一

The stock market has been relatively weak recently, with the A-share pharmaceutical index pulling back less than 15% from its all-time high, but as a sector that has risen for a year and a half, with an average increase of more than twice as much, a 15% correction is expected to be not enough. Looking at the stock prices of specific listed companies, most valuations are also at a fairly high level.

At the current stage, it is believed that many investors are struggling in the face of pharmaceutical stocks, and it is not easy to look everywhere with a microscope to find stocks that can be bought comfortably.

Return to common sense, believe in reason, undervaluation cannot last forever, and so is high valuation.

Putting the short-term trend of stock prices aside, let's talk about the investment of pharmaceutical stocks from the perspective of entrepreneurs, especially pharmaceutical companies, which may not be suitable for equipment, retail, CDMO and service enterprises.

二

As Deep-Fried Chicken, I believe that in recent years, many investors have been pharmaceutical stocks is a good track, long-term aging will bring huge demand, and so on, such logic washed the nerves. If you look at China's innovative drugs alone, the weather at the current stage is indeed much better than that of the previous decade.

In the first ten years, during the expansion of health insurance, everyone could live well as generics and traditional Chinese medicine, and no capital would be willing to spend money to support an innovative drug company to do R & D and clinical practice.

In the first decade, clinical approval of a new drug may take several years, but now it can be carried out within 60 working days without negative feedback.

In the last decade, it was even harder for high-priced innovative drugs to get into health insurance, but now it is expected that there will be health care negotiations every year, giving sincerity to expand drug accessibility and reach patients as soon as possible.

Of course, it is undeniable that even companies that make innovative drugs are under pressure from their fathers in the Health Insurance Bureau to control fees.

In the United States, the price of a new drug may rise during the patent period, and in China, drug prices are likely to go down, so a truly competitive new drug must be sold globally in order to realize its value with the greatest probability, whether through license out, or by setting up its own clinical and commercial team, a company with long-term development prospects is likely to be a global company.

A globalized company, with global competitiveness, can certainly not just engage in me-too, or even spend all its energy on biosimilar. Only with independent intellectual property rights and innovative things can we really change the situation of China's backwardness in medicine.

三

Objectively speaking, China's innovative pharmaceutical enterprises have the basis for long-term development, but also have great challenges.

Enterprises that invest in innovative drugs will have a higher and higher proportion of entrepreneurs in the future. The entrepreneur is the core factor that makes the enterprise from 0 to 1, and can bury the cultural gene for the enterprise and lead the company to complete the transformation in the face of difficulties.

In his book value, Zhang Lei has the following definition of a great entrepreneur: first, he has the concept of long-term doctrine and can seek the long term in uncertainty; second, he has deep insight into the industry and looks for key trends in continuous innovation; third, he has focused execution and uses ingenuity to do things to the extreme; fourth, he has super empathy and can coordinate more resources to make ideas come true.

When we look at some overseas and domestic pharmaceutical companies, it is easier to find the benefits of the corporate culture created by good entrepreneurs to the development of the company, step by step to success (at least for now).

In a foreign popular sense, the birth of a completely innovative new First in class drug takes more than a billion US dollars for more than ten years. This process requires managers to have strong empathy, coordinate the departments of new drug discovery, clinical development, and clinicians, and finally show that the clinical progress is fast and slow, and whether the company can take the lead reflects the company's executive power.

And if a biotech needs to develop into a platform company and become a big pharma, the management needs to have a long-term concept, be able to insight into the development trend of the industry, constantly update the company's pipelines, and lead the development of the industry.

四

Here are two examples. The first is an overseas biotech. It took 15 years for the company to successfully verify the availability of a new treatment. The first new drug was approved by FDA in 2018.

Over the past 15 years, the company has burned more than US $2 billion, experienced twists and turns, failed in the third phase of the clinic, and almost went bankrupt twice. When other large companies left the market and were not optimistic about the development prospects of this technology, the company survived through layoffs, license out, etc., and continued to bet, finally ushering in the dawn after solving the two pain points of the technology.

The company's technology platform has been proven, and in the continuous evolution, on the company's technology platform, the company has the ability to declare 2-4 IND (new drug clinical trials) each year, and 1-2 new drugs can be put on the market each year.

Reviewing the development history of the company, what comes to mind is such a sentence: "sharpen the sword for 15 years, encourage the fragrance of plum blossoms." "the step by step of the company is the history of the indomitable corporate culture going deep into the bone marrow.

The second company is a Chinese start-up biopharmaceutical company. Compared with many overseas biotech companies, its founder is not a particularly good scientist and has no background in well-known overseas pharmaceutical companies.

But in the course of ten years of development, the company has a very clear idea of how to develop from the initial stage of biosimilar, to the already started "known target, different sequence", and then to "known target, not validated yet", and then to the long-term development strategy such as first-in-class.

Most of the senior management teams gathered around the founders have international education background or years of experience in multinational pharmaceutical companies, so that the whole company can quickly carry out research and development, promote clinical and establish a high-quality production system, and initially prove their sales ability.

The company's founders also have strong industry judgment to determine what targets have the potential to follow up, and gradually set up more than 20 drug research and development pipelines.

After the initial success, the company also has a clear idea of how to internationalize, how to supplement the ability of early drug discovery, and how to prepare for the pipeline five or ten years later.

With such entrepreneurs, we can see that in more than two years, the company has been able to push a blockbuster drug from the clinical stage to market, and we can see one unexpected license in/out and international cooperation after another.

Although the next development of the industry will further test the company's innovation ability, based on the company's achievements over the years, and the strategic vision and execution shown by the company's management, do we have reason to believe that the company will not be left behind in the visible three or five years?

If investment is a matter of high probability, then at this time we choose to believe in the creativity and execution of entrepreneurs.

五

Of course, pharmaceutical companies speak entirely on the basis of results, and the excellence of the past does not mean that the future can continue to exceed expectations.

In addition to the existing pipelines, whether these companies can well supplement the innovative pipelines in the future, so that investors can well expect that more first in class will be advanced to the clinic in three or five years' time, and if they do not see results for a year or two (to the IND or even the clinical stage), then the question of whether the company's combat effectiveness and execution are still excellent should be considered.

Therefore, pharmaceutical companies have to take a step by step, whether it is the pipeline or clinical progress, or even whether the application for listing can be approved or not.