domeet webmaster

The epidemic has caused damage to the industrial chain in most industries, and medical care and Internet services may be the only industries that have improved logic after the epidemic.

At least in the next decade, a core logic of pharmaceutical investment will be “innovation.”

An important link in the innovation industry chain-production outsourcing (that is, CXO) can guarantee drought and flood protection.

Discounted cash flow is the most widely used method of valuing innovative drugs, but this is vaguely correct.

In the face of this epidemic, due to its particularity, some medical masks, diagnostics, and other concepts have been heated up in the short term. The fine-molecular sector has gained a lot of gains, and pharmaceutical stocks have generally outperformed the market. But in the long run, the fundamentals of the company are the most important.

Lin Cun, chairman of Shenzhen Senrui Investment Management Co., Ltd., invited by this issue of Red Weekly, said that areas such as primary medical care construction, public health system construction, high-end equipment, new drugs and vaccine development will accelerate development after the epidemic. The performance of pharmaceutical companies will also be accelerated. Medicine and healthcare will usher in a golden decade with “innovation” as its main selling point. At present, the R & D and production outsourcing field (ie CXO) and innovative medicinal equipment deserves special attention, while the growth hormone is preferred in the field of biological products because it has the strongest consumer attributes. At the same time, for pharmaceutical companies, Hengqiang, the strong one, holds true for both new and generic drugs.

The development logic of the pharmaceutical industry is better and more certain after the epidemic

Red Weekly: In the field of private equity, diversified investments are mostly made. Why did Senrui Investment, which was established in 2005, turn to a single medical and medical direction after the stock market disaster in 2015?

Lin Cun: For investment to achieve long-term stable returns, we must find long-term stable growth industries. Historical data shows that the pharmaceutical and medical field has outstanding growth, sustained performance, and rich individual stocks and numerous varieties, which is very conducive to professional investment.

Red Weekly: To fully understand the industry, it takes years of accumulation and precipitation, and it requires a professional team.

Lin Cun: Yes, after nearly ten years of development, our team has formed in pharmaceutical innovation R & D and services, biological products, medical devices, medical services and medical informatization. Your own understanding. But for key listingsFor the company’s attention, we will still do subtraction. There are not many listed companies that have been concerned and understood for a long time compared to the entire medical sector, and the actual purchase operation will be more cautious.

Red Weekly: When it comes to investment in pharmaceutical stocks, it is necessary to talk about the “new crown” epidemic. What do you think of the investment value of pharmaceutical stocks after the epidemic?

Lin Cun: The epidemic caused damage to the industrial chain of multiple industries, but medical devices and Internet services may be the only industries whose logic has improved after the epidemic. The construction of primary medical care, the construction of public health systems, and the development of new drugs and vaccines will be accelerated in the future, which will release the performance of related pharmaceutical companies. After the epidemic, the pharmaceutical industry has better development logic and higher certainty, and its valuation should be raised.

However, specific analysis is needed. For example, mask stocks will be adjusted back as the epidemic eases. However, sub-segments such as chain specialty services, pharmaceutical consumer products, and medicines that have just been used continue to be suppressed during the epidemic. Later there was a need to make up. Such as medical equipment and Internet hospitals, medical information industry and other industries.

Red Weekly: Can the logic of Internet hospitals be discussed with examples?

Lin Cun: Internet hospitals have the broadest market space in the future. Internet hospitals are not online consultations. They are offline hospital-based models that can realize the first online consultation and prescription. You can see a doctor without leaving home. Internet hospitals in this outbreak have shown excellent convenience, which has reduced the pressure on physical hospitals and reduced the risk of cross-infection. Construction is expected to accelerate after the outbreak.

At present, the biggest problems are medical insurance payments, and other challenges such as the participation of information companies in profit sharing. However, Wei Ning Health’s subsidiary Nari Health, as the contractor of the Hangzhou Internet Hospital, has realized off-card payment for medical insurance, which is the first large-scale city-level model for online payment of medical insurance in China.

Red Weekly: Vaccines have also received much attention due to the outbreak.

Lin Cun: Yes, vaccines are also an area we focus on, especially after the epidemic, vaccine development and use will be more important. The ceiling of vaccine products varies from product to product. Generally speaking, varieties with stronger consumption attributes have greater market space. For example, HPV (Human Papilloma Virus) vaccine, which is the agent of Zhifei Bio, has an inoculation rate of more than 60% in developed countries. Even if China has a discount, it can have more than 30 billion market space. Therefore, we should consider Zhifei more than the ceiling. Orders with Merck Pharmaceuticals. When the HPV quadrivalent vaccine was approved and the market did not fully realize its potential, we bought Zhifei and doubled its earnings. At the same time, the tuberculosis reagents and therapeutic vaccines being approved by Zhifei Biological will be major innovative products. Once approved, they will have a significant boost to the growth of the company.

CXO is an industry that protects drought and floods in the field of innovation

Red Weekly: Sink to pharmaceutical stocks. We see that Senrui Investment released the pharmaceutical core index G20, which is one of the top 20 pharmaceutical core assets, on December 31, 2019, which involves six sub-segments of pharmaceuticals, devices, biological products, R & D and production outsourcing, and services (see the table below). . The top 20 core companies are distributed in A shares and Hong Kong stocks, and are basically pharmaceutical blue chips.

Note: Senrui invested in the core pharmaceutical G20 index of the 1920s.

Lin Cun: G20, G is Great, meaning great, they have the following characteristics: 1. being on a promising track; 2. having an excellent management team; 3. being stable Financial management and growth expectations; 4. International vision; 5. Domestic leading innovation capability. Our choice is focused on the company, not on A shares or Hong Kong stocks. At a time when China’s pharmaceutical industry is undergoing a period of change, these purely innovative pharmaceutical companies have the cornerstones of performance growth, and their growth allows us to underestimate their short-term stock price fluctuations. In the next few years, these companies will further grow into larger and stronger pharmaceutical blue chips, which is very suitable for large institutional deployments.

Red Weekly: How do you configure the top 20 core targets? The valuation of most companies is not low.

Lin Cun: This is the core stock pool. When configured, timing will be based on comprehensive consideration of fundamentals and market factors. At present, our configuration focus is on R & D and production outsourcing (ie CXO) and innovative medicines and biological products.

In other areas, for example, the Internet medical service itself is at an exploratory stage and there is a lot of uncertainty. The promotion of the business model of paid members and private doctors in China still needs to wait and see. After weighing, we chose Ali Health as the representative of the Internet for attention in the G20, but attention and configuration are two different things.

Red Weekly: Let’s talk about specific investment ideas on the areas of R & D and production outsourcing that you focus on.

Lin Cun: Innovation will be one of the core logics of pharmaceutical investment in the next 5-10 years. In the next ten years, pharmaceutical investment cannot be “in the air” for innovation. From the perspective of aging or consumption upgrade, Chinese people are eagerBetter-effect, more cost-effective medicine and equipment. After years of R & D accumulation, some companies have successively launched innovative varieties. Innovative medicinal equipment is no longer a concept, but has real performance as a support.

What we focus on is the important part of the innovation industry chain-the production outsourcing field (that is, CXO). The CXO field can guarantee drought and flood protection. Innovative drug research and development capabilities are generally large foreign companies, but these companies have a need for industrial transfer due to various reasons. China has advantages over other countries because of mature offshore outsourcing services, capacity scale, market dividends, etc. . For example, Vietnam has advantages in labor costs but insufficient talents in science and engineering. In addition, China has a population base of 1.4 billion. In the clinical trials of new drugs, there are more patients with related diseases that can volunteer for clinical enrollment, and the big data generated is also richer.

Because it is only R & D service outsourcing, there is no risk of R & D in the early stage. There is a service fee regardless of the success or failure. The development risk is borne by the upstream pharmaceutical company. This is a typical “water-selling” industry! At present, both the R & D investment of pharmaceutical companies and the order volume of CXO companies can fully prove the high prosperity of the industry.

Red Weekly: Talk about the core indicators you value in the CXO field with examples.

Lin Cun: Different companies have different focuses. CXO covers drug discovery, trial production of APIs, production process improvement, safety evaluation, clinical application, and application.

If WuXi AppTec (including WuXi Biology) ‘s forward-looking management team took the lead in establishing a service system for the entire industry chain, pharmaceutical companies only need to contribute one “idea” and WuXi AppTec can turn it into a reality. From this point of view, the company is one of the best CXO companies. The current layout has also changed from venture capital to commercial production in the entire industrial chain, and can fully enjoy the dividends of the new drug era of high prosperity. Another example is Tiger Pharmaceuticals, which occupies the largest clinical research market in research and development. In addition to new drugs, the company has also expanded in the fields of device clinical, academic clinical and other fields, and has established an industry-leading digital business system. Kailaiying is the head company of domestic CDMO (customized drug R & D and production). We believe that a large number of orders are currently in the third phase / NDA stage. Once commercialized, the company’s revenue will grow explosively.

Companies with weak consumption and strong consumption attributes have opportunities

Red Weekly: What about the investment logic of innovative medicines?

Lin Cun: Innovative medicine is very complicated, but the demand for aging and domestic substitution is the core logic. Among them, cardiovascular equipment and orthopedic equipment are high-quality fields. Because cardiovascular companies such as Lepu Medical and Minimally Invasive Medical have been troubled by policies or some overseas businesses in the past two years, valuations have continued to be suppressed, but the bearishness has been basically digested, and valuations are biased in the entire pharmaceutical sector. low. Judging from the localization rate and market space, bone and joints will be the best track, and the Hong Kong stock’s Aikang Medical and Chunli Medical are the best among them.

Red Weekly: Compared with overseas technological advantages, what are the advantages of domestic substitution?

Lin Cun: A strategy driven solely by technology may not be suitable for the Chinese market. For example, the penetration rate of transcatheter valve repair surgery and hip replacement surgery in China is much lower than that in western countries, which is largely due to the high price of imported equipment. The domestic equipment may have a slightly worse effect, but it can benefit the country, the people, and the enterprise itself by increasing the penetration rate of related treatment methods by cost-effectiveness. Moreover, domestic products are not worse than foreign countries in some fields, such as degradable coronary stent, 3D printed joints and other domestic products can enter the international advanced level.

Red Weekly: What do you think about the risk of equipment investment?

Lin Cun: For equipment investment, we believe that the biggest risk is overestimating the potential market space of the product. Compared to pharmaceuticals, services, etc., each segment of the device is not large, so companies may encounter the ceiling faster than expected. Therefore, we are more inclined to companies with weaker consumption attributes in this field.

Red Weekly: Is there a good sub-sector in the pharmaceutical industry with strong consumer attributes?

Lin Cun: Growth hormone is the strongest consumer attribute in biological products. Somatropin is used for growing children and adolescents. Changchun Gaoxin is a representative company. At present, the penetration rate of young people in China is below 3%, which is far lower than 15% in Western countries. In the long term, it can be expected that the adult consumer market for growth hormone will be legalized, which will bring several times more space for the product. The competition pattern in this industry is also very good. Changchun Hi-tech and Anke Bio are the two in China. Under the influence of the vaccine incident and the rumors of Jin Lei’s departure, Changchun High-tech has been seriously underestimated, and the fundamentals of the industry have not changed. We firmly established a position below 200 yuan and obtained generous returns.

The focus of innovative drug valuation is ambiguous and correct

Red Weekly: You just mentioned that one of the core logics of pharmaceutical investment in the next 5-10 years, leading pharmaceutical companies are gradually being recognized by the market. Is the value too expensive? Such as Hengrui Medicine.

Lin Cun: Hengrui’s current valuation is too expensive, but this only means that the short-term increase may be small. Considering the scarcity of domestic high-quality assets, most innovative pharmaceutical companies currently have slightly higher valuations. However, it still has strong long-term investment value. In the long run, Hengrui may still be ten times ten years. Innovative companies should look at the long-term logic. The explosive power of new drugs is extremelyStrong, a single product has just generated revenue, and it is also possible to contribute tens of billions of revenue per year in the future. Therefore, it is not possible to simply value new drug companies by using methods such as PE and PEG.

Red Weekly: For new drug companies, what method is more reasonable for valuation?

Lin Cun: Discounted cash flow is the most widely used method for valuing innovative drugs. The core is to discount the cash flows that pharmaceutical pipelines can create in the future. So get a total market value. In addition, in most cases, using the expected peak sales multiplied by the corresponding multiple is a simpler method of valuation.

Red Weekly: This is extremely difficult.

Lin Cun: Yes, it is difficult to value new drug companies, and most of them are “unreliable”, especially considering that overseas new drug sales experience does not apply to the domestic market, and China The uncertainty of future policies and many key assumptions in the valuation model of innovative pharmaceutical companies may bring large errors, but vague correctness exists. On the other hand, difficult valuation methods lead to innovative pharmaceutical companies that may be overvalued, which leads to investment opportunities. For example, we cannot accurately estimate the value of the enterprise, but we can be sure that 20 billion Cinda Bio, 3 billion Gree Pharmaceuticals have been undervalued, and the former was opened when the market value was reached.

Investment in innovative pharmaceutical companies still earns valuation money. Any R & D progress, a scientist joining, and a cooperation agreement will, in essence, increase the certainty of the development of the enterprise, thereby increasing its market value.

Red Weekly: Compared with overseas innovative drug leaders such as Pfizer, Merck, etc., what are the main differences in domestic comparison?

Lin Cun: The main gap is still in research and development. The domestic top innovative pharmaceutical companies are still in the process of developing from “Me-Follow” to “Fast-Follow” / “Me-Better”, and the research and development strategies of overseas major pharmaceutical companies have entered the “First-in-class” Large gaps are difficult to surpass in a few years. However, it should be emphasized that overseas large pharmaceutical companies’ high-investment, high-risk, high-return R & D strategies may not be suitable for the Chinese market. “Me-Better” strategies and pharmaceutical companies that focus on R & D and sales may have more advantages, which are equivalent to comparative advantages. Don’t go hard, find your own position, and feel like Tian Ji racing.

(Lin Cun picture provided by the interviewee)

The opportunity for generic drugs is not as good as innovation

Red Weekly: What do you think of the opportunities for commonly used drugs for senile hypertension, diabetes, and heart disease?

Lin Cun : Broadly speaking, aging has led to an increase in the incidence of various diseases and increased demand for medical treatment, which is one of the core logics of medical investment. However, an interesting fact is that after the retreat of that wave of medicine in the second half of 2018, a large proportion of the medicinal white horses that have fallen off are concentrated in the field of chronic disease medicine, such as Tonghua Dongbao, East China Medicine, Xinlitai and so on. We need to think about whether the logic of the field has changed. Taking hypertension as an example, medicines in this field are relatively mature, and at least the generic drugs of dozens of drugs in five major categories in China can meet the demand. The centralized procurement policy will accelerate the oligarchization process in these areas. In the future, companies with raw material drug production capacity and international competitiveness can be called survivors and divide the stock market, such as Huahai Pharmaceutical, Tianyu Co., Ltd., and Novartis. Similar situations exist in areas such as hyperlipidemia and antithrombotic events. In general, the logic of generic drugs applies to these chronic disease areas, and we value the opportunities for innovative drugs.

“Red Weekly”: In fact, regardless of innovative drugs or generic drugs, they are always strong.

Lin Cun: Yes, but looking at new drugs in the long run is a better track. For generic drugs, we believe that the current leading companies will also be the last survivors, with the following advantages: 1. Complete production capacity from raw materials to preparations; 2. International competitiveness. Jishui will accelerate the integration of the generic drug industry. After the integration is completed, the industry may have long-term low profit and low growth, so the logic is not as good as new drugs.

At present, leading new drug companies such as Hengrui, Zhongsheng and Beiji Shenzhou have been approved for heavy products and will contribute a strong cash flow. Their R & D pipelines are rich and the layout is reasonable. . At the same time, we should note that domestic pharmaceutical companies’ pipelines are mostly “Me-Follow”, and the R & D cycle and failure rate are acceptable.

(refined edition of this article was published in the “Red Weekly” on March 14th) (cover image from pexels.com)