According to the Zhito Financial App, Sinolink released a research report stating that the pressure on the pharmaceutical industry will continue to bottom out in 2024, but long-term demand remains stable, and there are reverse trends in policy, capital, and fundamentals, suggesting that the pharmaceutical sector is expected to achieve excess returns in 2025. In 2025, the team believes that the core investment opportunities in the pharmaceutical sector will revolve around three major logics: 1) Innovative drugs going abroad; 2) Demand recovery; 3) Policy expectation reversal.

Among these factors, policy favorable winds arrive first (the policy for the pharmaceutical sector continues to warm up, and the overall industry expectations are likely to turn optimistic); followed by research and development innovation going abroad (the innovative drugs sector continues to make progress and will still be the hottest sector in the pharmaceutical industry in 2025, especially recommending attention to the clinical data readouts and market commercialization progress of first-line symbols, as well as the volatility opportunities of second-line innovative drugs), and then the performance growth rate in the first half of 2025 is expected to reach the bottom and recover (however, the improvement in the growth rate of this performance will take time, considering the current industry communication and historical base, it is expected to remain cautiously optimistic for Q4 2024 and Q1 2025, with the quarterly report around early 2025 being a critical time point).

Innovative drugs: Over the past week, national support for innovation has been continuous, with the National Health Commission holding a press conference on "Technology Innovation in the Pharmaceutical Field," clarifying the promotion of innovative ideas and measures. At the same time, the industry has also seen fruitful results; within just one week, six domestic new drugs or new indications have been approved for market or have had their NDA (New Drug Application) accepted by the NMPA (National Medical Products Administration). With various policies supporting innovative drugs gradually being implemented, the innovative strength of Chinese pharmaceutical companies and their growth potential are far from being fully recognized by the capital markets.

Medical services and consumer healthcare: Multiple policies drive optimism about the sector's economic climate. The establishment of the medical insurance fund budget system is expected to further regulate the turnover of costs for drugs and medical consumables, while easing the pressure on medical institutions to advance payments, which is bullish for the long-term sustainable development of medical institutions. The official WeChat account of China's medical insurance published an article titled "Reflections on Promoting One-stop Settlement of 'Medical Insurance + Commercial Insurance,'" stating that commercial insurance is a strong complement to government medical insurance and is expected to reduce pressure on the medical insurance payment side.

Biological products: New drug data has frequently emerged from the 2024 US liver conference, with 62% of patients achieving surface antigen clearance after 12 weeks of AHB-137 treatment; TCR-T cell therapy SCG101 achieving rapid HBsAg clearance with a single infusion; Fujian Cosunter Pharmaceutical's GST-HG141 demonstrating excellent clinical performance at stage II for low virology; Peginterferon combined with TDF achieving over 30% HBsAg clearance, with a 24-week efficacy retention rate exceeding 90%. It is recommended to continuously pay attention to the drug development processes in this field.

Medical devices: For high-value consumables, the second document of national procurement will be released in 2024, creating opportunities for domestic replacement in peripheral fields. Sinocare Inc. has signed a distribution cooperation agreement for CGM in Europe. Thanks to the advantages of continuous glucose monitoring in the treatment process of diabetic patients, the global penetration rate of CGM system products for glucose monitoring is expected to continue to increase. Domestic enterprises are still in the early stages of product layout, but have made significant progress in EU MDR certification in recent years, and may gradually widen the gap in medical insurance access and the US market in the future. It is recommended to focus on enterprises with strong innovation and iteration capabilities for CGM products and leading overseas channel layouts.

Traditional Chinese Medicine: Henan Lingrui Pharmaceutical announced that it plans to acquire 100% equity of Yingu Pharmaceutical with no more than approximately 0.782 billion yuan of its own funds. Recently, some companies in the sector are actively extending towards innovation through mergers and acquisitions, BD pipelines, and other means. It is advisable to pay attention to traditional Chinese medicine companies with good cash flow and a foundation for external development in industrial cooperation projects or the progress of innovative pipelines.

Upstream Pharmaceuticals: On December 5, the Ministry of Finance published a notice on its official website regarding 'Matters Related to the Standards and Implementation Policies for Domestic Products in the Government Procurement Field.' This notice is a draft for soliciting opinions, clarifying the standard definitions for domestic products, and clearly stating the support measures for government procurement of domestic products. Specifically, during the bidding process, if domestic products or packaged projects have an 80% share of domestic products, an additional 20% price reduction will be granted. The 'Biologics Safety Act' encountered obstacles, and the global competitive advantage of CXO leaders is viewed favorably.

Investment advice

The team still believes that the biggest investment opportunities in the pharmaceutical sector in 2025 will revolve around two main lines: investment opportunities with high prosperity in innovative drugs and generic drugs sectors; and individual stocks bottoming out and rebounding investment opportunities in the fields of medical devices, traditional Chinese medicine, pharmacies, and consumer medical services.

Related symbols

Kelun Bota (06990), Xiamen Amoytop Biotech (688278.SH), Humanwell Healthcare (600079.SH), Yifeng Pharmacy Chain (603939.SH), and Cofe Medical (301308.SZ) are among them.

Risk warning

Exchange rate risks, domestic and international policy risks, fluctuations in investment and financing cycles, risks of mergers and integrations falling short of expectations, etc.