“Science and Technology Innovation Board Daily”, December 27 (Reporter Xu Hong) Although the pharmaceutical industry is still cold in winter in 2023, the signs of “recovery” continue to increase. In particular, as the overall health insurance policy enters the optimization stage, not only will fundamental risks be further released, but it is also expected to greatly increase the certainty of growth of domestically produced innovative drugs.

According to Wind statistics, as of December 20, the Shenwan Pharmaceutical Biological Index had a cumulative decline of 7.6%, ranking 15th among Shenwan's 31 tier-1 industries, further improving the ranking from the previous year.

Beginning in the fourth quarter, the A-share pharmaceutical sector, driven by the general market, combined with various favorable incentives such as active foreign licensing transactions for innovative drugs, also ushered in a round of strong rebound leading the market. According to Wind data, in the past three months, pharmaceuticals ranked 4th among the 31 Shenwan industries in terms of growth.

▌The A side of 2023: CXO and leading consumer health care companies are falling one after another

Consumption and serious medical recovery fell short of expectations. Medical anti-corruption efforts were unprecedented throughout the year. Leading individual stocks such as Tongze Healthcare, Aimeike, and Tiger Pharmaceuticals were all hit by sell-off stock prices. There was still a hint of chill in the pharmaceutical industry in 2023.

Statistics from the Science and Technology Innovation Board Daily • Star Mining show that up to now, there are more than 500 A-share pharmaceutical companies. In 2023 (as of December 21), more than 220 companies achieved an increase, and more than 260 companies fell, of which at least 50 companies fell by more than 30%.

Among the companies with the highest declines, it can be seen that the CXO concept occupied many companies. There are not only racetrack leaders such as Tiger Pharmaceuticals, Zhaoyan Pharmaceutical, and Kanglong Chemical, but also characteristic CXO companies such as Yakshi Technology, Heyuan Biotech, and Haoyuan Pharmaceutical.

As a “water seller” in the pharmaceutical innovation industry chain, CXO can not only benefit from the boom in innovative drug research and development, but also does not have to bear the risk of new drug development failure, so it has always been a “good heart” for all kinds of funding. Even though the industry has reached a low point in the cycle, CXO has had a unique outlook for the past two years.

However, this trend did not continue until this year. Since entering 2023, the revenue growth rate of the CXO sector has begun to slow down under the general environment of pharmaceutical bioinvestment and financing. Combined with increased competition in some fields and the effects of biological asset depreciation, the profit side has also been under pressure.

According to relevant statistics, in the first half of 2023, the CXO sector (25 sample targets) had revenue of 52.2 billion yuan, up 5.6% year on year; net profit to mother was 11.9 billion yuan, down 5.5% year on year.

At the same time, the stock prices of the three leading White Horse companies, Huaxi Biotech, Aimeike, and Tongce Healthcare, also showed significant declines in 2023 due to the falling short of expectations in consumption recovery and the collection of dental implants.

Because of immunization collection and rapid growth in performance, the consumer healthcare sector, including dental care, medicine and aesthetics, has been highly sought after in the capital market in the past. However, with the regulation of fees for dental implants and the advancement of dental implant collection, the former “ten-fold share” medical stock price also began to fall all the way down. In more than two years, it fell to more than 80% of its market value. At its peak, the market value of more than 130 billion dollars is now only more than 20 billion dollars left.

“The adjustment in the medical and aesthetic sector is due, on the one hand, to the need to absorb the increase in the previous period, and on the other hand, because actual medical and aesthetic consumption data and the company's performance fell short of expectations.” In response to the stock price performance of Huaxi Biotech and Aimeike this year, another private equity researcher told the “Science and Technology Innovation Board Daily” reporter.

Despite favorable and negative drag, A-share pharmaceuticals in 2023 will also have quite a few prominent hot spots, such as brain-computer interfaces, GLP-1 diet pills, and Alzheimer's drugs. Among the companies with the highest growth in 2023, you can see a number of GLP-1 diet drug concept companies, including Changshan Pharmaceutical, Nootech Biotech, and Shengnuo Biotech.

It also belongs to the consumer medicine concept. The GLP-1 concept relayed medical beauty to become one of the most prominent A-share racetracks in 2023. The reason behind the explosion is that Novo Nordisk's “magic drug for weight loss” simeglutide is popular all over the world. The release of GLP-1 also once again proved the major trend in consumer medicine, and some people even predicted this, believing that “products with stronger consumer properties will hopefully become blockbusters in the future.”

▌The B-side of 2023: the policy side and fundamentals are picking up across the board

The “going overseas” of domestically produced innovative drugs ushered in an unprecedented explosion. Policy warming continues to blow, and the pharmaceutical industry is also speeding up recovery in 2023.

2023 is known as the “first year” for Chinese pharmaceutical companies to go overseas. While the scale of foreign licensing cooperation reached a new high, many new drugs have successfully entered the European and American markets and been approved for listing, showing that the research and development capabilities of domestic new drugs are gradually increasing. Especially in the field of ADC pharmaceuticals, according to incomplete statistics, multinational pharmaceutical companies frantically sold ADC assets this year, and more than half of the targets came from Chinese pharmaceutical companies.

In response to this, at the “5th Health China Sinan Summit” held a few days ago, Ding Dan, chief analyst of the medical industry at Cathay Pacific Junan, also made an analysis, indicating that China's innovative drug development is still relatively weak in terms of basic research and target/pathway discovery. For example, target selection is mainly based on following, and the competitive advantage of enterprises mainly depends on R&D speed and commercialization capabilities.

However, since some new drug paradigms such as cell therapy, ADC, and dual antibodies do not involve the update of disease mechanisms and targets, their core key lies in CMC and clinical trials, so it has become the most advantageous direction in the region.

What is also worth recording in 2023 is that after 2022, the national health insurance policy continued to be improved and optimized this year. In July of this year, the National Health Insurance Administration also updated two new regulations on “non-exclusive drug bidding” and “negotiated drug renewal” to further increase support for innovative drugs. Thanks to this, on the first day of “national talks” this year, the stock prices of more than 300 A-share pharmaceutical companies flourished. This was rare in the past.

In terms of national volume procurement, by setting a series of rules such as a guaranteed recovery line, the winning rate of collection was not only increased, but the decline was relatively moderate, and the difference in winning bid prices was also narrowed.

“Taking the artificial crystal and sports medicine collection that was just completed at the end of November as an example, the collection documents differentially designed bidding rules and parameters based on the number of players participating in each category and the competitive pattern. For example, the guaranteed recovery line for crystals is 60% of the price limit, while sports medicine is 40%; for varieties with a better pattern with no more than 2 participating companies, the recovery line is also more moderate. Crystals are 80% of the price limit, sports medicine is 70%, etc.” Ding Dan said.

After a few years of exploration and practice, after the overall optimization of policies related to volume procurement and health insurance negotiations, looking forward to next year, the progress of the DRG/DIP payment method reform may take over and become a new variable.

Recently, the stock price of the cardiac electrophysiology concept microelectrophysiology (688351.SH), which was listed on the Science and Technology Innovation Board, hit a new high. Some analysts told reporters that the reason behind this was the implementation of the first batch of DRG payment and volume procurement joint management procurement projects in Beijing.

In addition to this, the launch of a new version of the basic drug catalogue is also a matter of concern for the industry right now. The adjustment of the basic drug catalogue will not only affect the medication model of the vast number of medical institutions. For enterprises, entering the basic drug catalogue also means that they can get more opportunities to be used by hospitals and patients.

Since 2018, the basic drug catalogue, which was supposed to be adjusted every three years, has not been adjusted for five years, but judging from the statement made by the National Health and Health Commission in public channels this year, the adjustment of the basic drug catalogue is also accelerating.