The country is likely to accelerate the introduction of policies to encourage expanded domestic demand, which is Bullish for the sectors focused on domestic consumption, including Traditional Chinese Medicine, Medical Services, Internet medicine and pharmacies, medical aesthetics, etc., as an extension of the Health China logic.
According to the Zhito Finance APP, Caitong has released a Research Report stating that it continues to be bullish on the new cycle of Innovative Drugs policy, which brings a resonance rise in the Industry Chain. High-tech medical and healthcare companies will be more favored by the market. Attention point one: New drug companies with genuine innovation capabilities will have greater valuation elasticity. Attention point two: The cyclical recovery brings upstream opportunities in CXO, scientific services, etc.; Attention point three: β opportunities in AI Medical. Attention point four: Defensive Assets of domestic Consumer demand.
The main viewpoints of Caitong Securities are as follows:
The FDA announced it will gradually eliminate the requirements for animal testing of monoclonal antibodies and other drugs, creating investment opportunities in AI pharmaceutical and organoid fields.
On April 11, the FDA announced that it would reduce, optimize or potentially replace animal testing through a series of methods, including AI-based toxicity calculation models and toxicity testing on cell lines and organoids in laboratory environments. This scheme will be immediately applied to Investigational New Drug (IND) applications, encouraging the inclusion of NAMs (New Approach Methodologies) data. In recent years, the scientific community has gradually recognized the fundamental limitations of animal models.
As shown by FDA data, over 90% of drugs that appeared safe and effective in animal tests ultimately failed to gain FDA approval due to safety or efficacy issues. Recognizing this challenge, Congress passed the FDA Modernization Act 2.0 at the end of 2022, explicitly authorizing the use of non-animal alternatives such as cell assays and Computer models in IND applications, and "eliminated the requirement for animal research in the Biologics License Application (BLA) for biosimilar drugs." Subsequently, in 2024, the FDA scientific committee further provided comprehensive recommendations detailing how to promote the adoption of NAMs.
The impact of Sino-US tariff issues on the pharmaceutical industry is limited.
The analysis is as follows: the impact on Innovative Drugs is relatively neutral, as Innovative Drugs belong to the Technology sector and are mainly affected by fluctuations in the Capital Markets. However, the BD Trade mainly focuses on trade services and currently does not show significant impact. The pharmaceutical manufacturing industry, including CRDMO and Active Pharmaceutical Ingredients, is basically exempt from tariffs, so no additional tariffs are added at this time. However, there has been a significant decline, largely due to USA's biosafety-related policies that encourage the return of raw material production to the USA, which in turn affects the valuation system of raw material manufacturing companies in the short to medium term. The more bullish sub-sectors in the medium to long term are self-controlled medical instruments and scientific services in the upstream, which has been the investment logic over the past two years and is now further strengthened. The government's encouragement policies aimed at expanding domestic demand may accelerate, benefiting sectors related to domestic consumption logic, including Traditional Chinese Medicine, Medical Services, Internet medicine and pharmacies, and medical aesthetics, which are extensions of the Health China logic.
Risk warning: risks from industry anti-corruption impacts exceeding expectations; risks associated with uncertainties in new drug research and development progress; risks from sales not meeting expectations; risks from bulk procurement price reductions exceeding expectations, etc.
