europe, Australia, and Japan. The R&D team has fully launched the GPT (Global Product Development Team) working model, established overseas think tanks, and completed global clinical trials with higher efficiency and high quality.

3.3.2. BD has become an important strategy for the innovation and transformation of domestic traditional pharmaceutical companies.

BD is a win-win choice for traditional pharmaceutical companies and innovative pharmaceutical companies.

BD (Business Development) refers to patent licensing (License-in/License-out), Obtaining innovative technologies or products through cooperative development, equity investment, mergers and acquisitions, etc., has now become a routine operation for domestic pharmaceutical companies. For traditional pharmaceutical companies, with the gradual expansion of national centralized procurement coverage, the profits of generic drugs continue to shrink, and traditional pharmaceutical companies are in urgent need of transformation. BD has become an effective tool for traditional pharmaceutical companies to supplement their product pipelines and achieve innovative transformation; for innovation For pharmaceutical companies, with the normalization of national medical insurance negotiations, rapid launch and entry into medical insurance have become the key to increasing sales of innovative drugs. In the absence of a relatively mature clinical or commercialization team, BD can help speed up the launch process, make up for commercialization shortcomings, and obtain cash benefits at an early stage of product development, further improving the turnover efficiency of innovative pharmaceutical companies. .

In addition, BD cooperation will also help improve the success rate of R&D projects and achieve resource sharing and mutual benefit between both parties. According to the results of a study by Nature Reviews Drug Discovery, the success rate of collaborative projects from 1997 to 2014 was much higher than that of non-collaborative projects. This shows that R&D cooperation helps both parties leverage their respective advantages, share risks in the R&D process, and thereby improve The success rate of cooperation projects is a win-win choice for both parties.

Generally speaking, the core factors that determine the value of BD are clinical unmet needs, difference from SOC, market exclusivity period or patented technology. In addition, the success rate of the project, competition landscape, peak sales potential, market environment, etc. will all affect BD value. Taking patent licensing agreements as an example, the currently commonly used transaction method at home and abroad is "down payment + milestone payment + sales share", in which the down payment is a fixed amount, and the milestone payment and sales share are linked to the project progress, depending on future research and development. Depends on success rate and sales peak. According to LEK's research results, for patent transferees, due to the high risk of new drug research and development in the early stage, the down payment generally only accounts for 16% of the total transaction value. R&D and commercialization milestone payments are the main body of the transaction value, thus ensuring that the transaction Both parties share the later-stage R&D risks and benefits.

The number of global biomedical BDs has reached a new high, and the fields of tumors, COVID-19 and neurological diseases have attracted much attention.

The number of global biomedical BDs has reached a new high in 2021, and the contribution of COVID-19 projects has increased significantly. According to IQVIA statistics, the number of BD transactions in the global pharmaceutical market (excluding COVID-19 projects) reached a new high in 2021, with a year-on-year increase of approximately 9% compared to 2020. In addition, COVID-19 projects (including anti-viral projects, vaccine technology and production platforms, etc.) still contributed significantly to the increase, accounting for approximately 15% of the total number of global BD transactions.From the perspective of disease fields, anti-tumor and autoimmune drugs are still the areas of most concern, with the number of transactions increasing by 7% year-on-year; COVID-19 vaccines and anti-infectious drugs are also a hot topic, but the number of transactions has decreased compared with 2020; in addition, central There has also been a significant increase in interest in neurological drugs such as Alzheimer's disease.

Large multinational pharmaceutical companies are the main players participating in global pharmaceutical BD trading activities. According to IQVIA statistics, the top three pharmaceutical companies with the largest number of global pharmaceutical BDs in 2021 are Merck, Pfizer and Roche. Other companies with frequent transactions are basically large multinational pharmaceutical companies and some CDMO companies. Among them, Merck’s high activity is mainly related to its core product Keytruda (PD-1 monoclonal antibody). In 2021, Keytruda launched a total of 35 clinical cooperation projects with third-party oncology product pipelines. In addition, Merck introduced the new coronavirus oral drug molnupiravir from Ridgeback and signed a series of licensing agreements for its generic drug production.

The average total transaction volume fell year-on-year, which may reflect the decline in market popularity. In 2021, the number of global pharmaceutical licensing introduction transactions increased by approximately 5% year-on-year, reaching a new high in the past five years. However, at the same time, the average transaction value fell 8% year-on-year to US$452 million. This may be due to the decline in the popularity of the US Biotech market in the second half of the year, resulting in a decline in biopharmaceutical transactions. Valuations have also declined.

The number of China's biopharmaceutical BDs is increasing year by year, and traditional pharmaceutical companies have a strong demand for innovation and transformation.

The number of China's biopharmaceutical BDs is increasing year by year, mainly cross-border license-in. According to statistics from Meibai Healthcare, a total of 281 BD licensing cooperation transactions occurred in China's biopharmaceutical field in 2021, of which the numbers of cross-border License-in, cross-border License-out, and domestic transactions and joint development were 133 and 41 respectively. and 107, with the number of cross-border BDs increasing year by year.

Traditional pharmaceutical companies have a strong demand for innovation and transformation. Among them, the most active companies include Fosun Pharma, Innovent Biologics, BeiGene, Zai Lab, Hengrui Medicine, Huadong Pharmaceutical, CSPC Pharmaceutical Group, Hansen Pharmaceutical, etc. Most of the companies are Big Pharma, and some have Biopharma The potential of Biotech companies shows that traditional pharmaceutical companies have a strong demand for innovation and transformation.

Domestic pharmaceutical BD is basically a tumor drug with mature or verified targets, and may be a more cost-effective choice. With the rise of overseas scientists returning to China to start their own businesses, a number of outstanding biopharmaceutical start-ups have emerged in China, and joint development and equity transfers between domestic traditional pharmaceutical companies and innovative pharmaceutical companies have become more frequent. Judging from the top ten domestic BD transactions in 2021, the transaction projects are basically mature or verified tumor target drugs, and the total amount is much lower than overseas license-in, which may be a more cost-effective choice for domestic pharmaceutical companies. . (Source of the report: Future Think Tank)

3.4. Business transformation + extension, seeking breakthroughs in the stable development of APIs

The industry continues to expand; environmental policies have been introduced to optimize the industry competition pattern; the overseas share is high, and the pressure of medical insurance cost control is small

According to Mordor According to Intelligence statistics, the global API market size was US$165.7 billion in 2018. In the future, as the patents of some blockbuster innovative drugs expire, the market size of APIs is expected to continue to expand. It is expected that global demand for APIs will continue to grow in the next few years. By 2024, the market size is expected to rise to US$236.7 billion, with a compound annual growth rate of more than 6.1%.

After years of development, as competition in the API industry intensifies, most of my country's API companies have also transformed from the production of extensive low-end bulk APIs to sophisticated mid-to-high-end specialty APIs. The deep processing capabilities of enterprises have continued to increase, and the quality of drugs has improved. has also been improved accordingly. The successive promulgation of environmental protection-related policies such as the "Water Pollution Prevention and Control Action Plan" has led to the closure of many small and medium-sized API companies that did not meet environmental protection standards and permanently exited the market. The withdrawal of small and medium-sized enterprises with high-pollution APIs has optimized the industry competition pattern and increased industry concentration. degree and help improve the profitability of the remaining API companies. At the same time, domestic API manufacturers are also actively obtaining international certification in order to expand the sales scope and recognition of my country's APIs overseas.China is now the world's largest exporter of APIs. In a normal year, exports are around 1 million tons, and exports account for about 1/3 of the entire API production. Statistics from the China Chamber of Commerce for Import and Export of Medicines and Health Products show that in 2019, China exported APIs to 189 countries and regions in Asia, Europe, North America and other places, with the annual export volume reaching US$33.683 billion. From 2012 to 2018, my country’s export delivery value of chemical raw materials rose from US$22.7 billion to US$30 billion in 2018. In recent years, with the continuous expansion of medical insurance coverage, the pressure on medical insurance funds has also continued to increase. Compared with other pharmaceutical subsectors that mainly rely on domestic revenue, the API industry, which has a large proportion of overseas revenue, is less affected by medical insurance fee controls.

API companies have extensively entered the CDMO and preparation side, and their profitability has increased significantly

Against the background of the professional division of labor in the global pharmaceutical industry, the market size of the pharmaceutical CDMO industry has achieved rapid growth. According to Frost & Sullivan statistics, from 2014 to 2018, the global pharmaceutical CDMO industry market size increased from US$17.8 billion to US$26.8 billion, with an average annual compound growth rate of 10.7%. In recent years, the global pharmaceutical outsourcing service market has gradually shifted to emerging markets. Driven by the interests of international pharmaceutical companies in reducing R&D and production costs and improving economic benefits, the continuous improvement of domestic pharmaceutical industry regulations and policies, and the significant improvement in the service level of domestic pharmaceutical CDMOs, China's CDMO The market size has shown a greater degree of growth. At the same time, the full implementation of the domestic MAH degree has brought new development opportunities to the CMO/CDMO industry, and is of great significance to promoting the innovation and reform of the industrial ecology of the domestic pharmaceutical industry. The CDMO industry chain is very similar to the industrial chain of the API industry. API companies have a natural advantage when expanding into CDMO business by leveraging the advantages they have accumulated in chemical synthesis when engaging in the API business. In addition, the long history of cooperation and good cooperative relations between API companies and international pharmaceutical companies are also one of the key factors for the rapid development of the CDMO business of API companies.

Upstream chemical products and shipping prices are high, and the short-term performance of some API companies is under pressure; API companies that continue to be optimistic about the stable API business and rapid development of CDMO/preparation end in the future

Since the beginning of this year, due to the Russia-Ukraine conflict and the spread of the domestic epidemic Among other factors, the China Chemical Products Price Index (CCPI), China Export Container Freight Index (CCFI) and Shanghai Export Container Freight Index (SCFI) have been at high levels. The high prices of upstream chemical products and container freight have directly increased the costs of API companies, which has also led to a certain loss in the profitability of raw material companies. Therefore, in the first quarter of this year, the profits of a considerable number of API companies have declined year-on-year. However, at the same time, due to factors such as the elimination of some low-end production capacity of bulk APIs in the past few years due to non-compliance with environmental protection standards, the competition situation is improving. The price of bulk APIs has generally increased year-on-year since the beginning of the year, corresponding to the general profit level of the bulk API business of enterprises. Achieve substantial improvements. In addition, due to the large number of potential drug users, COVID-19 drugs may release a large amount of demand in the short term. As part of the global COVID-19 drug industry chain, some API companies that have received a large number of orders for COVID-19 drugs also performed relatively well in the first quarter.

3.5. Pay attention to hard technology and internationalization in high-end manufacturing of medical devices

3.5.1. Medical equipment: Hard technology empowers domestic substitution and sets sail for internationalization to become the first-class

In recent years, with the development of my country's medicine, machinery, electronics and other technologies With rapid development, domestic medical equipment has gradually broken through many technical barriers. In the next ten years, domestic substitution and product export will be the two main themes of the development of China's medical equipment. Large-scale sophisticated medical equipment such as sequencers, mass spectrometers, and surgical robots have begun the process of import substitution. At the same time, relatively mature products such as CT machines, monitors, and in vitro diagnostic instruments are accelerating the process of globalization and moving towards the world's first-class level. This is a process of innovation and upgrading of domestically produced technologies and continuous consolidation of hard technological strength.

Large-scale medical imaging equipment: Gradually overcoming technical barriers, domestic brands are advancing rapidly

Large-scale medical imaging equipment mainly includes CT, MRI, PET and other segmented products. They are all high-precision instruments and are composed of tens of thousands of parts and components, involving more than 100,000 items. Patents are one of the most difficult research and development subdivisions and the highest technical barriers in the medical equipment industry. China's medical imaging equipment industry overall started late. However, driven by factors such as the strengthening of the country's overall strength, the improvement of national living standards, the aging of the population, and the government's strong support for the medical field, China's medical imaging equipment market has grown rapidly. For many years, my country's large-scale medical imaging market has been monopolized by foreign giants such as GE, Philips, and Siemens. Domestic brands have a very low market share, and upstream core components (such as CT tubes, detectors, MRI superconducting magnets, etc.) are basically all Relying on imports, foreign-funded enterprises basically had full control over pricing in the past, which kept the prices of large-scale medical imaging equipment in my country high. In the past 20 years, with the rise of brands such as Neusoft Medical, Wandong Medical, United Imaging Medical, and Mingfeng Medical, the localization rate of the medical imaging equipment industry has continued to increase. Domestic leaders represented by United Imaging Medical have gradually become as capable as foreign giants. Higher strength.

In addition, in the more high-end PET-CT field, domestic companies represented by United Imaging also shine. United Imaging Medical successfully launched the ultra-high-end PET-CT product - uEXPLORER (Explorer) in 2019. It is the world's first panoramic dynamic scanning PET-CT. It has a large scanning field of view of 2m and its sensitivity is 40 times that of traditional PET equipment. A full-body scan takes as short as 15 seconds. Breakthroughs in multiple hardware performance parameters allow it to detect 4D real-time whole-body dynamic metabolic processes, breaking through the limitations of traditional 3D imaging of static metabolic processes. According to data from the Economic Daily, United Imaging Medical PET-CT has ranked first in domestic new market share for five consecutive years from 2016 to 2020, and has successfully surpassed foreign giants such as GPS in new domestic markets.

gene sequencing: Domestic sequencers are catching up, and clinical applications are setting sail.

sequencing, as a molecular detection technology, has extremely broad capabilities. “Sequence” refers to the directional sequence composed of component units in polymer biological macromolecules, such as the amino acid sequence in proteins and the nucleotide sequence in nucleic acids. Sequence is of extremely important significance to life, as it determines the basic structure and function of most of the molecules that make up human cells. By sequencing biological macromolecules such as nucleic acids and proteins in the body, qualitative and quantitative information with extremely high clinical diagnostic value can be obtained, which can theoretically cover most human physiological processes.

Since sequencing entered the historical stage, breakthroughs in “testing” related technologies have become an important driving force in shaping the sequencing industry. It is worth noting that in recent years, Chinese manufacturers have made great progress in independently developing sequencers. These include MGI, which is working in the field of NGS, and Qi Carbon Technology, which focuses on nanopore sequencing, as well as Zhenmai Biotech and Feipeng Biotech, which have recently entered the market. The performance of some domestic sequencers has already matched or even surpassed that of Illumina sequencers on paper. For example, the high-throughput sequencer DNBSEQ-T7 manufactured by MGI can achieve a sequencing throughput of 6Tbp/day, which is higher than the 3Tbp/day of NovaSeq 6000, and has certain advantages in sequencing costs. The core technology of DNBSEQ is DNA nanosphere sequencing, which comes from MGI’s acquisition of Complete Genomics. On this basis, MGI independently develops and implements key technologies such as two-color sequencing, CoolMPS, and lattice chips.

surgical robot: independent innovation of underlying technology, about to usher in a period of rapid development.

surgical robot is hailed as a new way of next-generation surgery. Its research and development and manufacturing involve electronic technology, robotics, precision machinery, sensor technology, signal processing technology, Research and development in multiple disciplines such as biochemistry and optics is extremely difficult. Since the da Vinci surgical robot was approved in the United States in 1999, it has firmly established its leading position in the global surgical robot market and has monopolized laparoscopic surgical robots for more than 20 years.In recent years, domestic companies focusing on the research and development of medical surgical robots have emerged in China, such as minimally invasive medical robots, Tianzhihang, Jianjia, Shurui, etc., and have made great achievements in different surgical fields. Taking minimally invasive robots as an example, its pipeline under development involves five major categories of surgical robots: laparoscopic surgery, orthopedic surgery, transnatural orifice surgery, pan-vascular surgery, and percutaneous puncture surgery.

Mindray Medical: Domestic substitute products are fully rolled out, and innovative technologies lead the world's first-class

Mindray Medical's main products cover three major business lines, life information and support, in vitro diagnosis and medical imaging. It has the most complete product lines and first-class products in the domestic industry. A one-stop total solution. The three major production lines are all basic equipment that maintains the daily operation of hospitals. In recent years, with technological advancement, capital influx and policy support, the process of domestic substitution has continued to advance. At present, the company's products have been used in nearly 110,000 medical institutions and more than 99% of tertiary hospitals in China. Since 2015, Mindray has launched a large number of blockbuster high-end products with first-tier technology, such as BeneVisionN22, BeneFusion n series, BC7500CPR, BS2800M, etc., which have established a firm foothold in the high-end market and accelerated its export to the global market.

3.5.2. High-value consumables: Centralized procurement is becoming normalized, and opportunities and challenges coexist.

According to Eshare Medical Equipment Exchange’s calculations, the size of my country’s high-value medical consumables market in 2019 was approximately 125.4 billion yuan, accounting for approximately 20% of the medical device market. It has maintained a relatively rapid growth rate in recent years and is an important part of my country's medical device market. At present, most of my country's high-value consumables subdivisions are still in the initial stage of development. From the demand side, the penetration rate of innovative products is generally low, and doctors and patients still need to receive long-term and continuous popular education; from the supply side , most tracks are still dominated by imported companies, and the product categories, product performance, clinical recognition, and corporate R&D and innovation capabilities of domestic companies need to be improved. We can see that the current localization rate of mainstream high-value consumables is generally low (except for tracks where domestic companies are the first to be approved and promoted, such as heart valves). The localization rate of most products is less than 50%, and some products are domestically produced. The conversion rate is less than 20%. Looking forward to the next ten years, with the continued release of grassroots demand, iterative innovation of various procedures and products, and the expansion of medical insurance coverage, we expect that China's high-value consumables industry will maintain a good growth trend, and domestic substitution will remain the main theme of industry development.

We believe that companies/tracks with the following characteristics are expected to stand out: 1) Track barriers are high and the competition pattern is relatively good: At present, domestic centralized procurement of consumables is mainly focused on large clinical quantities, mature clinical use, and markets For varieties with sufficient competition and high homogeneity, tracks with a relatively good competitive pattern will face relatively less pressure from centralized procurement; 2) Commercialization capabilities have been verified: considering the control of medical insurance fees on the volume of high-value consumables Both price and competitive landscape will have a certain impact, and the continuous research and development and innovation of products require large capital investment. Enterprises whose commercialization capabilities have been verified have better own hematopoietic capabilities and are expected to win in the long-term competition; 3) Cross-competition Road and platform companies: Looking back at the development path of high-value consumables giants such as Medtronic and Porco, whether through self-research or mergers and acquisitions, cross-track layout is almost a common choice for all giants. On the one hand, the advantages of platformization are It can better leverage the synergy effects of R&D and channels. On the other hand, it can effectively avoid or slow down the impact of centralized procurement and other medical insurance cost control measures on the company's operations. (Report source: Future Think Tank)

3.5.3. Medical device CDMO

The outsourcing rate of the overseas medical device industry chain has increased, and the medical device CDMO industry is booming.Since the passage of the Affordable Care Act in the United States in 2010, the payment side has narrowed and the pressure for industry consolidation has been transmitted from bottom to top along the medical device industry chain, forcing the restructuring of the industry chain to improve efficiency; medical device enterprises (OEMs) vigorously seek to reduce costs upstream. , promoting the rapid transformation of medical device production outsourcing (CMO) from general parts to modules and complete machines; CMOs are also actively engaged in mergers and acquisitions, seeking vertical capability integration and expanding global production capacity; in recent years, OEM and CMO cooperation has deepened and medical device technology integration has increased The improvement has further spawned the overall outsourcing of medical device R&D and production (CDMO); the global medical device CDMO market exceeded US$50 billion in 2019 and will exceed US$100 billion in 2025, with a growth rate of approximately 10%, which is the growth rate of the downstream medical device market. Nearly 2 times.

uses business scalability as a yardstick to predict the upstream medical device companies "WuXi" and "Luxun". Compared with upstream companies in the industry chain such as life sciences, consumer electronics, and new energy vehicles, medical device upstream companies face constraints such as complex downstream segmentation, high segmentation barriers, and large differences in customer groups. However, they have the technology, high compliance threshold, and customer base. Comparative advantages such as strong stickiness; after seizing the opportunities from 1 to 10, business scalability will be the key factor that determines the upstream medical device companies from 10 to 100; the scalability of the upstream medical device business starts from the entry point of the 1 to 10 stages , such as customer quality, technical capabilities, downstream segmentation capacity, and will be realized in cross-industry, cross-segmentation, top-down expansion and other paths. The key lies in corporate strategic decision-making power, R&D management system and investment and M&A capabilities.

3.5.4. Globalization of devices

Compared with medicines, the road to globalization of devices is more difficult. As we all know, the development cycle of innovative drugs often takes up to 10 years. After a new drug is successfully developed and marketed, it will have a patent protection period of about 8 years. On the other hand, when it comes to medical devices, its product "small iterations" are faster, focusing on better clinical effects and optimizing the surgeon's surgical experience. Therefore, device manufacturers also need to have a stronger connection with surgeons and help companies improve their products through "integration of medicine and industry". This closer relationship enhances doctors' brand recognition and customer stickiness to device manufacturers, while this brand stickiness seems to be weaker for pharmaceutical sales. Therefore, the global business path of devices is more difficult than that of medicines, and more academic expenses and longer time are needed to establish recognition by doctors in the early stage.

China is still in the early stage of globalization. At present, the overall scale of my country's medical device companies is small, and the expenses invested in research and development are far less than those of overseas giant medical device companies. The three domestic listed medical device companies with the highest operating income in 2021 are Mindray Medical (24.99 billion yuan), Yingke Medical (16.20 billion yuan) and Weigao Medical (13.18 billion yuan). There is still a big gap between them and global medical device giants. The top three global medical device operating incomes are Medtronic (USD 30.12 billion), Johnson & Johnson (USD 22.95 billion) and Abbott (USD 22.59 billion). Looking at R&D expenses, the top three domestic R&D expenses in 2021 are Mindray Medical (2.52 billion yuan), Minimally Invasive Medical (1.90 billion yuan) and Lepu Medical (910 million yuan). As the world's leading medical device company, Medtronic's R&D expenses in just one year are as high as US$2.75 billion (R&D expense rate is 9.1%), and this figure far exceeds the combined R&D expenses of many domestic head medical device companies. Therefore, there is still a long way to go for domestic equipment to go global.

4. Investment strategy: Grasp the new dividends under the upgrading of the pharmaceutical industry

The essential driving force of the pharmaceutical industry: The value increase of the global industrial chain under "innovation and upgrading"

"Innovation and upgrading" is an unchanging theme of the pharmaceutical industry. Compassion to relieve pain and confidence and determination to overcome diseases are the inexhaustible driving force for the development of the medical and health industry, so the pharmaceutical industry is always growing. The rise and prosperity of modern Western pharmaceuticals are inseparable from the vast demand for treatment during and after war, as well as the popularization of medical health and the pursuit and yearning for high-quality life in peacetime.The direct driving force behind the development of the pharmaceutical industry is nothing more than policy guidance, the emergence of talents, technological revolution, and intelligent manufacturing. Its characteristics of "from quantitative change to qualitative change" determine that the industry's inherent development path is cyclical. Looking back on the development history of China's pharmaceutical industry in the past ten years or so, we can see that the giant wheel of policy is rolling forward and the waves are washing away the sand. Each rising company has an inherent driving force given by policies or times.

In the future, the "consumption dividend" and "engineer dividend" of China's pharmaceutical industry will still exist. Since the second half of 2021, pharmaceuticals have experienced continuous and substantial adjustments, reaching the lowest position in history for ten years. The market cannot help but wonder whether the consumption dividend will continue with the centralized procurement of self-funded varieties? As the prices of generic innovative drugs fall lower and lower, will the innovation dividend continue? As the international environment changes, will the engineer dividend continue? We think the answer is yes. The first is policy, the essence of which is to further guide the improvement of productivity and the optimization of the supply side, and look forward to the emergence of higher-quality innovation and consumption upgrades; the second is talent, as scientists born in the 1970s returned to China in batches around 2010, after more than ten years Development, when it is about to bear fruit, can match policy changes and has stronger evolutionary capabilities; the third is technology, which is the diffusion and integration of life science technologies that emerged in the 1990s, and the competitiveness of products after the rise of intelligent manufacturing improvement and leap. Therefore, in the future, the consumption dividend, innovation dividend, and engineer dividend of China's pharmaceutical industry will still exist, and will extend to high-end manufacturing of the supply chain and internationalization of the industrial chain, giving birth to a new batch of great companies. The short-term adjustment is just to accumulate strength. CXO, consumer medical, technological innovation, internationalization, upstream independent controllable and high-end manufacturing and other tracks will rise again after the adjustment.

(1) Short and medium term: Grasp the resilience of medical demand under the uncertainty of the epidemic

The current domestic epidemic has been effectively controlled, and the fourth wave of the global epidemic has also entered a downward channel; however, due to the uncertainty of the mutation direction of the new coronavirus, and the current mainstream Due to the faster and more insidious transmission characteristics of the Omicron strain, normalized epidemic prevention and control must not be relaxed. The “hard-need” nature of biomedicine has enabled it to maintain good performance resilience despite the normalized prevention and control of the COVID-19 epidemic. Looking back on 2020, the performance recovery of leading listed companies, the industrial added value on the supply side, the social retail data reflecting domestic demand, and the industrial export delivery value reflecting external demand all reflect the rigidity and resilience of the pharmaceutical industry to a certain extent.

(2) Medium and long term: Pay attention to the value enhancement opportunities of China's high-end manufacturing and cutting-edge technology in the global pharmaceutical industry chain. Guide the global value chain to improve the comprehensive competitiveness of the pharmaceutical industry, from "inward roll-out" to "outward roll-out".

The COVID-19 epidemic swept the world in 2020. On the one hand, the global demand for medical and anti-epidemic materials increased sharply, and on the other hand, production capacity was reduced and transportation capacity was reduced due to epidemic prevention and control. Therefore, countries are paying more and more attention to the strategic position of the pharmaceutical industry. At a time when the global pharmaceutical industry chain and supply chain are accelerating the reshaping, we are expected to usher in a new round of opportunities to enhance the status of the global value chain (GVC). Compared with the traditional paradigm of “raw materials-processing and manufacturing-services”, structural upgrading within the industry has become increasingly important in recent years. Specifically speaking of the pharmaceutical industry, due to its strong regulatory nature, it is particularly important to obtain qualifications and certifications from overseas regulatory authorities, achieve access to target markets, and fully understand the industrial policies of local and target markets; and its impact on processes, technologies, and products and other higher innovation requirements, making the local entrepreneurship and financing environment, innovation system, and industry-university-research cooperation the core elements to enhance the comprehensive competitiveness of the industry; in addition, for some medical device fields that are more manufacturing-oriented, their industrial development level has reached a certain level It depends on the maturity of the local industrial chain, including but not limited to the supply and development level of upstream equipment and core components.

From demographic dividend to engineer dividend, China’s pharmaceutical industry’s international competitive advantage continues to improve. In the process of transition from labor-intensive to technology/knowledge-intensive, the optimization and upgrading of the internal structure of the pharmaceutical industry is inseparable from the continuous improvement of the quality of workers.As my country's demographic dividend gradually shifts to the engineer dividend, the international competitive advantage of China's pharmaceutical industry is also expected to shift from a single cost advantage to a differentiated product advantage and an efficient innovation advantage (such as clinical research and development advantages in the field of innovative drugs, medical research and development advantages in the field of medical devices). (Innovation advantages of industrial cooperation, etc.) are constantly improving. Some medical device companies with a high proportion of exports have shifted from OEM (original equipment manufacture, original equipment manufacturer) to ODM (original design manufacture, original design manufacturer) and then to OBM (original brand manufacture, The shift in focus of the original brand manufacturer's business is a good example.

participates in the pharmaceutical global value chain at a high level and has a differentiated layout in overseas markets. Judging from the development experience of the overseas pharmaceutical industry, the first growth curve of European and American pharmaceutical and device companies usually comes from the developed markets they are familiar with, and the second growth curve often comes from the development of emerging markets; on the other hand, the leading generic drug companies in India The rapid development is also inseparable from the reverse march into the US market. The industrial logic behind this is the improvement of global value chain status brought about by "cutting-edge technology" and "high-end manufacturing." The “14th Five-Year Plan for the Development of the Pharmaceutical Industry” clearly states “promoting domestic pharmaceutical companies to enter the international market at a higher level.” In view of the vast market space, but relatively high barriers to entry and supervision, mature developed countries markets that face direct competition from overseas pharmaceutical giants, "support enterprises to carry out simultaneous registration of innovative drugs at home and abroad, and carry out global multi-center clinical trials for developed country markets" research to realize the value of innovative drugs in a broader space; seize opportunities in the international market for biosimilar drugs, encourage vaccine manufacturers to carry out international certification, and produce and export vaccines in accordance with international vaccine procurement requirements; increase the number of registered generic drugs in developed countries, and increase the number of first-time generic drugs. The proportion of high value-added products such as drugs and complex preparations." In the markets of emerging countries with considerable market potential that need to be developed, we can fully learn from the previous experience of pharmaceutical MNCs in expanding and cultivating the Chinese market, "accelerate the global layout of the industrial chain, encourage enterprises to improve their international market operation capabilities, and strengthen cooperation with the "Belt and Road" countries Investment and cooperation, and actively explore emerging pharmaceutical markets." Adopt differentiated international market development strategies and combine the company's own historical accumulation and industrial advantages to continuously enhance the status of China's pharmaceutical industry in the global value chain. It is recommended to pay attention to innovative drugs and innovative devices oriented by "cutting-edge technology"; CXO and life science upstream oriented by "high-end manufacturing".

(This article is for reference only and does not represent any investment advice on our part. If you need to use relevant information, please refer to the original text of the report.)

Selected report source: [Future Think Tank]. Future Think Tank - Official website