Pharmaceutical industry research

The pharmaceutical industry is known as a sunrise industry that will never decline. It has the characteristics of weak periodicity, long industrial chain, great difference between industry and product life cycle, and differentiation of competitive structure. Therefore, the research of pharmaceutical industry generally adopts the method of "top-down" to select fast-growing sub-industries and then "bottom-up" to determine the investment target. To do this, we need to have a basic understanding of the pharmaceutical industry.

1. Characteristics of pharmaceutical industry

Cyclical characteristics: the pharmaceutical industry is a typical weak cyclical industry, and medicine is a special commodity. The demand for medicine is rigid and elastic, and it is less affected by the macro-economy, so the pharmaceutical industry has the characteristics of strong defense.

? Characteristics of industrial chain: The industrial chain of pharmaceutical industry goes from upstream raw material medicine enterprises, through the middle circulation field, to R&D and production enterprises, to hospitals or retail terminals, and finally faces consumers.

? According to their different positions in the industrial chain, the upstream pharmaceutical industry mainly includes chemical raw materials, Chinese herbal medicines and Chinese herbal pieces, the midstream production enterprises mainly include chemical preparations, Chinese medicines and biopharmaceuticals, and the downstream circulation enterprises mainly include pharmaceutical commercial industries (including wholesale and retail) and medical services.

? In this industrial chain, the circulation of upstream raw materials and downstream drugs is relatively stable, while Chinese medicine has been tepid. Relatively speaking, chemical pharmaceuticals and biopharmaceuticals are prone to bull stocks, because general new chemical drugs will continue to bring huge income to the company if they produce good results.

? For example, Hengrui Pharma introduced apatinib tablets for cancer on 20 1 1, becoming the first widely recognized anticancer drug in China. As a result, Hengrui Pharma's share price has more than doubled from 20 1 1 to now.

? For example, zhifei Bio, a biopharmaceutical company, represented Merck's cervical cancer vaccine, 9-valent human papillomavirus, on 20 17, and its performance grew rapidly, and its share price nearly tripled in two years.

? Life cycle of pharmaceutical industry: the pharmaceutical industry as a whole is in the growth stage, but the subdivided products are very different. Most medical products are in the growth stage, but a considerable number of biomedical products and some innovative drugs are still in the initial stage, such as monoclonal antibody drugs and therapeutic vaccines. However, some products such as penicillin and aspirin have entered the mature stage, and sulfonamides and other drugs have entered the recession stage.

? Having said that, everyone should understand why some pharmaceutical stocks are alive and some are dead. Give a simple example: from the perspective of equity, Hengrui Pharma (innovative medicine, growth industry) >; Lu Kang pharmaceutical (penicillin, mature industry) > Xinhua pharmaceutical (sulfonamides, declining industry)

? Competitive structure of pharmaceutical industry: the pharmaceutical industry is composed of many different sub-industries, and the operation of each sub-industry and the competitive structure of the industry are different.

Generally speaking, the competitive environment between biopharmaceuticals and medical services is relatively good, while the competitive environment between chemical raw materials, chemical preparations, traditional Chinese medicine, pharmaceutical commerce and medical devices is relatively poor. However, the sub-sectors of the industry are very different. For example, the competitive environment between patented drugs and exclusive products in chemical pharmaceutical preparations is also very good, while generic drugs are very poor; Chinese medicine has a similar situation. The competitive environment of brand Chinese medicine is very good, while that of common Chinese medicine is very poor. When analyzing the competitive environment, we need to analyze specific companies.

2. The core of the pharmaceutical industry-supply and demand

The demand for a single drug is low, so once the drug is mass-produced, it is easy to meet the market. Therefore, the focus of pharmaceutical industry research lies in the demand side.

? From a macro point of view, the factors affecting drug demand are population structure, such as the degree of aging, the ratio of men to women, etc. These factors all have an impact on drug demand.

? From the microscopic point of view, the demand for specific segmentation needs to be considered from the following points: (1) the incidence of diseases in this segmentation; (2) Whether policies, especially medical insurance policies, will stimulate the consumption of such drugs; (3) Whether this increase in demand can be implemented in specific companies.

? For example, through the information of the rapid increase of cancer incidence in China, we have tracked the rapid growth of the anti-tumor drug market, and under the impetus of universal health insurance, anti-tumor drugs are the biggest pulling field, thus drawing the conclusion that the related products of leading anti-tumor drug enterprises will grow at a high speed.

3. Investment logic and sources of performance growth in pharmaceutical industry

There are many points that bring investment opportunities to the pharmaceutical industry. Usually, we can look for investment opportunities from the following aspects:

? (1) The improvement of the overall prosperity of sub-sectors and fields can be tracked from the growth of industry income and profit, profit rate level, cash flow and the operation of major companies in the industry;

? (2) For pharmaceutical companies, the most important thing is the product, and a new heavy drug often plays a vital role in an enterprise. It is essential for pharmaceutical enterprises to track the research and development of their new products and understand the sales of their products in the channels. At the same time, because domestic enterprises are mainly generic drugs, it is necessary to know the expiration time and product price fluctuation of similar drug patents.

? (3) The industry environment and policy factors need to interpret the policy orientation to see whether the policy will have a greater impact on the industry, such as the impact of consistency evaluation policies on generic drug companies;

? From the perspective of various sub-sectors of the pharmaceutical industry, different types of companies have different analytical methods and investment logic, and their growth motivation is also different.

3. 1 chemical raw materials

? Traditionally, chemical raw material medicine industry is divided into bulk raw material medicine and characteristic raw material medicine, and their profit models are very different.

3. 1. 1 API

Raw materials have typical cyclical characteristics, and the improvement of corporate profits is often determined by price and sales volume.

This is a typical example of Xin He Cheng, whose stock price has soared in recent years. In recent years, its main vitamins have been increasing in price, but this price increase is not because of strong demand, but because of the influence of environmental protection policies. The core technology of vitamins is only in the hands of a few companies, such as BASF, Xinhecheng and DSM, which jointly control the price. As a result, vitamins have shown a trend of growth.

3. 1.2? Characteristic API

? Compared with batch API, characteristic API has certain technical content and pays attention to speed. Especially when the new drug just comes out, it can quickly realize the supply of raw materials, and the premium ability is gradually weakened, which is prone to ups and downs. For example, the early Huahai Pharmaceutical and Tianyu shares.

? However, in recent years, due to the gradual weakening of the growth of the industry (the bulk drugs in most fields are very clear), this field has gradually faded out of our sight.

3.2 Chemical pharmaceutical preparation industry

? Chemical pharmaceutical preparation enterprises can be divided into imitation chemical medicine (innovative medicine) enterprises, OTC pharmaceutical preparation enterprises and generic drug preparation production enterprises. OTC chemical medicine and traditional Chinese medicine enterprises are very strong, among which the characteristics of OTC enterprises of traditional Chinese medicine are more obvious, so we discuss them in the part of traditional Chinese medicine.

3.2. 1 imitation chemical enterprises

? The typical plagiarism enterprise is Hengrui Pharma. In the past, the company mainly exploited the market by grabbing products that were not protected in China or whose patent protection expired. Later, with the enhancement of the company's research and development strength, it began to develop innovative drugs, forming a product line combining generic drugs and innovative drugs.

? Of course, the transformation of most domestic pharmaceutical companies is taking the same route, among which the successful ones are Kelun Pharmaceutical, Fosun Pharmaceutical and Beida Pharmaceutical.

Through innovative development of new products, such companies are most likely to have bull stocks in the pharmaceutical industry, which is the focus we need to pay attention to.

? Qi Xing Eye Drops, for example, has always been an ordinary eye ointment enterprise. However, from 2065438 to April 2009, the company disclosed that olopatadine hydrochloride eye drops were used in the research and development of conjunctivitis, corneal ulcer and other diseases, which is still blank in China and has a bright future. The company's share price rose from 20 yuan to around 100 yuan, an increase of nearly five times.

3.2.2 Generic drug production enterprises

? Generic drugs are conventional drugs. Compared with new drugs, these products have been on the market for many years, the market is relatively mature, and there are no protection barriers such as patents. Domestic chemical pharmaceutical preparation enterprises are mostly generic drug preparation manufacturers. Most of these companies have low gross profit margin, many manufacturers and fierce competition. Their possible focus is mainly on the improvement of industry concentration and the profit growth brought by scale effect and cost reduction.

? Share prices of this type of companies are generally stable, such as China Resources Shuanghe, Hyundai Pharmaceutical, China Pharmaceutical, Huadong Pharmaceutical, Jingxin Pharmaceutical and Puli Pharmaceutical.

3.3 Chinese medicine preparation

Traditional Chinese medicine is mainly divided into four types: Chinese herbal pieces, brand Chinese medicine, modern Chinese medicine and OTC.

3.3. 1 Traditional Chinese Medicine Pieces Industry

? Because of its small market scale, low added value of products and limited technical content, the gross profit margin is usually less than 50%, and brand Chinese medicine enterprises rarely set foot in this field. The main characteristics of the field of Chinese herbal pieces are low access standards, poor standardization and scattered market.

So this industry is not a good track.

? We also see that the long-term performance of listed companies such as Zhong Kangmei Pharmaceutical, Hongri Pharmaceutical, Xiangxue Pharmaceutical and Tailong Pharmaceutical is very average.

3.3.2 Brand Chinese Medicine

? Brand Chinese medicine is the most important company in the field of Chinese medicine. Its product brands are often formed for historical reasons, such as Tongrentang, Yunnan Baiyao, Dong 'e Ejiao and Pien Tze Huang, which are exclusive and unrepeatable. Because of its brand scarcity and relatively rigid demand, it has strong cost transfer ability.

? From the past, the performance growth of such companies often depends on two points: (1) the increase in product prices; (2) Extension of product application field or brand. Typical representative enterprises such as Yunnan Baiyao, Pien Tze Huang and Dong 'e Ejiao.

? For example, Yunnan Baiyao found a breakthrough in toothpaste, and its share price performed well during the period of 16- 18, while Pien Tze Huang expanded its skin care route and its share price was also very strong.

? Tongrentang and Dong 'e Ejiao have relatively single products in recent years, but their share prices are average.

3.3.3 Modern Chinese Medicine Enterprises

? Modern Chinese medicine enterprises are different from brand Chinese medicine enterprises in product innovation, including the innovation of dosage forms and products themselves. Such enterprises often have no historical inheritance and accumulation, and their development often depends on product innovation, from scratch, from single products to series products. Through continuous investment in R&D, we will realize continuous product innovation, form a rich product echelon, and promote the sustained and rapid growth of companies such as Tasly and Kangyuan Pharmaceutical.

? However, it should be noted that traditional Chinese medicine injections have been ineffective in clinic, and even have safety problems, so it is difficult to promote them on a large scale. For example, the large-scale international clinical trial of compound Danshen dripping pills conducted by Tasly in the United States was not satisfactory.

3.3.4? over the counter

? ORC is an over-the-counter drug with the following characteristics: (1) It is mainly sold through retail channels; (2) Patients are the deciders of product consumption, and the bargaining power of enterprises is not strong; (3) Brand is the most important factor for OTC enterprises. Typical OTC Chinese medicine enterprises are Jiang Zhong Pharmaceutical and China Resources Sanjiu.

? In China, some OTC products have a prosperous market, such as calcium gluconate and Sanjiu cold medicine series. However, more products are three to five years ahead of the market, so marketing cannot be continuously innovated, new products cannot appear, and the growth is difficult to sustain.

4. Biopharmaceuticals

? There are many types of biopharmaceutical enterprises. In the domestic market, companies whose performance can continue to grow are mainly in diagnostic reagents, blood products and vaccines. Real biopharmaceutical companies have not yet formed a climate. There are few A-share companies that simply research and produce innovative biopharmaceuticals, and most of them are chemical/traditional Chinese medicine enterprises. In addition, most of these companies are in the R&D stage, with large losses, and most of them are listed in Hong Kong stocks and US stocks.

4. 1 vaccine

Vaccines are divided into compulsory vaccines (Class I vaccines) and selective vaccines (Class II vaccines). The first-class vaccine market is large, but the state strictly controls the fees and the demand is also planned. For example, Kangtai Bio (hepatitis B vaccine), Hualan Bio (immunization program vaccine) and other listed companies, the first-class vaccines of these companies are often a stable source of profits for the company.

? But at this stage, with the enhancement of personal health awareness, the second-class seedlings grow rapidly. Our vaccine companies have all joined the research and development of second-class vaccines, such as zhifei's HPV cervical cancer vaccine, Wosheng's pneumonia epidemic and influenza vaccine.

? In recent years, the second-class vaccine is the blue ocean in the field of biomedicine, and due to safety problems, the state has made great efforts to supervise the vaccine industry, and the entry threshold is very high, so there are only a few companies playing. Therefore, the vaccine industry is a rare good track in medicine.

? In recent years, hand, foot and mouth disease in children is serious. With its leading position in the field of influenza vaccine, Hualan Bio has achieved rapid growth, and its share price has more than doubled since last year.

4.2 Blood products

? Typical enterprises of blood products include Hualan Bio, Shanghai Laishi, Tiantan Bio and Boya Bio. Due to the particularity of blood products, other blood products are not allowed to be imported from abroad except human albumin. From 200 1, the state will no longer approve new blood products enterprises. At present, policy barriers make the domestic blood products industry a closed industry without new entrants, which is conducive to the survival and development of companies in the industry, especially leading companies.

? However, the blood products industry as a whole is relatively mature, and the growth rate of the industry is not high. The research focus of this industry lies in: (1) the change of price policy of terminal blood products; (2) The improvement of enterprise separation technology has improved the output value of tons of plasma.

For example, the plasma separation technology of early Shanghai Lai Shi was the strongest in the industry, and the overall gross profit margin was also higher than that of Hualan Bio. The company's market value once exceeded the 100 billion mark. However, since then, due to the company's business problems and the catch-up of other companies' technologies, the company's advantages have gradually disappeared and the stock price has begun to weaken.

4.3 Diagnostic reagents

The diagnostic reagent industry itself is a rapidly developing industry. Because domestic enterprises are relatively backward in diagnostic instruments, the early development mainly focused on the OEM production of diagnostic reagents, and then gradually developed into instrument reagents, so some companies of this type were classified as medical device industry. The representative companies are Antu Bio and Ke Hua Bio.

? The analysis of such companies focuses on: (1) the development progress of subsequent products; (2) New application fields.

For example, Antu Bio was not a foreign-funded enterprise in the field of diagnosis in the early days, but the company gradually improved its product competitiveness. The company successfully released the first TLA assembly line in China in September 17. This assembly line makes the company the only enterprise in China that can compete with foreign-funded enterprises in the main battlefield of large hospitals, and also lays the foundation for the company's stock price to continue to strengthen since 17.

5. Medical equipment

Medical devices are a very profitable industry, but the product level of domestic enterprises is generally not high, and the research and development ability is weak, which still belongs to the level of primary manufacturing. At present, the domestic large-scale medical device market is occupied by overseas giants (represented by general practitioners), and the gap between domestic enterprises and these international giants is far away, but the big gap also means that there is a large space for import substitution in the future.

? Mindray Medical is the best enterprise of high-end medical devices in China, mainly engaged in analytical instruments and monitoring instruments. At present, the A-share listing after the privatization of US stocks has been completed. In addition, in some high-end equipment fields, such as cardiovascular stents, domestic substitution is also relatively successful, representing the enterprise Lepu Medical.

? The research of medical device companies mainly focuses on: (1) production cost: low-end products are sensitive to the cost of raw materials such as steel; (2) Product grade: high-end means high profit; (3) R&D capability: sustainable development capability.

6. Pharmaceutical enterprises

Pharmaceutical business is an industry with low gross profit margin, which wins by scale and service. There are two levels of pharmaceutical commerce: wholesale and retail. The main pharmaceutical wholesale enterprises are Shanghai Medicine, China Medicine, Sinopharm Consistency, Jiuzhoutong and so on. Retail enterprises mainly include Yixintang, Dashenlin, Yifeng Pharmacy and ordinary people.

? Influenced by the diversity of medical terminals, pharmaceutical wholesalers have always existed in the wholesale sector of the pharmaceutical industry, while the retail sector is influenced by domestic hospitals, with a small overall scale but rapid development.

This is why the share price of pharmaceutical wholesale industry is far less than that of pharmaceutical retail.

? In the United States, the three major pharmaceutical wholesalers account for 97% of the whole market, while the market share of Sinopharm Holdings, the largest in China, is less than 65,438+00%, so the main focus in the future will be on improving market concentration.

7. Medical services

?

There are many kinds of medical services, such as CRO, CMO and private hospitals.

7. 1 CRO/CMO

? CRO is a clinical medical service. For example, it is difficult for a pharmaceutical company to become a company with strong R&D and strong registration, so a lot of R&D and domestic production need to be outsourced, so a CRO enterprise has been formed. With innovative drugs becoming the general trend of pharmaceutical enterprises, the CRO industry is booming, and this prosperous trend may last for 5- 10 years or even longer with the wave of innovative drugs.

? For example, since 20 17, the continuous net profit of Huyao has maintained a high growth rate of more than 50%, and its share price has risen nearly five times in just two years.

? Related enterprises include Wuxi PharmaTech, Kanglong Chenghua, Gloria Ying, Zhao Yanxin Medicine and Boteng.

? In addition to CRO, some enterprises are unwilling to invest a lot of money to build their own production lines due to the diversification of drug varieties and insufficient demand in sub-sectors, so they need to outsource drug production. This kind of enterprise undertaking outsourcing production business is called CMO, which can be understood as a pharmaceutical production OEM enterprise.

? General CRO enterprises will also have CMO business, including gloria, boten pharmaceutical, Wuxi pharmatech, etc. It is relatively prominent in OEM business.

? Another small molecule library is closely related to CRO, because the research and development of drugs needs a lot of small molecules, but the research and development of small molecules also needs a lot of manpower and material resources, so simply buy others to help design or buy other people's finished products. The small molecule design leaders here include medical stone technology, Wuxi pharmatech and so on.

? Because there are great risks in the research and development of innovative drugs, for example, Chongqing Beer failed to develop hepatitis B vaccine in history, and its share price plummeted. CRO/CMO industry only charges service fees, so its performance will be more stable, which is a good direction for investing in innovative drugs.

7.2 Private hospitals

? At present, public hospitals in China occupy an absolute dominant position, and they are all non-profit hospitals. In recent years, with the cancellation of medical surcharge, the income-generating capacity of public hospitals has dropped sharply, and the expansion of public hospitals mainly depends on the support of government funds.

? Restricted by public hospitals, private hospitals have been developing abnormally. On the one hand, public hospitals siphon excellent medical talents, and the career establishment limits the brain drain. Although doctors are trying to practice more, private hospitals still lack medical talents in general. On the other hand, hospitals have higher requirements for equipment, and private hospitals invest less in expensive testing equipment than public hospitals. At present, there are two main directions for the better development of medical services: (1) specialized chain. This business model generally requires higher equipment, lower human resources and strong reproducibility. There are typical medical examination companies such as Meinian Health, Aier Ophthalmology and Tongce Medical. (2) High-end hospitals. Mainly for high-end customers, expensive but good service. On behalf of Fosun Pharma, United Family Hospital.

For this industry, our main concerns are: (1) the reproducibility of the model, (2) the cost control after scale expansion;

? For example, through mergers and acquisitions, Tongce Medical has occupied several large stomatological hospitals in Zhejiang, with excellent cost and management and excellent performance. Moreover, its model can be completely copied to the whole country, so the increase of Tongce Medical 10 is nearly 20 times, and there is Aier Eye Hospital.

In contrast, the health model of the United States can also be replicated, but its company's cost control ability is poor and its stock price performance is mediocre.

8. The impact of regulation and policies on the pharmaceutical industry

?

Due to the particularity of the pharmaceutical industry, strong supervision has always been the norm in the industry, and the impact of policies on the industry is also very significant. The specific impact policy statistics are as follows:

8. 1 medical insurance policy

? Whether drugs can enter the medical insurance catalogue or not has a great influence on their sales. The medical insurance catalogue is formulated every two years by the Medical Insurance Bureau (formerly the Ministry of Labor and Social Security), and the policy trends in this regard are also the focus of attention.

8.2 New Drug Approval Policy

? In the past, domestic drug approval was very easy, and the phenomenon of drug approval was serious. Now the approval of the pharmaceutical industry is very strict, which is good for enterprises with strong R&D strength. Market competition is not as fierce as before, and whether new drugs can gain greater advantages when entering the market.

The change of this policy has a great influence on imitation chemical pharmaceutical preparation enterprises, modern Chinese medicine enterprises and innovative biopharmaceutical enterprises.

8.3 Production Approval Policy

? The production of drugs is mainly controlled by the State Administration of Medical Products. In the production process, the standardization system has been established and improved, and stricter management systems have been implemented in the fields of narcotic drugs, blood products and vaccines, which means that the improvement of industry threshold is conducive to the improvement of industry concentration.

The change of this policy mainly affects blood products, vaccines, biological products and other industries with strict supervision.

? For example, in 200 1, the state stopped approving the blood products industry, so several companies with blood products licenses became industry oligarchs. Since then, Shanghai Laishi, Hualan Bio, Boya Bio and Tiantan Bio have entered the long cattle mode.

8.5 Environmental protection policy

? The State Environmental Protection Administration's pollution discharge standards for pharmaceutical enterprises are constantly improving, and the supervision in this respect is stricter, which will lead to the gradual withdrawal of small enterprises and the continuous improvement of the threshold and concentration of the industry.

Changes in environmental protection policies mainly affect API enterprises.

For example, the pollution in the vitamin industry is more serious. In 20 17, due to environmental factors, many small vitamin production enterprises closed down, which led to the increase of vitamin prices, and the stock prices of Xincheng and Yifan medicine rose sharply.