After looking at the big financial industry represented by banks, brokerages and insurance, we are now studying the pharmaceutical industry, one of the most important representatives of the big consumer industry.
With the deepening of the aging population in China, the future development of the pharmaceutical industry has a solid mass base. If you look at the listed companies in the pharmaceutical industry, you can find that in the past ten years the bulls have come out of the woodwork, there are many ten times the stock, to long-term investors to a rich return. For this reason, it is worth spending some time learning how to invest in the pharmaceutical industry.
Interestingly, in addition to a high degree of specialization, the pharmaceutical industry, although known as the industry, in fact, it is not a business and financial logic consistent industry, but by a completely different logic of a number of segments of the industry composed of a large collection. Therefore, we "zero basis to learn medicine" the first of this series, the first to scrutinize the pharmaceutical industry in the end, how many molecular industries, and one by one to briefly introduce them.
The subdivision of the pharmaceutical industry, the first from the pharmaceutical separation began.
When it comes to healthcare, the first thing that comes to mind is hospitals. What is a hospital? It is a place where doctors see patients. What do doctors do? Provide medical services to patients. Therefore, from the medical point of view, the first subdivision of the pharmaceutical industry is medical services.
In the A-share listed companies, the representative of the medical services business is Aier Eye. Aier Ophthalmology is a professional ophthalmology medical chain, and as of 2019, it has established more than 270 professional ophthalmology hospitals in 30 provinces and municipalities in mainland China, covering more than 70% of the country's health insurance population, with an annual outpatient volume of more than 6.5 million people. And, it has opened more than 80 eye hospitals in the United States, Europe and Hong Kong.
Menian Health, which is engaged in the health checkup business, is another representative enterprise in the medical service field. MNH is a professional medical checkup and medical service group with health checkup as the core and health consultation, health assessment and health intervention as a whole. Headquartered in Shanghai, the company has more than 400 medical and health checkup centers in more than 200 core cities including Beijing, Shenzhen, Shenyang, Guangzhou, Chengdu, Wuhan, Xi'an, Tianjin, Chongqing and Hangzhou, with a professional service team of more than 40,000 full-time specialists, healthcare professionals and management team. 20 million people were provided with professional health services in 2017, and it is expected to exceed 30 million in 2018, which is the largest medical service provider in China. In 2017, it has provided professional health services for 20 million people, and in 2018, the number of medical checkups is expected to exceed 30 million, making it a listed company with outstanding market capitalization and influence in the medical and big health sector.
In addition, some listed companies are involved in private hospitals, and this part of the business also belongs to medical services. Representative of Fosun Pharmaceuticals investment in Chancheng Hospital, in early 2018, Chancheng Hospital passed the international hospital JCI accreditation with high scores, and became the first three-A general hospital in the country to pass the sixth edition of the JCI standard.
The medical service industry, is a very good industry, because people always need to get sick, sick need to go to the hospital to see a doctor, by the doctor to provide medical services; and healthy people, also need to regular medical checkups, to find out the potential hidden danger early. These are rigid demands that are hardly affected by fluctuations in economic cycles. From a supply perspective, professional doctors need a long period of study and practice to develop, and the number of services they can provide is generally limited, thus the price of the medical services industry is growing in the long run, and can effectively beat inflation.
Having talked about medicine, let's look at drugs.
What we mean by pharmaceutical manufacturing here is a broad concept that encompasses the research and development, production and manufacturing of pharmaceuticals. First, pharmaceutical companies need to discover and create a new drug through R&D, which is the concept of innovative drugs, with a focus on R&D. Secondly, after a new drug has been developed by a pharmaceutical company and approved by the State Food and Drug Administration, it can be manufactured on a large scale in preparation for market launch, and the key point of this link is production. So the key cut-off point for pharmaceutical manufacturing, broadly defined, lies in the need to do R&D on innovative drugs.
Innovative Drugs
If a pharmaceutical company, the main focus on R & D, to discover new drugs, then the company is innovative drugs business. Internationally, famous pharmaceutical companies are innovative drug companies, such as Pfizer, Novartis, Roche, Merck, Sanofi, Johnson & Johnson, Gilead Sciences, GlaxoSmithKline. GlaxoSmithKline), AbbVie, Amgen, and others.
In the A-share market, the most famous representative innovative pharmaceutical company is Hengrui Medicine, which is also the pharmaceutical company with the highest market capitalization, the latest market capitalization of up to 250 billion yuan. Hengrui Medicine is a pharmaceutical and health enterprise engaged in pharmaceutical innovation and the development, production and promotion of high-quality drugs. As of the end of 2018,*** there are more than 20,000 employees worldwide, and it is a well-known supplier of antineoplastic drugs, surgical drugs and contrast agents in China, as well as the lead unit of the national antineoplastic drug technology innovation industry-university-research alliance, and has built a national targeted drug engineering technology research center and a postdoctoral scientific research workstation.
Innovative drug companies have a high proportion of R&D investment. Taking Hengrui Medicine as an example, the company invests more than 10% of its sales in R&D every year, and has R&D centers or branches in the United States, Europe, Japan, and many places in China. By the end of 2018, the company's R&D team had more than 3,000 people, including more than 2,000 doctors, masters and more than 100 returnees. The company has applied for a total of 655 domestic invention patents, has 147 validly authorized invention patents in China, 226 authorized patents in Europe, America, Japan and other foreign countries, and its proprietary core technologies have won two second prizes of National Science and Technology Progress, and one China Patent Gold Award.
Generic
If a pharmaceutical company is not focusing on original research and development, but rather on generic production of drugs whose patent protection has expired, then it is a generic company.
The significance of generics is that they are significantly cheaper to produce than innovator drugs because they do not require costly R&D investments, nor do they need to repeat the years of preclinical animal and human clinical studies that are necessary before an innovator drug can be approved. In order to ensure that a generic drug can cure a disease, it needs to have the same active ingredient, dosage form, route of administration, and therapeutic effect as the generic drug, i.e., it needs to be shown to be bioequivalent to the original drug.
In our country, the FDA regulates the efficacy of generic drugs through consistency evaluation. Only those drug companies that have passed the consistency evaluation of generic drugs are able to sell the generic drugs and participate in the bidding of medicare drugs. So the number of generics that pass the consistency evaluation is often a quantitative indicator of the R&D strength of a generic drug company.
In the A-share market, the representative generic drug companies are East China Pharmaceutical. The company is mainly engaged in the production and sales of antibiotics, proprietary Chinese medicines, chemical synthetic drugs, genetically engineered drugs, as well as Chinese and Western medicines, Chinese herbal medicines, medical equipment, such as wholesale and retail distribution business, is a set of pharmaceutical research and development, pharmaceutical industry, pharmaceutical distribution, retail, pharmaceutical logistics as one of the large-scale integrated pharmaceutical listed companies. East China Pharmaceutical mainly accomplishes the production of generic drugs through its subsidiary Zhongmei Huadong, whose sales in 2017 exceeded 6 billion yuan, and is a leading enterprise in the field of research and development and production of organ transplantation and diabetes drugs in China. East China Pharmaceutical, is a very unique company, which can be seen from its corporate business strategy slogan: " Not to seek a lot of varieties, but to seek the largest product; either the only one or the first one; not necessarily to be the locomotive, but to ride on the first carriage."
In addition to being categorized by whether or not they do original drug research and development, pharmaceutical manufacturing companies can also be categorized according to the attributes of the drug:
Among them, chemical pharmaceutical companies can be further subdivided into:
Below, we introduce the various types of pharmaceutical companies categorized according to the attributes of the drug, respectively.
API
API is abbreviated to API (Active Pharmaceutical Ingredient), which refers to any substance or mixture of substances that is used in the manufacture of pharmaceuticals and, when used in pharmaceuticals, becomes an active ingredient of the drug.
Specifically, API companies are divided into two broad categories:
In the A-share market, the representative bulk API company is the first share of the SME board (002001) Xinhecheng. The company is a national high-tech enterprise mainly engaged in the production and sales of nutritional products, flavors and fragrances, new polymer materials and APIs. The company is one of the world's four largest vitamin producers, a large-scale national flavor and fragrance producer and a vitamin-based feed additive enterprise.
The representative enterprise of specialty APIs is Huahai Pharmaceuticals. The company is China's first pharmaceutical company to pass the U.S. FDA preparation quality certification and independently own the ANDA document number, and is also the first Chinese pharmaceutical company to achieve large-scale preparation sales in the United States. The company now has more than 6,500 employees and more than 40 molecular companies in the world (including the United States, Japan, Germany, Russia, Spain, India, etc.); its main business covers a wide range of fields such as chemical drugs, biopharmaceuticals, pharmaceutical packaging, trade distribution, etc., and it has established long-term cooperative relationships with more than 500 pharmaceutical companies around the world, and provides medical and healthcare products for nearly 200 countries and regions, and is a global major It is one of the world's leading manufacturers of cardiovascular and psychiatric healthcare products.
Bulk APIs, because of their similarity to bulk commodities, make their producers have typical cyclical attributes. From the investment point of view, it is more like a chemical company, buy when the industry is in the trough (low PB and high PE), and sell when the industry is in the peak (high PB and low PE).
Specialty APIs, mainly to the downstream of the preparation business, finished pharmaceutical enterprises to do supporting, thus having a similar " apple industry chain " characteristics. From the investment point of view, mainly to see who the downstream customers of this enterprise, if the top ten customers are internationally renowned pharmaceutical companies, the strength of this company is good; if the top ten customers are fewer pharmaceutical companies, may need to be cautious in the investment.
Chemical Preparations
Pharmaceutical preparations, in layman's terms, is the raw materials and other excipients (e.g., medical capsules) processed into finished drugs. In the field of chemical preparations, most pharmaceutical companies are generic companies.
In the A-share market, there are many chemical preparation companies, in addition to the East China Pharmaceuticals mentioned in the section "Generic Drugs" above, the representative listed companies are also Lizhu Group, Xinlite, Enhua Pharmaceutical, etc.
From the perspective of investment, we can see that there are a lot of companies in the market that have been investing in the chemical preparation industry for years.
From the investment point of view, the main considerations are as follows:
Proprietary Chinese medicines
Proprietary Chinese medicines are one of the specialties of our country, which has a long history of traditional Chinese medicine as a broad base of the masses. According to whether they need doctor's prescription or not, pCms can be categorized into:
In the A-share market, the representative pCm companies are Yunnan Baiyao, Tongrentang, Dong'ajiao, Pientzehuang, Tiansheli and so on. In addition, the representative enterprise of Chinese medicine tablets is Kangmei Pharmaceutical.
Biopharmaceuticals
Biopharmaceuticals refer to the use of biology, medicine, biochemistry and other research results, the comprehensive use of physics, chemistry, biochemistry, biotechnology and pharmacy and other disciplines of the principles and methods, the use of living organisms, biological tissues, cells, body fluids, etc., to manufacture a class of products for prevention, treatment and diagnosis.
Generally speaking, a biopharmaceutical company is a company that manufactures drugs based on living organisms. Biopharmaceuticals have numerous subcategories, including:
In the A-share market, the representative blood product company is Hualan Bio. The company is a national high-tech enterprise engaged in the research and development, production and sales of blood products, vaccines and genetic engineering products. It is also one of the enterprises with the highest comprehensive plasma utilization rate, the most varieties and the most complete specifications in China's blood products industry.
Representative vaccine companies are Zhifei Biologicals, Watson Biologicals and Kangtai Biologicals, and of course Changsheng Biologicals, the protagonist of the vaccine incident. Among them, Zhifei Biological is one of the strongest listed private bio-vaccine suppliers and service providers in China.
A representative recombinant protein drug company is Changchun High-Tech, whose main products are recombinant human growth hormone (assisted growth) and recombinant human follicle stimulating hormone for injection (assisted reproduction). There is also Tonghua Dongbao, which produces recombinant human insulin, making China the third country after the United States and Denmark to produce recombinant human insulin.
Representative monoclonal antibody companies include Fosun Pharma's Fuhong Hanlin, Xinda Biopharmaceuticals, and Qilu Pharmaceuticals.
After looking at pharmaceutical manufacturing, let's take a look at another large segment within the pharmaceutical industry: medical devices. Similar to pharmaceuticals, medical devices are also diverse.
First, let's look at pharmaceutical equipment, which is necessary for every pharmaceutical company. Representative A-share listed companies are Dongfulong and Chutian Technology. Dongfulong is a global pharmaceutical companies to provide pharmaceutical processes, core equipment, system engineering solutions for the overall solution of the integrated pharmaceutical equipment service providers, is the largest freeze dryer equipment manufacturers. Chutian technology main business for the aqueous pharmaceutical equipment research and development, design, production, sales and service, is China's alternative to imported pharmaceutical equipment products on behalf of the enterprise.
Pharmaceutical equipment, similar to the infrastructure field of the excavator, on behalf of the downstream pharmaceutical enterprises GMP workshop renovation demand, and thus local obvious industry cyclicality . When the downstream GMP transformation demand grows significantly, the upstream pharmaceutical equipment enterprise orders will be released growth, bringing significant growth in revenue and net profit; when the downstream GMP transformation demand weakened, the order will be significantly reduced, revenue and net profit will be significant decline.
Secondly, let's look at high-end medical devices, such as common coronary stents and orthopedic medical devices. These varieties, often the unit price is very high, the terminal price is even more than ten thousand yuan, the factory price is almost three fold of the terminal price (three zero buckle), reflecting the high unit price of the product, high gross profit characteristics. At the same time, Class III medical devices from the beginning of the clinical, to the final approval may take five years or even longer, the R & D investment is not expensive, the R & D cycle is also longer, which is similar to innovative drugs .
In the A-share, the representative high-end medical device company is LPMC, the company is the domestic leading cardiovascular disease plant interventional diagnostic devices and equipment for high-end medical products industry group, with the Ministry of Science and Technology awarded the country's only national heart disease plant interventional diagnostic devices and equipment engineering technology research center, is the domestic high-end medical device field can form a strong competition with foreign products. It is one of the few enterprises in the field of high-end medical devices in China that can form a strong competition with foreign products. LPMC's core product is cardiac stents, and its product development has gone through many iterations, from the earliest Partner series, to the Nano series, to the completely biodegradable NeoVas series that is being declared, and constantly upgrading its product research and development.
Finally, let's take a look at a popular consumer product in the medical device space: Domestic medical devices. Common home medical devices include blood pressure monitors, oxygen concentrators, ventilators, glucose meters, wheelchairs, crutches, etc. These products are similar to over-the-counter medications in that they are on the consumer side of the spectrum, and are usually purchased at pharmacies.
In the A-share market, the representative home medical equipment company is Yuyue Medical. Fishy Medical is a company that provides home medical equipment, medical clinical devices and Internet medical services as the main business, the products are mainly concentrated in the respiratory oxygen, rehabilitation care, medical emergency, surgical instruments, Chinese medicine devices, nursing supplies, medicinal plasters and polymer hygiene excipients and to provide hospital disinfection and infection control solutions and other fields. The company has become a leading enterprise in the domestic medical equipment industry, and is the largest manufacturer of rehabilitation care and medical oxygen supply series medical equipment.
Compared to pharmaceuticals, the ceiling in the medical device field is much lower. In pharmaceuticals, a large single product can have annual sales of billions or even more than $10 billion, while it is difficult to find such a single product in medical devices. At the same time, products that are successful in one subfield usually cannot replicate their success in another subfield. These two features make the medical device field mainly rely on episodic mergers and acquisitions to expand the scale of the enterprise, which is fully reflected in the process of the development and growth of the largest domestic listed medical device company, Myriad Medical.
Myriad Medical is China's largest and the world's leading medical device and solutions provider, with products covering three major areas: life information and support, in-vitro diagnostics, and medical imaging. The company has offices in more than 30 provinces and autonomous regions in China and 39 subsidiaries outside China. The company employs nearly 10,000 people globally, of which more than 20% are research and development personnel and more than 10% are foreign employees, from more than 30 countries and regions around the world, forming a huge global R&D, marketing and service network.
Finally, let's look at the pharmaceutical business. There are two main types of pharmaceutical business (business model):
State-owned enterprises in the pharmaceutical business market is absolutely dominant, the country's top three pharmaceutical business enterprises are state-owned background, respectively, Sinopharm (Hong Kong shares), China Resources Pharmaceutical (Hong Kong shares) and Shanghai Pharmaceuticals (A shares). Some local pharmaceutical business enterprise leader also has a state-owned background, such as Nanjing Pharmaceuticals, East China Pharmaceuticals, Chongqing Pharmaceuticals, Liuzhou Pharmaceuticals, People's Republic of China Tongtai and so on.
In the A-share category, the representative pharmaceutical retailer is Yifeng Pharmacy. The company is one of the leading pharmaceutical retail chain enterprises in China, mainly engaged in the chain retail business of pharmaceuticals, health care products, medical devices, and health-related daily convenience products. As of June 30, 2018, the Company operated 2,499 chain stores in seven provinces***, namely Hunan, Hubei, Shanghai, Jiangsu, Zhejiang, Jiangxi and Guangdong, selling to customers pharmaceuticals, medical devices, healthcare products, health food, personal care products and health-related daily convenience goods, among other goods.
From an investment perspective, pharmaceutical retailing is primarily a chain drugstore model, and the development of the industry relies on two elements: one is the number of chain drugstore stores, which is expanded through self-management, franchising, and mergers and acquisitions; and the other is the operating efficiency of a single store, which is considered through indicators such as ping efficiency and profit per capita. In addition, with the gradual outflow of prescription drugs, taking into account the prescription drugs is a trillion-dollar level of the big market, while the retail drug is still at the level of 300-400 billion, the future of the pharmaceutical retail industry, there is still a relatively large prescription outflow of space.
Due to the diversified nature of the pharmaceutical industry, we are systematically combing it in this article, and we have categorized the segments into four main areas, namely, medical services (medical), pharmaceutical manufacturing (pharmaceutical), medical devices (instruments) and pharmaceutical business (distribution).
All of this is summarized in the following mind map for the reader's convenience.