“Science and Technology Innovation Board Daily”, December 10 (Editor Qiu Siyu) As we approach the end of the year, a number of organizations have released annual strategy reports one after another, outlining market trends in 2024.

According to the opinions of various institutions and analysts, following the continuous decline in 2022 and 2023, the pharmaceutical industry will reach an inflection point of recovery in 2024, and price policies, performance, valuations, and holdings will all usher in significant improvements.

Zhou Chaoze, an analyst at Fangzheng Securities, pointed out that the current level of valuation premiums in the pharmaceutical industry and the share of fund holdings are hovering at a low level, but the share of turnover rebounded again after a new low, indicating that the current pharmaceutical sentiment is gradually moving from pessimism to optimism, optimistic about future restorative opportunities in the pharmaceutical sector, and attaching importance to pharmaceutical investment opportunities.

And which business segments are worth paying attention to?

Innovative drugs: from “quantitative change” to “qualitative change”

Innovative drugs are one of the segmentation directions that most institutions are optimistic about.

Guotai Junan pointed out in the 2024 Strategy Report that innovative drugs in China have moved from an era of “quantitative change” to an era of “qualitative change”. Some new drugs have shown greater potential for clinical benefits, and the domestic new drug BD has been released overseas and approved for marketing overseas. Currently, innovative pharmaceutical companies are rapidly increasing revenue from major new drugs, R&D and sales cost indicators have improved, profitability has increased, and commercialization has entered an accelerated harvest period.

In the innovative drug sector, AD and weight loss markets are a direction that many institutions are optimistic about.

The Alzheimer's disease (AD) patient base is huge. Currently, the number of AD patients aged 60 and above in China is about 9.83 million. As the population ages, the total cost of AD-related treatment in China is expected to exceed 1.8 trillion US dollars in 2050. Due to the complex pathogenesis of AD, the therapeutic effects of drugs marketed earlier were limited.

However, this year, good news came from AD drug development. Abeta drugs developed based on the amyloid hypothesis are expected to break the situation where AD has not had effective drugs for a long time. According to reports, the new Abeta drug luncarnaizumab developed jointly by Bojian in the US and Eisai in Japan can reduce cognitive decline in early AD patients by 27%. This is the first time in nearly 20 years that it has been fully approved by the FDA.

Ye Yin, an analyst at Ping An Securities, pointed out that the rise of Abeta therapeutics is of epoch-making significance and is expected to fully stimulate potential demand at both ends of AD diagnosis and treatment. Guojin Securities, on the other hand, suggests focusing on companies with similar targets to Lilly's new Abeta drug, donezumab, and more advanced clinical development, such as Hengrui Pharmaceutical, Xiansheng Pharmaceutical, and Tonghua Jinma.

On the other hand, the market performance of weight loss drugs since this year has been particularly impressive. Wegovy from Novo Nordisk, an overseas weight loss drug leader, is in short supply, and the company's market value has been rising steadily this year. Recently, Swiss pharmaceutical giant Roche entered the market with a heavy investment of 3 billion US dollars, and many domestic companies have also targeted business opportunities in the field of weight loss. Zhifei Biotech has acquired 100% of Chongqing Chenan Biotech's shares, from vaccines to metabolic diseases.

Fangzheng Securities pointed out in a relevant research report that Novo Nordisk and Lilly's GLP-1 products have opened up huge market space for the peptide drug industry chain, driving the expansion of the entire upstream and downstream industrial chain. Among them, leading CDMO companies and API companies that have completed DMF registration are expected to benefit first. On the domestic side, it is recommended to focus on Nuotai Biotech, Hanyu Pharmaceutical, Shengnuo Biotech, Borui Pharmaceutical, and Zhongsheng Pharmaceutical.

The process of device localization is accelerating

In terms of medical devices, judging from the analysis reports of various institutions, “localization” will still be the key word in the future device sector.

Everbright Securities pointed out in its annual strategy report that it is imperative to innovate high-end domestic products and accelerate localized replacement, and that most types of domestically produced innovative devices have a lot of room for localization. Optimistic about the direction of high-end medical equipment, high-end medical consumables, and scientific instruments.

China's medical device market is in high demand. Over the years, the country has also introduced a series of policies to encourage the development of innovative and high-end medical devices, improve the product approval and registration process, optimize the market development environment, and accelerate the promotion and localization process of domestic medical device products, such as volume procurement and DRG/DIP models.

Currently, collection rules tend to be moderate and mature. According to a research report released recently by Caixin Securities, the current collection rules are more gentle and scientific. In addition to price factors, the bidding rules comprehensively consider product quality, market share, supply and supporting services, etc., fully consider the usage habits of medical institutions, give more room for clinical choices, stabilize the clinical use pattern, and respect innovation, and give a certain premium to products with high clinical value.

In this context, the agency further pointed out that innovative medical device products with clinical value can be rapidly released under collection, and domestic brands are expected to use supply chain advantages, cost performance ratio, and local clinical innovation to expand market share in competition, accelerate the localization process, and increase concentration.

On the other hand, going overseas is also a direction that various institutions are optimistic about. According to data from the “2023 Blue Book on Medical Devices” compiled and published under the direction of the State Drug Administration, the revenue of medical device manufacturers in China in 2022 was about 1,240 billion yuan, accounting for only 27% of the global medical device market. Currently, the level of internationalization of domestic equipment companies is uneven. Few large-scale representative enterprises account for more than 30% of overseas revenue, and there is still plenty of room for improvement.

Zhou Chaoze, an analyst at Fangzheng Securities, pointed out that with the acceleration of the domestic localization process, domestic medical device companies are entering a new stage of development, and developing a broad overseas market is an important path for enterprises to achieve further growth. Companies with a strong product base and an overseas channel base will have significant competitive advantages. It is recommended to focus on Mindray Healthcare, Lianying Medical, Weili Healthcare, New Industries, Yahuilong, Sannuo Biology, Yuyue Medical, Minimally Invasive Medicine, Southern Wei Medicine, etc.