This week we discuss the development logic of Tofflon bioengineering sector.
1. The technical barriers to production equipment and consumables for biological products are relatively high.
For mature varieties such as general chemical preparations and traditional Chinese medicine/natural medicines, pharmaceutical equipment mainly provides containers for chemical synthesis, ingredient extraction, purification, drying, preparation and other procedures. By heating , cooling, stirring and other methods have an effect on raw materials and intermediates. Biological products have many production process steps, and the performance parameters of equipment and consumables have a great impact on the quality of finished products. This is mainly reflected in the upstream cultivation and midstream purification process sections. Therefore, the requirements for production equipment and consumables are strict, and the industry has high technical barriers.
2. There is huge room for domestic substitution of biological product production equipment and consumables.
Domestic pharmaceutical upstream manufacturers are relatively late to invest in research on biological products. At present, the domestic market is mainly occupied by foreign capital, and the production process of biological products is highly personalized. Reasonable equipment customization and consumable selection need to be based on good cooperation between upstream and downstream enterprises. Equipment manufacturers need to go through a complete order cycle (about 5-20 months), based on user demand description and manufacturer According to the functional description and design description of this feedback, the manufactured product can be regarded as successfully entering the customer's supply system only after passing factory acceptance, on-site acceptance, debugging and verification. Consumables manufacturers often need to accompany the customer's project advancement to complete the entire process from small trials to process scale-up. The complex cooperation establishment process determines the strong customer stickiness of such products. Domestic upstream manufacturers are expected to usher in a broad space for domestic substitution after being verified by more customers.
3. Tofflon has taken new crown as an opportunity to obtain a large number of verification opportunities in the field of bioengineering, and is expected to accelerate its development in non-new crown fields in the future.
With the spread of the epidemic, the subsequent rise in unemployment in the United States and other regions, and the urgent need to put the new crown vaccine into production, domestic equipment suppliers with high brand awareness have been favored by global new crown vaccine manufacturers. Tofflon has delivered a large number of related bioreactors , chromatography systems, etc. to domestic and foreign countries in 2021, and has successfully passed customer verification. The bioreactors and chromatography systems required for the production of biological products are recognized as direct impact systems in the ISPE Guidelines and need to be debugged and verified before formal use. Their successful passage must be based on communication of user needs in the early stage of the project and on-demand manufacturing by manufacturers in the mid-term of the project. In normal years, it takes a long time to accumulate cases. Participating in the COVID-19 vaccine project can quickly prove the company's manufacturing capabilities to the industry and accelerate its development in the non-COVID-19 bioengineering field.
risk warning:
new business faces market competition, research and development progress is not as expected, and the intensification of the epidemic has led to slow project progress.
Market Review
The pharmaceutical sector continued to rebound this week, ranking in the middle and upper reaches of all sectors. This week (December 12-December 16) the biomedicine sector rose 0.14%, outperforming the CSI 300 Index 1.25pct, outperforming the GEM Index 2.08pct, ranking in the middle and upper reaches of the 30 CITIC first-level industries. All CITIC Pharmaceuticals sub-sectors rose this week except for medical services and medical devices . Among them, chemical raw materials, chemical preparations, Chinese patent medicines, biomedicines, traditional Chinese medicine pieces, and pharmaceutical circulation rose by 3.93%, 1.61%, 1.17%, 0.14%, 0.14%, and 0.14% respectively. Medical services and medical devices fell by -0.91% and -2.80% respectively.
Investment suggestions
Recent views: After adjusting the valuation of the pharmaceutical sector to be close to the bottom, marginal improvements after the epidemic stabilizes and some positive policy expectations show a good rebound momentum. Starting from fundamentals , taking into account the matching of valuation and performance growth, we recommend continuing to recommend two ideas in the short term, preferably:
1. There is a marginal slowdown in epidemic prevention and control policies, and it is recommended to focus on high-quality targets with dual repair logic of performance valuations.
On November 11, 2022, the State Council’s Joint Epidemic Prevention and Control Comprehensive Team adjusted epidemic prevention and control measures, including
(1) close contact management measures were adjusted from “7+3” to “5+3”, and
(2) was no longer judged. Close contact;
(3) Cancel the medium-risk area, and the high-risk area will be reduced to a low-risk area if there is no new addition within 5 days;
(4) Cancel the circuit breaker mechanism for inbound flights, and adjust the entry personnel from "7+3" to "5+3". There are obvious signs of marginal slowdown in epidemic prevention and control.
At the same time, recent policies such as centralized procurement of dental implants, centralized procurement of orthodontics, centralized procurement of OK mirrors, and joint procurement of traditional Chinese medicine pieces have been implemented one after another, and the intensity of the policies is relatively mild. At the same time, as the epidemic situation improves and the demand for diagnosis and treatment is gradually released, high-quality targets that were previously suppressed by policies are expected to usher in a dual recovery of performance and valuation.
In addition, as the epidemic prevention and control slows down, the demand for epidemic prevention and control related products is expected to increase rapidly, driving the performance growth of companies in the related industry chain. Based on this, we recommend:
(1) The medical service sector with dual repair logic of performance valuation: Aier Ophthalmology, Purui Ophthalmology;
(2) The pharmacy sector that benefits from the slowdown in prevention and control measures and the rising demand for epidemic-related drugs: Yifeng Pharmacy, Dashenlin , Ordinary People, Yixintang , Jianzhijia ;
(3) Anti-epidemic equipment: Mindray Medical , Yuyue Medical ;
(4) New Crown Test: Novi Like , Wondfo Bio;
(5) New Crown Vaccine: Livzon Group , CanSino , Zhifei Biology;
(6) New Crown Drugs: Junshi Biotechnology , Zhongsheng Pharmaceutical , etc.
2. Pay attention to the rebound in valuation caused by marginal improvement.
1, rapid growth, continued improvement in performance, and valuation within a reasonable range.
1) Life-related upstream: JianKai Technology (PEG derivatives), Novozant (molecular enzymes), Biopsis (recombinant protein reagents).
2) Oral consumables: Zhenghai Biology (active biological bone has been approved).
2. Downside risks are limited, waiting for fundamental catalysis.
1) Blood products sector (leading companies are expected to benefit from the 14th Five-Year Plan for plasma stations in many provinces, and the growth potential of plasma volume will be further opened), related targets: Hualan Bio , Pailin Bio, Tiantan Bio and Boya Bio ;
2) Pharmacy sector (Yifeng Pharmacy, Yixintang, Laobaixing, Dashenlin);
3) Domestic medical device leader Mindray Medical (short-term policy disturbance will not change long-term development logic);
4) Domestic sublingual desensitization leader Wowu Biotechnology ;
5) Shandong Pharmaceutical Glass is the leading domestic pharmaceutical glass enterprise.
Medium and long-term perspective: Pay attention to the changes that remain unchanged and look for relatively certain opportunities
As the impact of centralized purchasing continues to expand, the opportunities at the investment level are: The basis for the establishment of centralized purchasing is "multiple companies supply mutually substitutable varieties, and production capacity can theoretically be unlimited supply." The basis for enterprises to maintain product prices and profit margins is the competitive landscape. The dynamic and excellent competitive landscape lies in the ability to continuously develop products and product iterations. This remains unchanged. DRG/DIP reform will begin in 2022. DRGs As a means of payment, its core role is to achieve a balance between improving diagnosis and treatment efficiency and quality and ensuring the sustainability of medical insurance through refined medical insurance management. Hospitals that cannot proactively adapt to the rules of the game will be eliminated. Opportunities at the investment level are: excellent private medical institutions have long paid more attention to cost control, have higher operating efficiency, and have more competitive advantages.
The unchanging general trend of industrial development is: domestic pharmaceutical industry manufacturing upgrades, continuous improvement of competitiveness, and migration upstream in the global production value chain.
The competitiveness of upstream raw materials is highlighted:
1) Biological "core" - life science support industry chain: Domestic enterprises have rapidly developed, and the quality of reagents has reached the international leading level, and their competitiveness has been continuously improved. They have entered overseas markets through global comparative advantages, and domestic enterprises have benefited from the logic of domestic substitution, with high growth and great development potential.
2) IVD Raw materials and consumables: The COVID-19 epidemic has opened a window for the global IVD raw materials and consumables production and supply chain to shift domestically.
The process of internationalization is accelerating: With the breakthroughs in key technologies of Chinese companies, not only is the localization rate in the domestic market accelerating, but some high-quality companies already have the strength to compete with international giants.
1. Pharmaceutical industry manufacturing upgrades, competitiveness continues to improve:
upstream: life sciences support industry chain, IVD Raw materials and consumables, related targets: Novozymes, Yiqiao Shenzhou, Bepsis, NanoVis Technology, Opimai, Nearshore Protein;
High-end medical equipment: endoscopes, and sequencers, related targets: Mindray Medical, Hitech, Kaili Medical, Aohua Endoscope , Nanwei Medical ; MGI;
international layout of medical devices, related targets: Mindray Medical;
Others: Jiankai Technology, Shandong Pharmaceutical Glass.
2. Pay attention to the supply pattern:
blood products, related targets: Tiantan Bio, Boya Bio and Pailin Bio;
desensitization preparations, related targets: Wowu Bio.
3. Private medical service sector with differentiated competition.
Ophthalmology, AIER Ophthalmology; Dentistry, Tongce Medical ; Oncology treatment services.
4, pharmacy section.
Related targets: Yifeng Pharmacy, Dashenlin, Laobaixing and Yixintang.
5, aging and consumption upgrading.
Category II vaccine, related targets: Zhifei Biotech, Wantai Biotech and Beike Biotechnology;
risk warning: policy risk, price risk, risk of performance falling short of expectations, product development risk, risk of expansion progress falling short of expectations, risk of medical accident, uncertainty of overseas new coronavirus epidemic, risks of merger and acquisition integration falling short of expectations, etc.
Author: Sheng Lihua Practicing qualification certificate number S1190520070003
2022.12.18
*Risk disclosure: Dear investors, I We solemnly remind you to view the market rationally. There is no market that only rises but not falls, and there is no investment that guarantees profit without loss. Investors should understand and always keep in mind the principle of "caveat emptor" and the investment guideline of "the stock market is risky, so be cautious when entering the market" to prevent irrational behavior of reckless and blind investment. Manage personal wealth rationally and put safety first.
* Disclaimer: The content in this article does not constitute investment advice and does not constitute an invitation or intention to buy, sell or hold any stock. Let me remind you again that the market is risky and investment needs to be cautious.
