Looking ahead to the CSI SWS Health Care index in 2025, from the perspective of incremental growth, attention should be paid to the long-term development of three major areas: medical insurance, self-paying, and overseas expansion; from the perspective of existing growth, attention should be paid to the essence of medicine and Medical.
According to the Zhito Finance APP, Guolian Securities released a research report stating that looking ahead to 2025 in the pharmaceutical and biotechnology industry, attention should be paid to the long-term development of three major spaces: medical insurance, out-of-pocket expenses, and overseas expansion in terms of increments; in terms of stock, it is necessary to focus on the essence of pharmaceuticals and medical services. It is recommended to focus on two core main lines: first, high-quality innovative drugs going overseas. Only 31% of the top 100 products in global top 20 pharmaceutical companies have a patent period of five years left, showing a definite demand, and the number and quality of domestic IND products provide a basis for going overseas, which is expected to continue the trend brought about by authorization; second, valuation recovery of left-side assets. In recent years, the pharmaceutical sector has experienced significant retracement, accumulating a large number of undervalued left-side assets, such as CXO, consumer medical, and pharmacies, thus focusing on the demand resilience and valuation recovery of left-side assets.
Guolian Securities' main points are as follows:
The reasons for the difficulty in pharmaceutical investment: the new normal of medical reform against the backdrop of structural aging.
In recent years, pharmaceutical investment has been relatively difficult, with the Shenwan Pharmaceutical Index experiencing a maximum drawdown of over 50%. The industry is also facing a transformation period in the post-centralized procurement era, with an average price decline of around 50% in the past nine rounds of generic drug centralized procurement, which has impacted the existing business of pharmaceutical companies. The unbalanced revenue and expenditure pressure of medical insurance against the backdrop of structural aging of the population is a factor that medical reform needs to consider. Future pharmaceutical investment needs to adapt to the new normal of demographic structural aging, and the stock selection ideas in the post-centralized procurement era can be summarized as 'growth looks at space, stock looks at structure.'
Growth looks at space: three major spaces of medical insurance, out-of-pocket expenses, and overseas expansion support the long-term development of pharmaceuticals.
The support for pharmaceuticals is not limited to medical insurance; the out-of-pocket and overseas markets are promising. Medical insurance is currently the core payment end, accounting for 2.66% of GDP in 2023 and is expected to increase year by year. The speed of new products entering medical insurance will accelerate after medical reform, seeking sub-fields that can quickly capture the growth of medical insurance; the out-of-pocket medical market will also strengthen with the improvement of economic strength and the rise of third-party payment power, which is expected to become a strong supplementary payment force outside of medical insurance; the pharmaceutical overseas business industry is gradually upgrading and deepening, realizing the upgrade of the overseas model from Active Pharmaceutical Ingredients, formulations, and basic consumables to innovative drugs and innovative medical devices.
Looking at the existing structure: the CSI SWS Health Care index returns to its essence.
The existing market in the pharmaceutical sector mainly reflects the structural investment opportunities arising from the redistribution of benefits in the pharmaceutical industry chain in the post-medical reform era. The resonance between policies and industries guides the transformation of the industry chain from Pharmaceuticals to Medical, from products to services, from imitation to innovation, from auxiliary to essential needs, from imports to domestic products, and from channels to products. In the breaking of the old pattern and the establishment of a new one, many investment opportunities are nurtured, ranging from nothing to something and from small to large. Future pharmaceutical investments should seek opportunities that align with the characteristics of the medical sector era and the trends of medical reform policies.
Consider the industry trends in subdivided fields from a medium to long-term perspective within the bottom range. Traditional pharmaceutical companies respond to the sales peak ceiling of single products by rapidly iterating new product matrices. Demand and supply drive Innovative Drugs to continue enjoying overseas product release and pricing power. The platformization and internationalization of Medical Devices open up growth space. CXO's domestic and international demand welcomes a mild recovery. The Traditional Chinese Medicine sector has transitioned from a systematic investment era to a focus on selective individual stocks, where operational quality and corporate governance are more critical. Long-term attention to the quality of Medical Services operations, with recent focus on consumer recovery and policy expectations. Pharmaceutical retail faces short-term policy pains but enjoys the long-term effects of prescription outflow and increased concentration of leading figures. The pharmaceutical wholesale sector focuses on investment opportunities for absolute returns on the left side. The emphasis on Active Pharmaceutical Ingredients diminishes the focus on prices, returning to growth on the demand side.
Investment advice: high-quality Innovative Drugs going overseas and left-side asset recovery.
In 2025, focus on two core investment themes: high-quality Innovative Drugs going overseas. Only 31% of the top 100 products of the global TOP 20 pharmaceutical companies have 5 years left on their patents, with demand certainty. The quantity and quality of domestic IND products are foundational for going overseas, and the trend of authorized products is expected to continue. Recovery of left-side asset valuations. The pharmaceutical sector has experienced significant rollbacks over the past few years, accumulating a large amount of left-side undervalued assets, such as CXO, Consumer Medical, and pharmacies, with a focus on the resilience of demand and valuation recovery of left-side assets.
Recommended symbols: Amoy Diagnostics (300685.SZ), Betta Pharmaceuticals (300558.SZ), Dong-E-E-Jiao (000423.SZ), Jiangsu Hengrui Pharmaceuticals (600276.SH), Huadong Medicine (000963.SZ), AKESO (09926), Sichuan Kelun Pharmaceutical (06990), Kelun Pharmaceutical (002422.SZ), United Imaging Healthcare (688271.SH), Henan Lingrui Pharmaceutical (600285.SH), Shenzhen Mindray Bio-Medical Electronics (300760.SZ), INNOVENT BIO (01801), WUXI APPTEC (603259.SH), WUXI XDC (02268), Yifeng Pharmacy Chain (603939.SH), Yihua Jiaye (301367.SZ), Jiangsu Yuyue Medical Equipment & Supply (002223.SZ), etc.
Risk warnings: commercial sales falling short of expectations, clinical progress or listing timelines not meeting expectations, worsening competitive landscape, geopolitical risks, exchange rate fluctuations, and valuation risks.