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The pharmaceutical industry has long been favorable, with leading companies gradually entering the value range.
2020-10-15
Based on the long-term growth potential of the pharmaceutical industry, GF Fund will launch its second actively managed pharmaceutical-themed fund—GF Pharmaceutical Health Mixed Fund—on October 13. The proposed fund manager, Wu Xingwu, stated that the long-term logic of this round of pharmaceutical market remains unchanged. In the long run, outstanding companies in sub-sectors such as innovative drug industry chain, medical services, and high-end equipment have room and opportunities to grow bigger and stronger.
The long-term positive logic of the industry remains unchanged.
Affected by the COVID-19 pandemic, the pharmaceutical and biotechnology sector became a highlight industry in the A-share market in the first half of the year.
"The long-term development logic of the pharmaceutical industry has not changed," Wu Xingwu analyzed. This round of market movement started around 2016 with a new round of healthcare reform, including consistency evaluation of generic drugs and accelerated approval of innovative drugs. Under this background, the prices of generic drugs were suppressed, market demand for sub-sectors focused on innovative drugs was activated, and the pharmaceutical industry developed in a relatively healthy direction. This has been the main theme of this round of market movement and has not changed significantly so far.
From the perspective of market demand, population aging is an important support for the long-term development of pharmaceuticals. Wu Xingwu believes that China's population aging is accelerating, and the long-term population structure supports the long-term demand for the pharmaceutical industry. Chinese residents have both the ability and willingness to pay for their own health. Coupled with a series of policy supports such as encouraging innovation, consistency evaluation of generic drugs, volume-based procurement, and innovative drug approvals, the driving force for the long-term development of the medical industry continues.
Sub-sectors are entering a golden development period.
Although the pharmaceutical sector is currently in an adjustment phase, Wu Xingwu believes that in the long run, sectors represented by pharmaceutical biology with long-term sustainable growth potential may usher in a new wave of rise after adjustment.
"The recent adjustment in pharmaceutical stocks is due to two reasons: first, pharmaceutical stocks were relatively overvalued, and some funds shifted from the pharmaceutical sector to undervalued sectors; second, market liquidity has tightened slightly compared to previous months." Wu Xingwu believes that the core logic behind the high valuation of pharmaceutical stocks is based on the large market capacity of pharmaceuticals, the continuously expanding aging pharmaceutical consumption demand, strong expectations for sustainable growth of various leading companies, and explosive growth points brought by continuous innovation. If the long-term logic of quality companies does not change significantly, high valuations of good companies may remain the norm for a long time.
"With the gradual advancement of healthcare reform and approval policies, the pharmaceutical industry has increasingly strict product quality requirements, gradually increased R&D investment, stricter medical insurance reimbursement requirements, and more inclination towards domestic manufacturers. Multiple factors determine that the competitive landscape of the pharmaceutical industry will gradually become clearer, and market share will further concentrate towards leading companies." Wu Xingwu stated that supported by three major factors—import substitution in existing fields, volume growth from innovation in new fields, and international market expansion—the innovation capability and channel platform capability of leading companies are strengthening, showing good sustainable growth potential.
In terms of sub-sectors, he is optimistic about the following three areas: first, innovative drugs and the industry chain; second, medical services; third, medical device companies. Among them, innovative drugs can improve patients' medication experience beyond basic drug needs. Policies generally do not overly restrict the pricing of innovative drugs, making them an important source of long-term growth for pharmaceutical companies. In addition, private medical service institutions can provide more differentiated and high-quality services and also have strong demand potential.
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