Core viewpoint:
1. In every medical rebound, innovative drugs are a vanguard and a weapon for offense. Although it is also a downward state overall, every time the pharmaceutical rebound is grasped, the overall profit will be very good.
2. If you look at this sector from a fundamental perspective, there is no problem with innovative drugs. From the perspective of market feedback, as the strongest offensive sector in the pharmaceutical sector, innovative drugs often open and close together in the process from scratch.
3. From the perspective of industry research, this industry is currently in the very early state of China's innovative drugs, and the very early state breeds some huge opportunities.
4. From the best time last year to the present, the innovative drug has experienced this pullback process. It is actually a re-examination of industrial awareness, and it is also a process of repaying debts for some excessive increase. After returning it, you can go Go to the next wave in a more benign state.
5. If the CSI Innovation Pharmaceutical Industry Index reaches a lowest point, it will instead explain two problems. The first is that the bubble that should have been returned in the past has dropped. The second is that at this time it is the extreme point with extreme negative cognition. This extreme point is the same as the positive extreme point. It may be a It is a serious underestimation state, so don’t panic when you are at the low level. Instead, the opportunity point is the place where the low level is, especially when you are at the high level, it may be a risk-related state.
6. From the perspective of prosperity, innovative drugs are actually very good in the entire pharmaceutical sector segment. The performance and income side are a verification of prosperity.
7. The essence of the structure adjustment of the payment side is to stop paying what should not be paid, but to support the encouragement of innovation and feedback on medical services. However, if it is only understood as cost control and price reduction, it is a bit extreme. We pay The change on the end should actually be both decline and rise.
On September 5, Zhang Jinyang, chief analyst of Pharmaceutical and Biology at Guosheng Securities, analyzed the outlook on the development prospects of the innovative drug industry and the impact of the macro environment and policies on innovative drugs in a live broadcast, and made the above judgments and sharing.
The following are the essence of the investment homework book (WeChat ID: touzizuoyeben), share with you:
Innovative drugs are the "vanguard" in the pharmaceutical rebound
Question: Please comment on the overall market of the innovative drug sector this year Performance.
Zhang Jinyang: The overall performance of innovative drugs this year should be in a downward state, from the beginning of the year to the present, but there have been two twists and turns in the middle. One of the twists and turns was probably in March, with a rebound of about half a month, and then another from late May to early July, with a relatively good and sustainable rebound this year, and then I experienced it again. With an adjustment, the current position is probably the lowest point at the end of April (April 27) and at the end of May.
Overall, everyone may feel that the trend of innovative drugs this year is a little weak, because innovative drugs have indeed experienced a bull market since 2017, and the overall increase is huge, plus the overall medicine over the past year It is not very good, and the entire innovative drug is an offensive sector in medicine that belongs to the strong alpha, so it may be a bit of a loss in this environment. , but in fact, in every medical rebound, innovative drugs are A vanguard is a weapon for attack.
So although it is also a downward state overall, every time during the medical rebound, if the rhythm of innovative drugs is grasped, the overall profit will be very good.
innovative drugs are currently in their very early stages, and there are still huge opportunities in fundamentals
Question: Can it be understood that the industry itself has not undergone essential changes, but is relatively in a bottom range?
Zhang Jinyang: If you look at this sector from a fundamental perspective, there is no problem with innovative drugs.
From the perspective of market feedback, as the strongest offensive sector in the pharmaceutical sector, innovative drugs often open and close in the process from scratch. For example, from 2017 to 2021, its opening degree will be particularly large, and the overall offensive is very strong, so the entire sector will close relatively tightly, but this may be some of the market level. The big opening and closing of factors. We need to distinguish what is brought about by fundamentals in stocks and investment, and what may be more affected by the market.
Sometimes we are easily affected by some influence at the market level , but if we always stick to the fundamentals, in fact, feedback from a long-term perspective is very positive, just like innovative drugs. From the perspective of industry research, this industry is still in the very early state of China's innovative drugs. and the very early state give birth to huge opportunities. so the fundamentals are like this, and the market level may be in this two. The impact of the year is a little bigger, but I don’t think the problem will be particularly big. Don’t panic when
is low, but the opportunity point lies in
Question: How do you think that the current valuation of the CSI Innovation Drug Industry Index has reached a relatively low position since its release?
Zhang Jinyang: From the beginning and end of history, and at the same time, give back to the two dimensions of the industry and the market, it may help everyone better understand this matter.
First from the perspective of the cognitive trading level of the entire market, any sub-industry will go through a stage from scratch: First of all, we feel that it has begun to exist, and we think that this thing will become particularly huge in the future. Then, in this process, the first wave peak will generally be experienced, which is a cognitive process that everyone has from scratch.
The earliest leader of China's innovative drugs began to say that it would make innovative drugs in 2005 and 2006, but at that time we were relatively weak, and companies that could make innovative drugs were very lonely and not a system (pipelines and companies are not a system), but When will there be changes?
was on Double Ten in 2017, when policies encouraged innovative drugs and innovative enterprises.
Since then, the entire industry ushered in a very prosperous cycle promoted by policies - a chain of policies came out, and the capital market level was also very powerful, equivalent to the interaction between policies and capital markets. In this process, many Innovative pharmaceutical companies have also achieved some enrichment in their talents, and capital promotion, including pipeline promotion, has formed a good resonance.
At this time, the capital market often thinks that it is in place in one step. From 2017 to 2021, or even the mid-2021, is the best time for innovative drugs. This wave is actually expected to be discounted for many years in the future. The investment value of will be equivalent to investment. The increase is in the stock price.
But in fact, it was too much at this time, or a little bit bubbled. After experiencing this process, you will find that the rise of the stock price or investment target is actually faster than the development speed of the industry. When the difference reaches a certain level, the market cannot bear it and needs to pull back slightly. let us carefully consider whether the development of this industry has really reached a very exciting level.
In fact, you will find that there is not yet. Although our industrial development is still moving forward step by step, there will be certain adjustments in this process, so we will go down after experiencing the first peak, and a lot of market participation will be involved in the process. Those who become more pessimistic will become more pessimistic and will find various reasons to explain the callback, but in fact this callback is actually a process of industrial development. After the first wave was up, everyone was too excited, so a callback was needed to match the progress of the industry, and then the second wave was taken.
So From the best time last year to the present, the innovative drug has experienced this pullback process. It is actually a re-examination of industry perception, and it is also a process of repaying debts for some excessive increase. After returning it, it is back. You can go to a more benign state to go to the next wave.
This is to look at this from the perspective of the cognitive trading of the entire market. If we look at it from the perspective of the industry, we have now experienced from nothing to something. It turns out that we may not have our own innovative drugs, all of them are imitation products. Now we have some innovative things, and there have been cases where many companies have sold their overseas rights to foreigners in the past two years (such as Merck ) , and there are some clinical trials of innovative drugs that we participated in with multi-center globally, which we dared not imagine five years ago.
So from the perspective of fundamentals, we have indeed experienced a process from nothing to something. When we don’t, we think everything is precious. After that, the entire industry will want to be higher and more refined, so we On the other hand, we evaluate whether our innovative drug companies are good or not. In fact, this is a good thing and a bad thing. The bad thing is that the requirements are high. The good thing is that it has moved forward much more than our early state. A big step.
At this time, the front and back sides started to play with each other again. Did we have or didn’t have the early game? Now we are doing well or not.
. In the process of discussing whether to do well or not, we happened to encounter a pullback after the wave of excessive increase. So if you don’t study it at this time, you will often be diluted by the negative voices that really make our judgments about the innovative drug industry. This is to give everyone some confidence from the industrial level.
is like this at the market level. The more you fall, the more you think about the more problems you have. Think about policy issues, overseas issues, and the quality of the things we do. But objectively speaking, these are not problems.
So at this time If the CSI Innovation Drug Industry Index reaches a lowest point, it will instead explain two problems. The first is that the bubble that should have been returned in the past has dropped. The second is that at this time it is the extreme point with extreme negative cognition. This extreme point is the same as the positive extreme point. It may be a It is a serious underestimation state, so don’t panic when you are at the low level. Instead, the opportunity point is the place where the low level is, especially when you are at the high level, it may be a risk-related state.
So this way we understand the essential state of innovation and the state of concern to everyone at the market level.
So, just look through the whole story again, and you will know how to view the industry and industry-related index of innovative drugs now. The more I get this, the more optimistic I am. The more negative I think about this, the more this matter is. On the contrary, this matter is actually a huge opportunity point in the future. Maybe the opportunity will come unknowingly.
Innovative drugs perform very well in the entire pharmaceutical sector segment
Question: Do you think that the recent behavior of many listed companies in which semi-annual report performance will have some impact on the performance of the innovative drug sector?
Zhang Jinyang: First of all, we need to define. Not all companies will be affected by the income and profit side of the statement, causing stock price changes, because there are many sub-industry of medicine, and the point of different sub-industry is different.
Theoretically speaking, if is defined as an innovative drug company, its sensitivity is related to several things.
The first thing that has something to do is that if it has some major commercial varieties, the performance of these major commercial varieties in the quarter is very critical. For example, it was launched in the first quarter, and it was doing it in the second quarter. Market promotion and market access, what will happen to its sales figures in the third quarter? Even at the monthly level, its large-scale state may affect its stock price changes.
The second is that if it does not have a commercial variety, then the pipeline advancement of some of its major varieties, such as 20 drugs. The two drugs that everyone is most concerned about have been some clinically important in recent quarters. The cashing of data, or the cashing of clinical progress, will affect its stock price performance.
So from the perspective of semi-annual reports, it is difficult for us to summarize how much revenue and profits it has made for innovative drugs, so what will happen to its stock price? This is not a particularly critical indicator. We will systematically sort out the comparisons between these companies, such as how the company's heavy commercial varieties are, how the commercialization progress of the heavy commercial varieties, and how the promotion of the heavy pipeline varieties are. We think the comparison is The key point.
Now, in fact, the progress of the entire innovative drug is OK, including the pipeline progress and commercialization progress, which are all in a relatively benign state, which is the first level.
The second level is the entire innovative drug industry chain. includes C-super-class companies (CMO/CDMO). Because this type of company is at the front or half-life of innovative drugs, it has income and performance, so it is more important to look at it. What is the growth rate of their revenue status and profit status?
But because some CDMO companies had the increment brought by COVID-19 last year, it also needs to look at its pure endogenous situation after removing this increment.
From the perspective of prosperity, innovative drugs are actually very good in the entire pharmaceutical sector segment, and the performance and income side are a verification of prosperity. As for the stock price level, it also has some points in the emotional and expectation differences, , so if the front end and half-life end of the innovative drug are used to verify the status of the entire innovative drug, these things will in turn verify the fact that the entire innovative drug is. It's still a very benign state, so this is my overall judgment on this issue.
Five dimensions to judge the fundamental trend of innovative drugs
Question: Please share your views on the fundamentals of the innovative drug industry.
Zhang Jinyang: I judge the quality of innovative drug companies from five dimensions at the micro level or the quality of the entire GEM .
The first dimension is to look at the depth and thickness of an innovative drug company's pipeline. The thickness of the pipeline is all thick. The depth of the pipeline outside the pipeline thickness. You can look at the targets arranged later. Is it the new target that will be much better than before after the entire competitive landscape? If so, it means that the single company is strengthening and the fundamentals of the entire China's innovative drugs are strengthening.
The second dimension is the speed of clinical promotion . In the past, there was no innovative drug-promoting team in China. Many of them were outsourcing. However, now, the team building and clinical promotion speed of clinical promotion of many larger companies is actually in Formalization and strengthening, if a company does not have a particularly good innovative drug system, it is meaningless to do these things. This itself is a verification of fundamental reinforcement.
The third dimension is called the ability of government affairs . The government affairs team was originally only available in foreign-funded pharmaceutical companies. China does not have it. China believes that this thing may be a government relationship and does not think it is a systematic one. To promote the power of innovation and development. But now looking at the platform-based innovative drug companies in China, most of them have begun to have very systematic government affairs promotion teams.
The fourth dimension is the ability to commercialize. How many innovative drugs in China now have in rapid commercialization may reach hundreds of millions in a year, and may reach 1 billion or a large one in the next two or three years. The level of 100 million is something we could not imagine five or six years ago.
The last dimension is internationalization, and Our innovative drugs have actually begun to be output overseas.
Starting from these five dimensions, from the micro perspective to looking at a corporate level, do you think the company is making progress, if you look at it at a meso-level, many companies are entering this state, , then China's innovative drugs are now developing now The degree of the disease cannot be as good as the one five or six years ago, but must be moving forward significantly, and it may become more and more systematic, and then you can reach the state where your own substantial innovative drugs continue to be launched. But this state takes time.
The change in the payment side has decreased and increased, which is understood as the price reduction of fees and prices is a bit extreme
Question: What do you think about the impact of price control and price reduction on the innovative drug industry?
Zhang Jinyang: You can understand this from several levels.
Before talking about policies, we must first think clearly about the essential laws of this thing. First of all, why do we need to innovate? Why do innovative drugs exist? Only by thinking about these things can we figure out how the policy makers will do with these things.
First, the pharmaceutical industry is to cure diseases and save people. If you cure diseases and save people, you must have a carrier. Starting from plants, including chemical medicines from Western targets, our traditional Chinese medicine, current biological medicine, and even now gene cell treatments, etc. Things, We actually have clinical needs that can be solved at every stage, and clinical needs that cannot be solved.
For example, although cancer is evolving from the perspective of incurable diseases, we do not have some substantial ways to get it down. If cancer is really solved through gene cell therapy in the future, then it will be There will be no other diseases, such as , the nervous system, , which we cannot understand. , so we must give the company a driving force for continuous innovation to solve problems that we cannot solve now.
The significance of the innovative drug industry is that we have always had some new treatment needs, so we understand this thing, and policy makers also understand it. Therefore, you must give innovation and a certain consideration in the pharmaceutical industry, which is equivalent to only Only by paying the consideration for can these companies have the motivation to innovate and continue to solve some of the fatal clinical needs that cannot be solved now.
This is the basic logic. If this logic is present, The management of any economy will want to encourage innovation and inspire innovation. This is a benign state and is a good thing for ordinary people, enterprises and other aspects. Therefore, this logic is Self-consistent.
Second, it is to think about the policy based on this basis.
Our country has been in two dimensions in recent years. One dimension is called supply-side reform and the other is called payment-side reform.
supply-side reform actually started in 2015. In , the Medical Administration Bureau had already begun to take action. In recent years, after the Medical Insurance Bureau came out, what we are doing is called payment-side reform. What is the change on the payment side? After the money from our medical insurance comes, we will spend it to a more meaningful place. This is the core of our payment side reform. Some people in the industry or market understand it as a more extreme and think it is cost-control, but I I think the fee of should be called structural adjustment of the payment side.
Many medical insurance expenses were unreasonable in the past. For example, we paid many channels, but some channels did not give it, so this medicine can also be used by the common people. Therefore, the hidden logic here is that there are many channels here. Things need to be squeezed out. The government does not want to give these channels, but it is impossible to take them back after saving them. They still have to be spent. So where should they be spent?
actually needs to spend, for example, innovation, and medical services that have been suppressed. In many medical services, a surgery condenses a doctor's knowledge accumulation for 20 or 30 years, and finally shows that it may be one or two hundred yuan. This is seriously unreasonable. It may be the pricing decades ago, so this It should be said that it is the structural adjustment of the payment side.
The essence of our payment side structural adjustment is to stop paying what should not be paid, but to support the encouragement of innovation and feedback on medical services. However, if it is only understood as cost control and price reduction, it is a bit extreme. We pay The change on the end should actually be both decline and rise.
From the perspective of industry and capital market, everyone always feels that it is not very friendly because it has never experienced it before. Suddenly there is such an institution that allows you to experience centralized procurement every day.But after thinking about this, I found that this is a transitional stage. After the transitional stage is over, from a medium- and long-term perspective, this money is to encourage innovation and encourage everyone to do something to solve what cannot be solved now. Clinical problems.
So if you understand it this way, there is actually no impact on the cost control policy on innovative drugs, because its logic is unconsistent. From a medium- and short-term perspective, if everyone has bad sensory feelings, it is emotional sensory. OK, but that's not the root logic.
Innovative drugs and generic drugs are complementary to each other
Question: How do you view the relationship between generic drugs and innovative drugs?
Zhang Jinyang: Innovative drugs and generic drugs themselves are a complementary relationship between each other.
If a country simply encourages generic drugs and does not encourage innovative drugs, it will be over. It may save some medical expenses in stages, but when you are at the end, you will find that it will be boring. If a country does not support innovative drugs, basically no company will do it. In this way, clinical needs will not be met. Everyone will always use some things from the previous era of therapeutic technology. There may be no problem in the short term in the past ten years, but In the next decade, you will find that the problem will be huge.
So it is wrong to simply encourage generic drugs, but it is not right to simply encourage innovative drugs to suppress generic drugs, because the pharmaceutical industry will never be completely market-oriented and fully process-oriented. This thing will always have the most suitable one. The matching point is because it itself takes into account some of the needs of ordinary people for medical treatment, and there is no purely market-oriented principle to be explained. So if you consider this way, the overall medical expenses should be paid to generic drugs while encouraging innovation.
The most benign state is to encourage enterprises to make real innovations, and then the government helps enterprises bargain. This bargaining process is equivalent to allowing you to maintain the price until others can break through you, and then this thing will change It has become a bad competitive landscape, but you have already enjoyed the premium brought by 3 to 5 years of innovation, and after everyone can do this, you can become competitive from the perspective of innovation. From the perspective of imitation, reduce the price of the product, so that everyone can enjoy the results from the perspective of disease treatment, and then make innovations in the next dimension.
In this way, the company has the motivation to continue to innovate, so that it can have more money to invest in the subsequent R&D process. For the old thing, its competitive landscape can reduce its own price, allowing everyone to compete for scale and cost, and there is a cost like manufacturing. If we promote this way, we can not only meet everyone's basic needs, but also meet the development of the company's basic profits. Therefore, both of us are very important. The main difference lies in the different industrial positioning points of ours.
Internationalization will bring huge space to innovative drug companies
Question: What opportunities do you think internationalization will bring to the innovative drug industry?
Zhang Jinyang: In the past two years, when people feel that domestic policies are tight and don’t want to take innovative drugs, they feel that this kind of innovative drug company with international logic is okay. What is the logic here?
In fact, this matter is referenced. In the 1990s, Japan also faced some large macro environments, large medical policies, including cost control, etc., but many of them were in Japan at that time. Pharmaceutical companies have set sail. Although the overall economic growth rate in China is not high, these companies have taken off and their market value has increased greatly, so that by now, the leaders of innovative drug companies in Japan account for 60 or 70% of the revenue. All are overseas.
So why are people particularly concerned about the internationalization of innovative drug companies now? It is because when you are struggling in China, if the path overseas is opened, you can actually make money from a lot of developed countries, including some payments. All aspects of policies and other aspects will be very good. In this way, for the companies in our country's innovative drugs, the space will be opened. It will not only face domestic situations, but after the space is opened, it will find that its valuation space has also been opened. The imagination space is also opened.
In fact, whenever an enterprise is internationalized smoothly, you will find that the valuation system and space calculation of this enterprise will be subversive. This is the interesting thing about investing in innovative drugs. It has a lot of room for it, and in this process, some big easter eggs often pop up. Don’t always think that innovative drugs are negative elastic, is positive elastic It's very tempting at the time.
Author of this article: Wei Yuxiang, Liu Yuxia, Source: Investment Workbook
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