The Zhitong Finance App learned that CITIC Securities released a research report saying that in 2023 in the post-pandemic era, the healthcare industry ushered in the harshest anti-corruption storm in nearly 20 years. Combined with frequent biomedical industry policies in recent years, industrial development has ushered in profound changes, and sector valuations and public fund allocations are also relatively low in history. Looking ahead to 2024, after the deepening and normalization of anti-corruption, the deepening transformation of the industry will inevitably lead to drastic changes in the overall pharmaceutical business model and a sharp increase in concentration, seeking certainty in the midst of uncertainty. The bank launched seven major trends in the healthcare industry, and proposed a layout around this idea and direction.

The main views of CITIC Securities are as follows:

Outlook 1: In 2023, there will be more than 20 overseas ADC licenses alone, and innovation and internationalization are expected to continue to reach milestones in 2024.

With the rapid evolution of pharmaceutical manufacturing technology in China, from raw materials to finished products, from generation processing to independent brands, and from the middle to low end to high-end, innovation and internationalization will become the only path for outstanding domestic enterprises to get out of the domestic market. In terms of devices, in 2023, medical device companies represented by Mindray, Lianying, Xinye, and Huitai, and pharmaceutical companies represented by Hengrui, Baiji, and Junshi all ushered in progress and breakthroughs in overseas markets. The way to break the game around overseas markets such as Europe, America, and Belt and Road countries is another layout idea that opens up a new growth ceiling for the industry and enhances the certainty of growth. In terms of pharmaceuticals, internationalization milestones in the pharmaceutical sector have continued to be achieved in the past two years, and high-quality assets such as ADC have set off a wave of overseas cooperation. Products such as new monoclonal antibodies, new small molecule drugs, and biosimilar drugs have been approved and listed by the FDA. We expect domestic high-quality pharmaceutical companies to continue to explore overseas markets in the past two years, and the commercial value ceiling will rise sharply.

Outlook 2: The price and revenue share of medical services profoundly reflect clinical value.

Prices and revenue share of medical services have been steadily rising, hospital remuneration levels and distribution mechanisms have been rationalized, and the clinical value of medical services is expected to be deeply reflected. Driven by health care reform, we expect that the share of medicines, consumables, and tests in total medical expenses will drop rapidly. Under the premise of a steady increase in total health insurance spending, future medical reforms will drive down the prices of pharmaceutical devices and consumables, and increase the share of medical service prices and revenue. In the long run, we judge that the overall price of medical services is rising and falling, and the trend of increasing the price of items reflecting service value will continue.

Outlook 3: In 2024, more high-quality innovative drugs will enter the commercial value realization and return period.

The overall positive environment for health insurance payments is compounded by the decontamination of domestic investment and financing. We expect that high-quality domestically produced innovative drugs with real clinical value can be included in health insurance to achieve rapid release. Looking ahead to 2024, we expect that major varieties will continue to emerge in the fields of self-immunity, tumors, chronic diseases, etc., new molecules such as dual antibodies and ADC, and that commercial value will gradually be realized.

Outlook 4: In 2024, the pharmaceutical supply chain is expected to enter the commercialization stage, and domestic substitution will accelerate.

The policy side encourages autonomy and control of the supply chain, and downstream customer demand in some segments (fillers, media, etc.) has entered the post-clinical/commercialization stage. Against the backdrop of an irreversible rise in local Chinese suppliers, the domestic substitution process is expected to accelerate in 2024.

Outlook 5: New medical infrastructure is the main theme throughout the 14th Five-Year Plan medical construction.

Financing channels for new medical infrastructure have become more and more diverse in recent years. In addition to annual planned subsidy funds, local government medical special bonds, phased financial interest rate loans, PPP (Public-Private-Partnership) projects have emerged to provide sufficient funding sources for new medical infrastructure. At the same time, if hospital operations continue to resume as expected in 2024, the huge demand generated by the aging population will guarantee the hospital's own funds. With the advent of the wave of hospital construction completion at the end of 2023, the high-quality development of public hospitals is progressing further, and the corresponding procurement of medical equipment is already on the agenda. We expect medical institutions to enter a new expansion cycle, and demand for related medical equipment will remain high.

Outlook 6: The population fertility support policy system is expected to gradually improve, and the assisted reproduction industry will usher in a dividend period.

In recent years, the country has frequently introduced childbearing encouragement policies, and the Central Economic Conference in December 2023 further made it clear that it is necessary to speed up the improvement of the fertility support policy system. Since 2023, Beijing, Liaoning, Guangxi and other places have included some assisted reproductive services in the scope of medical insurance reimbursement. Excellent medical institutions have broad room for development, and we expect the relevant industry chains to usher in a development dividend period.

Outlook 7: The implementation of pharmaceutical state-owned enterprise reform has entered the implementation period.

Traditional Chinese medicine is a treasure of Chinese history and culture. “Integrity and innovation, inheritance and development” is the development direction and requirement of the industry. At present, the three-year action to reform Chinese medicine state-owned enterprises has achieved initial results. The reform of state-owned enterprises is mainly based on traditional Chinese medicine enterprises. It is mainly reflected in two aspects: ① “one increase, one stability, four improvements” strengthens the return on capital and the quality of business performance; ② the expansion of internal incentives for traditional Chinese medicine companies in the new era.

Risk Factors:

The risk of volume procurement; the risk of declining financing popularity of biopharmaceutical companies in the primary market; the risk that the price reduction of high-value consumables and the collection schedule exceeds expectations; the risk of clinical research and development failure of innovative drugs; the risk of changes in medical service health insurance policies exceeding expectations; and the risk of medical accidents.

Investment strategies.

To maintain the healthcare industry's “better than the big market” rating, it is recommended to lay out the ideas and directions of the seven major prospects for the industry.