Analysis of Pharmaceutical Industry Chain and Investment Logic

Analysis of Pharmaceutical Industry Chain and Investment Logic

As a track with obvious head effect and different sub-industries, it is not difficult for investors to choose individual stocks for investment. Ordinary investors can borrow the fund layout. Bian Xiao sorted out the pharmaceutical industry chain and investment logic here for your reference. I hope everyone will gain something in the reading process!

In the pharmaceutical industry, raw materials, chemicals and other production enterprises belong to the upstream; Pharmaceutical distribution enterprises such as pharmaceutical wholesale belong to middlemen; The terminal downstream of medical institutions belongs to the pharmaceutical sales terminal industry. There are eight main sub-areas,

Main investment logic and investment opportunities

1, TCM

Chinese medicine industry includes two sub-industries: Chinese herbal pieces and Chinese patent medicines. Chinese herbal pieces refer to Chinese herbal medicines and their processed products; Chinese herbal pieces are important raw materials of Chinese patent medicine. The price and quality of Chinese herbal medicines are related to the manufacturing cost and quality of Chinese patent medicines. Chinese patent medicine refers to drugs that can be directly used for disease prevention and treatment after processing or extraction of Chinese medicine.

Looking at the profitability of an enterprise, we mainly pay attention to two indicators: gross profit margin and return on net assets (unweighted deduction). The highest gross profit margin of Chinese patent medicine enterprises can reach 90%, which is much higher than that of Chinese herbal medicine enterprises.

The basic logic of subdividing the industry: the industry of Chinese herbal pieces has a long history, and Chinese medicine has cultivated a large number of doctors and audiences since ancient times. Traditional Chinese medicine decoction pieces are very earthy. Dig the herbs out of the ground, wash them and dry them in the sun. They have strong agricultural attributes, and of course, there are modern cleaning, slicing and drying equipment now. This industry is mixed, including the cheapest Panax notoginseng and Radix Isatidis, as well as expensive medicinal materials such as Cordyceps and saffron. Because there is a broad mass base, there is naturally more market space.

Typical companies in sub-sectors: ST Kangmei, China Traditional Chinese Medicine and Hongri Pharmaceutical; Yunnan Baiyao, Pien Tze Huang, Baiyun Mountain, etc.

Development direction and investment opportunities: modernization and standardization of Chinese herbal pieces processing is the trend, and pure first-line Chinese herbal pieces enterprises that meet the listing standards are also preparing to seek listing. With the listing of the first echelon of large enterprises, various mergers and acquisitions will be ushered in.

2. Chemical drugs

The chemical pharmaceutical sector is divided into two sub-industries: chemical raw materials and chemical preparations.

Chemical raw materials refer to the raw materials used to make various chemical preparations, including powder, crystals, extracts, etc. Chemical APIs can be subdivided into APIs and characteristic APIs.

Chemical preparations refer to pharmaceutical preparations directly used to prevent and diagnose human diseases, including tablets, capsules, potions, ointments, powders and solvents.

At present, the business model of chemical pharmaceutical enterprises in China is relatively low, and bulk raw materials such as vitamins, antibiotics and antipyretic and analgesic drugs are exported to Europe, America and Japan in large quantities every year; At the same time, there are also many pharmaceutical companies with high profits in the field of characteristic APIs in China, such as Huahai Pharmaceutical, which provides Puli and Sartan.

Typical companies in sub-sectors: Hengrui Pharma, Fosun Pharma, Kelun Pharma, Kanghong Pharma, Livzon Group, Beida Pharma, Yifan Pharma, etc.

Development direction and investment opportunities: innovative drugs have large capital investment (billions of dollars), long cycle (starting from 10) and low success rate (below 10%), but the market space is large and the demand is strong.

3. Biomedicine

Biological and biochemical products refer to products produced by biotechnology and animal and plant raw materials, mainly including vaccines, blood products, in vitro diagnosis, recombinant proteins and other biological products.

The vaccine industry is equivalent to prevention in advance, which can save a lot of medical expenses for the country while preventing diseases. The vaccine industry is very similar to innovative drugs. Don't look at the dynamic valuation, look at the number of new drugs and vaccines in hand. The barriers in this field are relatively high, and the monopoly of the market will remain for a long time after the drug comes out. So we will see that some companies that can produce products will often become long-term reliable good companies. For some high-end biopharmaceuticals, the investment will be very large, such as investing in a monoclonal antibody. No matter whether we take the road of innovative drugs or biosimilars, it is difficult to build a factory and finish the clinic without more than 500 million cash investment. This piece is relatively beneficial to large enterprises, and small enterprises simply cannot afford to invest this money.

Typical companies in sub-industries: Hualan Bio, Tiantan Bio, zhifei Bio, Kangtai Bio, Changgaoke, etc.

Related indexes: National Biomedical Index, CSI Biomedical Index, etc.

4. Medical equipment

Medical devices are an indispensable part of disease diagnosis and treatment, such as imaging diagnostic equipment, orthopedics and implantable medical devices. Medical instruments that need to be injected from small infusion to large laparotomy. Because they are close to clinic, they are also important value creation links in the industrial chain.

Typical companies in sub-sectors: Mindray Medical, Yuyue Medical, etc.

Development direction and investment opportunities: Under the background of depressed pharmaceutical factories, the overall situation of domestic medical device enterprises is relatively good. On the one hand, because most of the charges related to hospitals and equipment are based on services, medical services themselves have become more important for hospitals under the background of the reform of medical care with medicine, and the proportion and absolute amount of income represented by diagnosis are rising in hospitals; On the other hand, it is also a policy encouragement for domestic equipment manufacturers to replace imported equipment. Some grass-roots hospitals have made it clear in the bidding that they do not need imported equipment. In this context, domestic instruments and consumables are sought after by investment institutions, especially high-tech instruments and high-value consumables.

Related indexes: CSI Medical Index, CSI Precision Medical Theme Index, CSI Internet Medical Theme Index, etc.

5, pharmaceutical wholesale

The pharmaceutical wholesale industry is the key link of the whole industrial chain. As an important intermediary, it is a bridge between pharmaceutical manufacturers and end consumers (including hospital pharmacies and retail pharmacies, mainly hospitals).

Typical companies in sub-sectors: Shanghai Pharmaceutical, Sinopharm Holdings, Jiuzhoutong, etc.

Development direction and investment opportunities: scale effect, improving efficiency and optimizing varieties will always be the key words of this link. Because the distribution enterprises directly face the hospital, more or less some pharmaceutical manufacturing businesses can form a synergistic effect. At present, the major theme of the industry is mergers and acquisitions, and some large regional enterprises are also seeking to go public.

6. Retail pharmacies

Typical companies in sub-sectors: Yixintang, Yifeng Pharmacy, Common People, Tongrentang, etc.

Development direction and investment opportunities: As a mature industry, the chain pharmacy industry takes mergers and acquisitions as its theme. In recent years, drug sales on the Internet and mobile medical care have become more popular, which has brought some new elements to the silent chain pharmacies. For example, the Dangdang Express Medicine APP under Renhe Pharmaceutical can deliver medicine to the door within 30 minutes in major first-tier cities. The development of most Internet drug-selling enterprises is still far from reaching expectations, and the future explosion point lies in the liberalization of Internet sales of prescription drugs and the landing of electronic prescriptions.

7. Hospital and physical examination

Hospital system is a typical three-level hospital, two-level hospital and one-level or below hospital. The whole system has been criticized for many years, including uneven distribution of medical resources, difficult and expensive medical treatment, medical support with medicine, medical troubles and so on. Major medical examination companies have completed listing at home and abroad, and entered the situation of oligopoly competition.

Typical companies in sub-sectors: Aier Ophthalmology, Tongce Medical, Meinian Health, etc.

Development direction and investment opportunities: No matter public hospitals or private hospitals, there are many industries and PE capital in the layout of related investments and mergers and acquisitions. High-end private clinics represented by United Family, Internet consultation and offline clinics represented by Dr. Chun Yu, and various doctor groups trying to break away from the system are all trying to break the original barrier between public hospitals and doctors, so there are opportunities for investment and M&A in all directions.

8. Outsourcing services

CRO refers to ContractResearchOrganization, which provides services from drug discovery to clinical trials. Because the pharmaceutical industry is an administrative control industry, the listing of drugs requires the approval of the regulatory authorities of various countries (CFDA, China), and can only be listed and sold after obtaining the registration certificate. At the same time, the research and development process of the drug itself is also very complicated. Taking small molecule innovative drugs as an example, it needs to go through the processes of compound discovery, compound optimization, preclinical animal experiments, clinical phase I, II, III and new drug declaration. The cost of a successful listing of an innovative drug has reached the level of $654.38+0 billion, so there will be various corresponding companies in the R&D link.

CMO refers to the contract manufacturing organization, which is mainly entrusted by pharmaceutical companies to provide process development, dosage form development, clinical trial drugs, production of chemical or biosynthetic raw materials, intermediate manufacturing, preparation production, etc. ) and raw materials.

Active pharmaceutical ingredient (API) is designed for any substance or mixture of substances in drug manufacturing, and it becomes the active ingredient of drugs when used in pharmacy, and its essence is the intermediate and raw material of drugs.

Typical companies in sub-sectors: CRO: Wuxi PharmaTech; CMO: He Quan Pharmaceutical, Boteng Pharmaceutical; API: Unacon, etc. The scale of the enterprise is already very large. These enterprises are very mature in making antibiotics and vitamins and have been listed for many years.

Development direction and investment opportunities: the core competitiveness of pharmaceutical intermediate production is quality and capacity, which requires excellent quality control ability on the one hand and sufficient capacity to meet downstream demand on the other. High-quality enterprises in the industry need to bind downstream pharmaceutical companies and excellent varieties. This link is typically capital-intensive and suitable for strategic investment. In view of the maturity of the industry, mergers and acquisitions will become the main trend.

In addition, Zheng Guo Medicine, Medicine 100, Quan Zhi Medicine, 300 Medicine and SSE Medicine belong to the broad-based index of the industry, and each sub-track will include some enterprises.

To sum up, the medical index fund can be used as a high-quality tool for us to participate in the investment in the pharmaceutical industry. In terms of investment strategy, we might as well choose the investment model of broad foundation and subdivision assistance.

At present, the valuation of the pharmaceutical industry is still on the high side, and it is recommended not to blindly enter the market. However, as a high-quality track with "long slope and thick snow", the pharmaceutical industry has long-term allocation value although its short-term trend is unpredictable.

Therefore, for those investors who want to invest in the pharmaceutical industry and have risk tolerance, it is suggested that they can make long-term investments in batches through fixed investment.

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