How does the market view the future of medicine?

With the gradual relief of the domestic epidemic since the second half of 2020 and the gradual normalization of corporate operations, the performance of pharmaceutical companies in the first three quarters of 2021 has begun to return to normal growth

In the first three quarters of 2021, the total operating income of the SW (2021) pharmaceutical and biological industry was 1.

The proportion of public equity fund holdings is at a historically low level, and holdings are concentrated in leading companies in various segments

The proportion of pharmaceutical fund holdings has entered a historical low

Table 1: 2021Q3 public fund holdings statistics

Source: Industrial Securities

The top ten products with the largest number of funds held are: WuXi AppTec, Mindray Medical, Zhifei Biological, Tigermed, Aier Ophthalmology, Kailai Ying, Changchun High-tech, Hengrui Pharmaceutical, Tongce Medical, and Kanglong Chemical

The top ten products with the most market value are: WuXi AppTec, Mindray Medical, Aier Ophthalmology, Tigermed, Kailai Ying, Zhifei Biological, Kanglong Chemical, Tongce Medical, Changchun High-tech, and Boton

The performance of listed companies in the pharmaceutical sector rebounded year-on-year, and the growth trend of profits and R&D investment was steady

In the sub-sectors, through horizontal comparison, the performance of medical services and biological products has grown relatively fast

The total operating income and net profit attributable to the parent of the medical service sector in 2021Q3 increased by 18.

The total operating income and net profit attributable to the biological products segment in 2021Q3 increased by 40.

The total operating income and net profit attributable to the parent of the medical device sector in 2021Q3 fell 2.

The profit side of the pharmaceutical business and traditional Chinese medicine has declined.

In the chemical preparations sector, the Q3 revenue growth rate rebounded year-on-year, but fell quarter-on-quarter

Both the performance and profit growth of APIs have improved, mainly due to the intensification of overseas epidemics and the increase in orders from domestic companies

Table 2: 2020Q3 and 2021Q3 performance of the pharmaceutical sector and the growth rate of net profit attributable to the parent

Source: Dongguan Securities

In terms of R&D expenses, R&D expenses increased rapidly in the first three quarters, and the rate of R&D expenses increased

Table 3: The top five listed companies in the R&D expenses of the SW medical and biological sector in the first three quarters of 2021

Source: Flush, compiled by Zhongkang Industrial Capital Research Center

Future outlook

Judging from the data of the three quarterly reports that have been disclosed, under the high base last year, the performance growth of the pharmaceutical sector showed a large divergence, and the performance of CXO, life science upstream and some innovative medical equipment companies performed outstandingly

Looking to the future, in the field of innovative drugs, China has completed the initial quantitative change process of innovative drugs, and its pharmaceutical innovation capabilities have gradually been recognized internationally.

Hengrui, the leading company in Baima, introduced two domestic biotech products in a row in September this year, setting a benchmark for active, open participation in innovation

However, China's R&D foundation is relatively weak, and innovation research focuses on following up the hot frontiers, and the homogeneity is serious
.
Taking the most popular PD-1 monoclonal antibody as an example, Hengrui Medicine's PD-1 monoclonal antibody entered the medical insurance at a price reduction of 85%.
Since the implementation of medical insurance on March 1, 2021, revenue has shown a negative quarter-on-quarter growth
.
In the future, innovative drugs with differentiated and high-tech barriers will have pricing power and stand out
.

With the rise of innovative drugs, China’s CXO industry still maintains a high degree of prosperity.
Overseas production capacity continues to shift.
The accelerated rise of domestic innovative drugs will further drive the development of China’s CXO industry.
On the whole, China’s CXO industry has fixed assets and projects under construction.
It still maintains high-speed growth, reflecting from the side that the industry is still in a high-prosperity cycle, with sufficient orders from enterprises, and continued high-speed growth in performance
.