Currently, the Industry is undergoing significant supply-side structural reforms, and the collective procurement of Pharmaceuticals and Medical Devices is also nearing completion, with the expectation of entering a new growth cycle in 2025.
According to Zhituo Finance APP, Guosen released a research report stating that domestic medical demand continues to upgrade, and the macroeconomy is expected to gradually warm up. Currently, the industry is undergoing a relatively intense supply-side structural reform, and the centralized procurement of pharmaceuticals and medical devices is nearing completion. The industry is expected to enter a new growth cycle in 2025. Amid geopolitical disturbances, the country is expected to increase support for self-control, recommending priority allocation in innovative drugs, innovative medical devices, and Medical Devices sectors, while also suggesting attention to Thematic Investment opportunities brought by AI medical and mergers and acquisitions.
Guosen Securities' main points are as follows:
Demand side: The pharmaceutical industry is experiencing stable demand growth and is showing a trend of demand upgrade.
From 2019 to 2023, China's total health expenditure increased from 6,519.6 billion yuan to 9,057.8 billion yuan, with a CAGR of 8.6%, higher than the nominal GDP compound growth rate. From 2019 to 2023, the compound annual growth rate of diagnosis and treatment volume in domestic medical institutions was 5.4%. From a price perspective, although facing overall pressure from cost control and factors such as centralized procurement and technological advancements causing the collapse of the existing product price system, the price level in the healthcare field has generally remained stable after the pandemic, with slight price increases, showcasing the ongoing upgrade trend in domestic medical demand.
Supply side: The industry is undergoing a relatively intense supply-side structural reform and is expected to enter a new growth cycle by 2025.
Since 2019, the proportion of industry losses has been increasing year by year, stabilizing above 30% this year. The medical industry continues to be influenced by external factors such as the macro economy, geopolitical issues, healthcare cost control policies, post-epidemic sequelae, and industry normalization. Leading companies have demonstrated strong resilience during this industry clearing cycle, further increasing their market share, and will show stronger competitiveness after the industry's rebound.
On the payment side: A diversified payment system is expected to drive the proportion of total health expenditure in GDP to continue to rise.
The proportion of medical insurance expenditure in total health expenditure is expected to maintain a level of 25-30%. Against the backdrop of economic recovery and policy encouragement, the proportions of commercial health insurance, fiscal expenditure, and personal expenditure are expected to increase in the coming years. Innovative drugs, innovative medical instruments, medical devices, and high-quality medical services are expected to benefit from the purchasing power increase brought by the diversified payment system.
On the policy side: The centralized procurement of drugs and instruments is nearing completion, and reform on the service side will be the final link.
Medical service price reform will be a key focus of the 2025 medical insurance reform and also the final link in the overall framework of the DRG/DIP 2.0 policy. Standardization and regulation of the medical industry will help create a healthy and regulated environment for the industry, promoting its development. The policy for equipment updates is expected to be implemented slower than anticipated by 2024 but may accelerate with the support of fiscal policy. Innovative drugs and innovative instruments, driven by the dynamics of transitioning to new modes under medical insurance and incremental support from commercial insurance, will form the main framework for the upgrade of the domestic pharmaceutical industry.
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A-shares: Shenzhen Mindray Bio-Medical Electronics (300760.SZ), WUXI APPTEC (603259.SH), Aier Eye Hospital Group (300015.SZ), United Imaging Healthcare (688271.SH), ShenZhen New Industries Biomedical Engineering (300832.SZ), China Resources Sanjiu Medical & Pharmaceutical (000999.SZ), Xiamen Amoytop Biotech (688278.SH), Zhixiang Jintai-U (688443.SH), Meihao Medical (301363.SZ), Sonoscape Medical Corp. (300633.SZ), Eyebright Medical Technology (Beijing) Co., Ltd. (688050.SH), Amoy Diagnostics (300685.SZ), Aohua Endoscope (688212.SH), YaoKang Biomedical (688046.SH);
H-shares: SKB BIO-B (06990), AKESO (09926), Hutchmed (China) (00013), KEYMED BIO-B (02162), AK MEDICAL (01789).
Risk warning: Risks of research and development failure, commercial performance below expectations, geopolitical risks, and policy exceeding expectations.
