21st Century Business Herald reporter Zhu Yiyi reported from Hangzhou

In 2024, today is the last trading day.

Looking back at the pharmaceutical sector in the domestic capital market, the once high-growth market has faded: wind data shows that since the beginning of 2024 (January 1, 2024 to December 24, 2024, the same below), the CSI Shenwan Pharmaceutical and Biological Index has fallen by 13.21%, while the CSI 300 Index, which represents the average level of the whole market, has risen by 14.64% over the same period, and the performance of the pharmaceutical sector is significantly weaker than that of the CSI 300.

Another indicator shows that since the beginning of 2024, the return of the CSI 300 pharmaceutical index is -10.09%, and the return of the CSI 300 index is 17.87% in the same period, and the pharmaceutical sector has underperformed the CSI 300.

Although the industry is facing the pain of transformation, in the long run, the pharmaceutical sector still has significant excess returns relative to the CSI 300 Index, with cumulative returns 1 times higher, and there is no shortage of opportunities to bottom out.

According to Frost & Sullivan, the size of China's pharmaceutical market reached 1,591.2 billion yuan in 2021, and will expand rapidly in the future, and is expected to grow to 2,064.5 billion yuan in 2025 and 2,739 billion yuan in 2030.

When will the pharmaceutical sector, which has entered the "darkest moment", usher in the dawn?

Has the "cold winter" arrived?

Looking back on this year, the expectation of improved valuation and liquidity in the pharmaceutical sector has become one of the key words.

Wind data shows that since the beginning of 2024 (January 1, 2024 to December 24, 2024), the pharmaceutical market in the capital market has experienced significant fluctuations, with the CSI Shenwan Pharmaceutical and Biological Index falling by 13.21%, compared with the CSI 300 Index, which represents the average level of the whole market, rising by 14.64% over the same period.

In addition, among the 11 sub-industries of the CSI 300 primary industry index, the CSI 300 pharmaceutical fell by 11.29% as a whole, ranking 10th in terms of rise and loss, showing that the market performance of the pharmaceutical industry is relatively weak.

In addition to the ups and downs of the market, the overall valuation of the pharmaceutical sector has also changed greatly.

In addition, the pharmaceutical (CITIC) component shows that the PE multiple of the pharmaceutical sector has shrunk from nearly 30 times in 2022 to 26 times in 2023, and further shrunk to the current 24 times.

If we look at the long-term perspective, since 2021, the A-share pharmaceutical sector has fallen for 4 consecutive years, and even in 2024, its overall PE multiple has fallen below the median level of the past decade.

Behind the "cold winter period", the pharmaceutical industry is facing multiple challenges: the cold winter of the financing side; pressure on the payside; the price limit pressure brought about by the normalization and institutionalization of centralized drug procurement; and special rectification actions for the medical field and ......so on

In terms of subdivisions, from the beginning of 2024 to the present, the six sub-sectors of biological products, medical services, medical devices, pharmaceutical business, APIs, and chemical pharmaceuticals have fallen by 25.85%, 22.00%, 13.36%, 10.35%, 4.79%, 4.71%, and 2.75% respectively, especially biological products, medical services, medical devices and other subdivisions.

Among them, the biological products sector, represented by vaccines, has been affected by the homogeneous competition in the industry and the brutal "price war", and has become one of the subdivisions with the most tragic decline this year.

From the perspective of total market capitalization, from the beginning of 2024 to the present, Zhifei Biotech (300122. SZ), Baike Biotechnology (688276. SH), Jindike (688670. SH) has been "cut in half", and Kangtai Biotechnology (300601. SZ), Walvax Biotech (300142. SZ) has also shrunk by about 3%.

The CXO (pharmaceutical outsourcing services) sector, which is located in the upstream of the innovative drug industry chain, has also felt the impact of the reduction in the number of orders in the industry.

From the beginning of 2024 to the present, the total market value of CXO leader WuXi AppTec (603259.SH) has shrunk from 215.7 billion yuan to 156.3 billion yuan, a decrease of 28 002821%. SZ), Jiuzhou Pharmaceutical Co., Ltd. (603456. SH), Proton Co., Ltd. (300363. SZ) total market value fell by more than 3%, Medicilon (688202. SH) has nearly halved its total market capitalization.

Behind the volatility of the CXO sector, whether it is an innovative drug CXO or a generic drug CXO, due to the "price war" in the industry, the intensification of industry competition has led to the compression of the profit margins of sales orders of relevant CXO companies.

The

performance of the medical device sector is also unsatisfactory, affected by the delay in industry bidding caused by medical rectification, centralized procurement and the high year-on-year base of last year's business, and is in an adjustment period.

From the beginning of 2024 to the present, medical device leader Mindray Medical (300760. SZ) total market value shrank from 352.3 billion yuan to 313.1 billion yuan, and United Imaging Medical (688271. SH) total market value fell from 112.9 billion yuan to 104.6 billion yuan, Lepu Medical (300003. SZ), MGI (6888114. SH) fell by more than 20% in total market capitalization.

The development tenacity of the faucet

After the "cold winter period", when will the biomedical industry usher in the dawn? Analyzing the strategies of the leading enterprises in the subdivision track, we may be able to get a glimpse of some trends.

For WuXi AppTec, a global CXO leader, 2024 is undoubtedly an unforgettable year.

This year, due to the haze of the U.S. "Biosecurity Act", WuXi AppTec's share price fell to 36.36 yuan per share during the year, and the total market value once shrank by three percent.

However, now, with the final agreement text of the National Defense Authorization Act (NDAA) for fiscal year 2025 announced by the Armed Services Committees of the Senate and House of Representatives of the United States Congress, the biosecurity bill has not been included in it, which means that the relevant overseas negative factors have been temporarily lifted, and WuXi AppTec's stock price has rebounded to about 56 yuan per share.

From a business perspective, under the challenges of the external environment, WuXi AppTec delivered its first interim "answer sheet" with declining performance in the past five years. In the first half of 2024, the company achieved revenue of about 17.241 billion yuan, a year-on-year decrease of 8.64%; The net profit attributable to the parent company was about 4.240 billion yuan, a year-on-year decrease of 20.20%.

Entering the third quarter of 2024, WuXi AppTec's performance remained under pressure, with revenue of RMB27.702 billion in the first three quarters of 2024, down 6.23% year-on-year, but excluding specific commercial production projects, revenue increased by 4.6% year-on-year. The net profit attributable to the parent company was 6.533 billion yuan, a year-on-year decrease of 19.11%.

It is worth mentioning that WuXi AppTec's order expansion has shown resilience: as of the end of September 2024, the company's orders in hand were 43.82 billion yuan, a year-on-year increase of 35.2%. In addition, the company's TIDES (mainly oligonucleotides and peptides) business maintained rapid growth, with business revenue of 3.55 billion yuan in the first three quarters of 2024, a year-on-year increase of 71%, and it is expected that the annual TIDES revenue growth will exceed 60%.

On December 24, WuXi AppTec announced the sale of its wholly-owned subsidiary, WuXi ATU, the U.S. operator of Advanced Therapies, and the U.K. operator Oxford Genetics, to the U.S. equity investment fund Altaris for cash consideration, in order to reduce potential market risks.

According to the analysis of industry insiders, at present, with the US Biological Act not being included in the legislative process for the time being, and the gradual end of the Fed's interest rate hike cycle, global innovative pharmaceutical companies will return to the normal development trend, and the leading enterprises in the CXO industry will usher in more development opportunities.

In the field of biological products, compared with the stock price decline of about 30%-40% this year for many vaccine companies, Wantai Biology, which is the dual main business of "IVD + vaccine", has a relatively moderate decline during the year, with a total market value of 95.3 billion yuan shrunk from 95.3 billion yuan at the beginning of the year to 91.2 billion yuan, but it is only half of the peak in 2021 (179 billion yuan).

In the first three quarters of 2024, Wantai Biotech achieved revenue of 1.948 billion yuan, a year-on-year decrease of 60.79%, and a net profit attributable to the parent company of 267 million yuan, a year-on-year decrease of 85.25%, with a significant decline in performance.

In this regard, Wantai Biology explained that mainly due to the company's bivalent HPV vaccine continued to be affected by the expansion of the nine-valent HPV vaccine, market competition, inventory reduction and other factors, the sales revenue fell compared with the same period last year.

In the context of the expansion of Merck's nine-valent HPV vaccine and the escalation of the price war of Walvax bivalent HPV vaccine, the domestic HPV vaccine market is facing a major reshuffle.

In the face of the challenge of "exchanging price for volume" of bivalent HPV vaccine, Wantai Bio aimed at the nine-valent HPV vaccine with broader market prospects, in order to seek new performance growth points.

In fact, in addition to HPV vaccines, there is also similar homogeneous competition in large varieties of vaccines such as pneumonia vaccines, influenza vaccines, and rabies vaccines.

Taking influenza vaccine as an example, the domestic layout of influenza vaccines includes Zhifei Biotechnology, Watson Biotechnology, Kangtai Biotechnology, Baike Biotechnology, Liaoning Chengda (600739. SH), Tiantan Biology (600161. SH), Jindike and other nearly 20 pharmaceutical companies.

How to enrich the category pipeline and reduce the impact of a single category on performance has become a path that many pharmaceutical companies urgently need to explore.

In the field of medical devices, Mindray Medical, a leading company, achieved revenue of 29.485 billion yuan in the first three quarters of 2024, a year-on-year increase of 7.99%; The net profit attributable to the parent company was 10.637 billion yuan, a year-on-year increase of 8.16%.

Prior to this, from 2016 to 2022, Mindray Medical's revenue and net profit increased by more than 20% year-on-year for seven consecutive years, and was regarded as a "medical device white horse" by the capital market.

Although the current performance growth rate is not as fast as in previous years, it still shows the development tenacity of "medical equipment brother".

From the perspective of capital market performance, the total market value of Mindray Medical has declined, shrinking from 352.3 billion yuan at the beginning of the year to 313.8 billion yuan at present.

In the context of the current overall sluggish valuation of the medical device sector, Mindray Medical has also enhanced its moat through epitaxial mergers and acquisitions.

In January 2024, Mindray Medical announced that it planned to spend 6.652 billion yuan to acquire the control of Huitai Medical, a listed company on the Science and Technology Innovation Board, through the method of "agreement transfer + voting rights", so as to lay out the subdivision of the cardiovascular field.

In April of the same year, the acquisition officially completed the transfer of shares.

"The current pullback in the medical sector as a whole is a good time to accelerate industry consolidation", some investment bankers interpreted.

Looking forward to 2025, "innovation" and "going global" are still the two main lines running through the pharmaceutical and biological sector.

For example, AVIC Securities believes that the pharmaceutical sector has experienced a long-term correction and is already in the stage of bottoming out in valuation, policy and sentiment, and "innovation" and "valuation repair" may become the main keywords. In the medium term, the trend of differentiation within the sector is obvious, and leading enterprises with strong innovation ability, outstanding core competitiveness and scale advantages will continue to benefit.

There are also many fund managers who believe that after a long period of adjustment in the early stage, the valuation and fundamentals of the pharmaceutical sector may have room to bottom out, and the medium and long-term investment time of the pharmaceutical sector may have come.