Innovative drugs, ice and fire of traditional Chinese medicine

At the beginning of the new year, the pharmaceutical market has fallen into a state of extremes
.

Here, the cold winter of innovative drugs has arrived, but there is a warm winter resurgence of traditional Chinese medicine

As of January 5, in only three trading days, the Hong Kong-listed biotechnology index fell by 8.
03%; among the 49 Hong Kong-listed 18A companies, more than 20 have fallen by more than 10%.
The top three decliners are Junshi Biotechnology (-26.
8%), Kangfang Bio-B (-21.
3%), Rongchang Bio (-19.
3%)
.

Innovative medicines are caught in the ice and snow, but traditional Chinese medicines are like a spring breeze, and they are even booming
.

As of January 5, Essence Pharmaceuticals has 8 consecutive boards, and Longjin Pharmaceutical has 10 consecutive boards.

Where did the song of ice and fire, innovative medicine and traditional Chinese medicine, begin? In the past year, in the face of the double attack of internal involution and medical insurance control fees, the logic of innovative drugs has changed, and investors are walking on thin ice
.

Why worry? Only Chinese medicine
.

There is no problem of centralized procurement and medical insurance cost control, and there is no R&D risk of "10 billion US dollars"

Investors are no longer willing to pay for the arbitrage game of innovative drugs, and real innovative drug companies have also been seriously injured.
Traditional Chinese medicine has become a safe haven for warmth
.

In the final analysis, Chinese medicine won this game exactly what innovative medicine lost

Winter has only just begun
.

In the face of these nine cold winters, even the leading player in innovative medicines, Xinda Biology, had to announce and clarify:

The company's business operations are all normal, and we are full of confidence in the company's development
.

In the thriving wave of innovative drug development in China, the company is determined to strengthen the domestic market, firmly promote global innovation and R&D, accelerate the transformation from a biotechnology company to a global biopharmaceutical company, and drive the company's sustainable development

There is no winter that will not pass, and no spring that will not come
.

However, pharmaceutical companies that do not have the ability to survive the winter will be left in the cold winter forever

/ 01 / Innovative Medicine and Traditional Chinese Medicine, A Song of Ice and Fire

/ 01 / Innovative Medicine and Traditional Chinese Medicine, A Song of Ice and Fire

For domestic innovative pharmaceutical companies, it is undoubtedly the coldest winter for innovative drugs
.

Since the second half of 2021, innovative pharmaceutical companies have frequently broken
.

According to Choice data, 15 of the 20 new biotech B shares listed in 2021 will break on the first day, with a break rate of 75%

The primary market is also facing unprecedented difficulties
.

According to wind data, the number of investment and financing in China's pharmaceutical, biotechnology and life sciences in 2021 hit a five-year low
.
As of mid-December, the cumulative financing amount was only 45.
157 billion yuan
.

A year ago, the market was thriving
.
According to Arterial Network data, the total financing of China's medical and health industry in 2020 will reach 162.
5 billion yuan, a record high
.

In stark contrast to the downturn of innovative drugs, traditional Chinese medicine
.
China Securities Traditional Chinese Medicine (CSI: 930641) will increase by over 33% in 2021, leading the entire pharmaceutical sector
.
Among them, Jianmin Group, Guangyuyuan, and Longshen Rongfa have the highest increase in individual stocks, with annual increases of 213%, 188%, and 154% respectively
.

Why are they both in the pharmaceutical industry, but the market conditions of the two are so different?

Specifically, although they are all medicines, innovative medicines and traditional Chinese medicines face completely different situations
.

From a policy perspective, under the pressure of medical insurance cost control, investors are looking for a policy immunization track, and traditional Chinese medicine is undoubtedly the best choice
.

For innovative drugs, medical insurance cost control is undoubtedly a sword of Damocles, hanging high on the heads of a number of innovative drug companies
.
After a drug is successfully developed, it will be difficult to commercialize it if it is not covered by medical insurance; if it is covered by medical insurance, a substantial price reduction is inevitable
.

But Chinese medicine does not have such troubles
.
On the contrary, what is given to traditional Chinese medicine at the policy level is a sword of Shangfang, which can be invincible
.

On December 31, 2021, the National Medical Insurance Administration and the State Administration of Traditional Chinese Medicine jointly issued the "Guiding Opinions on Medical Insurance Supporting the Inheritance and Innovation of Traditional Chinese Medicine" (hereinafter referred to as the "Opinions")
.

The "Opinions" mentioned that "General TCM medical service items can continue to be paid by item, and TCM medical institutions can temporarily not implement payment by groups related to disease diagnosis; public medical institutions purchase TCM decoction pieces from formal channels, and the actual purchase price will be added in strict accordance with the actual purchase price.
Over 25% sales
.
"

To put it simply, medical insurance does not limit the cost of traditional Chinese medicine as strictly as Western medicine, and at the same time allows the sale of Chinese medicine decoction pieces at a higher price, which is a treatment that Western medicine cannot even imagine
.

As for the centralized procurement of innovative medicines that hurt muscles and bones, when it comes to traditional Chinese medicine, it only causes a little skin trauma
.
On December 22, 19 provinces led by Hubei Province announced the results of the planned procurement of Chinese patent medicines in an inter-provincial alliance with volume.
%-30%
.

More importantly, in the past few years, it has been the home of innovative drugs.
Excellent pharmaceutical stocks are generally overvalued.
Traditional Chinese medicine is the lowest valued sector in the pharmaceutical sector except for pharmaceutical circulation
.

With both policy blessings and low valuations, Chinese medicine has become a safe haven for investors
.

In the final analysis, whether it is innovative drugs or traditional Chinese medicines, people need to pay, and then some people are willing to invest; some people are willing to invest, in order to make money; if some people make money, more people can invest
.
And now the largest payer medical insurance chooses to support traditional Chinese medicine, and traditional Chinese medicine has naturally risen to the "good heart" of investors
.

In such a differentiated market, what we need to see clearly is how many arbitrageurs and how many are real innovators behind the seemingly prosperous market of innovative drugs?

Regardless of the answer, the arbitrage era in the biopharmaceutical sector is over, and it is highly unlikely that one could raise money and go public by accumulating pipelines and telling stories in the future
.
The real brutal battle really begins
.

/ 02 / How to break the game? only go to sea

/ 02 / How to break the game? only go to sea

Where should innovative pharmaceutical companies go? In fact, the answer is very simple.
Only by going overseas can we truly solve the payment anxiety of innovative drugs
.

Dr.
Tamas Bartfai once said: There are only three things to remember about the new drug market: the US market, the US market, and the US market
.

The United States is the only developed country that does not limit drug prices
.
The medical payment system in the United States is different from that in China.
The commercial health insurance system pays for the medicines of the vast majority of Americans
.
In 2020, the largest share of the US health care expenditure structure is private insurance, accounting for 33%
.

Due to the fragmentation of commercial medical insurance caused by the laws of the United States, commercial medical insurance cannot form a monopoly purchase, and the government medical insurance, which is the largest payer, is prohibited from directly negotiating prices with pharmaceutical companies
.

This also determines that the price of innovative drugs in the United States will not be greatly reduced by the government, so the drug price in the United States is almost the highest in Western countries
.
According to a 2021 report by the RAND Corporation, the average price of prescription drugs in the United States is 2.
56 times that of other Western countries
.

Compared with China, the price of innovative drugs in the United States is much higher
.
Taking PD-1 as an example, in 2021, the annual cost of domestic K drugs is 140,000 yuan for two years, while the price in the United States is 1.
18 million yuan; the domestic O drug price is 110,000 yuan for one year, and the price in the United States is 1.
16 million yuan, which is the domestic price.
10 times more
.

Of course, high drug prices also make U.
S.
healthcare spending extremely high.
In 2019, U.
S.
healthcare spending was as high as $3.
6 trillion, accounting for 18% of GDP, and per capita healthcare spending was as high as $11,000
.

In the same period, China's total health expenditure was 6.
5 trillion yuan, and the per capita total health expenditure was 4,656.
7 yuan
.
From the disparity in per capita health expenditure, it is not difficult to see that innovative pharmaceutical companies can only develop by going overseas to Europe and the United States
.

Of course, going to sea is easier said than done
.

In the past year, the road of domestic innovative pharmaceutical companies to go overseas has been quite bumpy
.
From conbercept to punabulin and proclamide, domestic innovative drugs have been shrouded in the shadow of failure to go overseas for a whole year, which has also made pharmaceutical companies more clearly aware that going overseas is not an easy road to take
.

Among them, the first thing to face is the difference in drug evaluation standards in different countries
.
The FDA, which holds the "power of life and death" for pharmaceutical companies, is very strict in approving drugs.
It is highly unlikely that it will be feasible to copy domestic standards to overseas
.

Overseas is not a safe haven for innovative drugs, but a testing ground
.
In China, innovative medical insurance like squeezing toothpaste will not pay the bill; similarly, the FDA will not accept all the innovative drugs with the same target
.
Not long ago, Pazdur, director of the FDA's Oncology Center of Excellence, also issued a document criticizing the chaos of PD-1 accumulation
.

This puts forward higher requirements for innovative pharmaceutical companies.
It is not enough to go overseas to make a living.
More and newer innovative drugs, as well as more rigorous clinical trials and data are needed
.

The road to go overseas is difficult, but it is an inescapable road for innovative pharmaceutical companies
.
And, once you go to sea smoothly, the rewards will definitely be huge
.
In this regard, Japanese pharmaceutical companies have fully proved that
.

/ 03 / The road that Japanese pharmaceutical companies have verified

/ 03 / The road that Japanese pharmaceutical companies have verified

The plight of innovative pharmaceutical companies in China today is similar to that of Japanese pharmaceutical companies in the 1980s
.

On the one hand, after the 1980s, Japan's population aging problem began to intensify; on the other hand, Japan is also facing a situation of tight medical insurance funds
.
In the 1970s, Japan's pharmaceutical expenditure accounted for about 40% of the national medical expenses.
As the Japanese economy fell into a downturn, medical insurance funds were under pressure
.

At that time, the Japanese government, which was struggling with medical insurance funds, chose to reduce drug prices
.
Through strong control measures, the proportion of Japan's pharmaceutical expenditures in total medical expenditures has fallen rapidly
.
In 1992, the figure was about 23%, and in early 2000 it fell below 20%
.

However, this has a great impact on the pharmaceutical industry.
The aging is accelerating, the growth rate of the pharmaceutical market has continued to decline, and a large number of pharmaceutical companies have closed down
.
Japanese pharmaceutical companies usher in the lost two decades
.

From 1970 to 1980, the compound growth rate of the Japanese pharmaceutical industry was 12.
95%, and from 1990 to 2000, the growth rate dropped to 0.
58%; in 1995, the number of Japanese pharmaceutical companies was 1512, and in 2003 this number dropped to 1062
.

In a market where drug prices are reduced and growth is limited, Japanese pharmaceutical companies can only find other ways out
.
On the one hand, pharmaceutical companies have increased investment in innovation and R&D, but for them, innovation alone cannot maintain sustained performance growth
.
After all, in the environment of cost control, the growth of the pharmaceutical market is relatively limited
.

From 2005 to 2018, the compound growth rate of Astellas' domestic revenue from Japan was only 2.
3%, while that of Takeda Pharmaceuticals was negative (-1.
25%)
.
In this context, Japan's top pharmaceutical companies have gone abroad one after another, and overseas business has become the main growth point
.

Also from 2005 to 2018, the overseas business growth rates of pharmaceutical companies such as Astellas, Dainippon Sumitomo, Shionogi, and Tanabe Mitsubishi were 15.
03%, 27.
49%, 19.
51%, and 18.
62%, respectively, all of which were far higher.
Business growth in Japan
.

At present, leading pharmaceutical companies including Astellas and Takeda Pharmaceuticals have accounted for more than 50% of their overseas revenue, becoming a well-deserved global pharmaceutical company
.

It can be said that under the general trend of cost control, Japan's leading pharmaceutical companies have achieved stable growth under internal and external attacks through R&D innovation and overseas development, which is ultimately reflected in the stock price level, avoiding the "lost" with the pharmaceutical industry
.

The breakthrough of Japanese pharmaceutical companies tells us that no matter how cold the winter is, there will be flowers in the next spring
.
Next, it depends on who can overcome this cold winter of innovative medicines
.