21st Century Business Herald reporter Zhu Yiyi reported from Hangzhou

Entering 2025, what kind of market will the pharmaceutical and biological sector perform?

On February 5, A-shares ushered in the first trading day of the Year of the Snake after the Spring Festival holiday, and the pharmaceutical and biological sector achieved a recovery rise, according to the Wind Shenwan pharmaceutical and biological secondary industry classification, medical services, biological products, and medical devices rose first, up 1.99%, 1.29%, and 1.25% respectively (weighted average of circulating share capital), and traditional Chinese medicine, pharmaceutical business, chemical pharmaceuticals and other sectors also achieved red, up 0.90%, 0.88%, and 0.63% respectively.

In early January, the pharmaceutical industry policy "combination punch" forced. On January 9, the National Health Insurance Administration held a symposium for enterprises to support the development of innovative drugs. At the symposium, the National Health Insurance Administration made it clear that it will further increase its support for innovative drugs, and a series of more powerful policies will be introduced in the next step. In particular, in response to the payment of innovative drugs that the industry is most concerned about, the National Health Insurance Bureau has also made it clear that it will broaden the payment channels for innovative drugs and explore the establishment of a list of Class C drugs.

Some institutions believe that there are three levels of reversal in the pharmaceutical sector, namely the reversal of policy, performance and capital.

In addition to the reversal of expectations on the policy side, on the performance side, the pharmaceutical sector is also expected to release pressure.

According to the data of Wind Shenwan pharmaceutical and biological industry, as of February 4, 256 A-share biopharmaceutical companies have disclosed their 2024 performance forecasts, of which 73 companies are expected to have good performance and 183 companies have "declined".

Ushered in a recovery rally

After the Spring Festival holiday, A-shares ushered in the first trading day of the Year of the Snake.

Wind data shows that on February 5, the pharmaceutical and biological sector ushered in a slight rise, such as CSI 1000 pharmaceutical ingredients rose 1.08%, and Shenwan pharmaceutical biological components also rose 1.04%.

From the perspective of the secondary sub-sectors of Shenwan Pharmaceutical and Biology, the medical services, biological products, and medical device sectors rose by 1.99%, 1.29%, and 1.25% respectively (weighted average of circulating share capital), and the sub-sectors such as traditional Chinese medicine, pharmaceutical commerce, and chemical pharmaceuticals also achieved red, up 0.90%, 0.88%, and 0.63% respectively.

In terms of individual stocks, on February 5, MGI (688114. SH), Jinyu Medical (603882. SH) was the top gainer, up 14.36% and 6.14% respectively. In addition, Darentang (600329. SH), Yiling Pharmaceutical (002603. SZ) rose more than 4%, and Hualan Biotech (002007. SZ), BGI (300676. SZ) rose more than 3%, and Kangtai Biotechnology (300601. SZ), Allist (688578. SH), Shanghai Pharmaceutical (601607. SH) rose more than 2%.

On the same day, the leaders in some segments also gained red: CXO leader WuXi AppTec (603259.SH) rose 1.14%, and Gloria (002821. SZ) rose 1.57%, while Pharmaron (300759. SZ) rose 1.45%; Medical device leader Mindray Medical (300760.HK) SZ) rose 1.89%, and Yuyue Medical (002223. SZ) rose 1.12%; Vaccine leader Walvax Biotech (300142. SZ), Zhifei Biotech (300122. SZ) rose 1.79% and 0.83% respectively.

However, on February 5, medical device giant United Imaging Medical (688271. SH) shares fell more than 6%, and Humanwell Pharmaceutical (600079. SH) fell more than 3%, and Aimeike (300896. SZ) fell more than 1%.

Short-term performance pressure released

Zhao Haichun, a senior analyst at Guojin Securities, believes that there are three levels of reversal in the pharmaceutical sector, namely the reversal of policy, performance and capital.

In his view, some companies have recently announced performance forecasts, and the market has a full understanding of the high base of performance in the fourth quarter of 2024 and the first quarter of 2025 and the short-term operating pressure of listed pharmaceutical companies, which are fully reflected in the valuation.

As of February 4, among the 256 A-share biomedical companies that disclosed their 2024 performance forecasts, 183 companies had a "slippery" performance, accounting for more than 70%, indicating that the short-term operating pressure on the performance side of some companies has been recognized, and the pharmaceutical sector is expected to start the reversal process in advance.

Among the 73 companies with good performance, 9 companies are expected to have a net profit of more than 1 billion yuan last year.

From the perspective of performance scale, Baili Tianheng (688506. SH) is expected to have a net profit of about 3.6 billion yuan in 2024; It was followed by Darentang (600329. SH), which is expected to have a net profit of about 2.15 billion yuan ~ 2.39 billion yuan in the same period; Dong'e Ejiao (000423. Not to be outdone, SZ) is expected to have a net profit of about 1.5 billion yuan ~ 1.6 billion yuan in the same period.

In addition, Twining Biotech (301301. SZ) is expected to have a net profit of about 1.36 billion yuan ~ 1.45 billion yuan in 2024; INTCO Medical(300677. SZ) is expected to have a net profit of about 1.2 billion yuan ~ 1.5 billion yuan in the same period; Allist(688578. SH) is expected to have a net profit of about 1.43 billion yuan in the same period.

In addition, Zhejiang Medicine (600216. SH), Sinopharm Modern (600420. SH), Huahai Pharmaceutical (600521. SH) is expected to have a net profit of more than 1 billion yuan in 2024.

From the perspective of performance growth, North China Pharmaceutical (600812. SH) is growing rapidly, and the company expects net profit to increase by 2456.08% year-on-year in 2024, compared with only 4.89 million yuan in the previous year.

North China Pharmaceutical said that during the reporting period, the company achieved profitability improvement by adjusting the product structure, strengthening procurement management, reducing procurement costs, implementing lean management, and digging deep into cost control.

In addition, Huiyu Pharmaceutical-W(688553.SH), Microelectrophysiology-U(688351.SH), Menova (603538. SH), Ogilvy Medical (002950. SZ), Zhejiang Medicine (600216. SH), Baihua Pharmaceutical (600721. SH), Nuotai Biotech (688076. SH) and nearly 20 other companies are expected to have a net profit growth rate of more than 100% in 2024.

At the same time, there are also many companies that release short-term operating pressure.

For example, Weikang Pharmaceutical (300878. SZ) continues to lose, and it is expected that the net profit in 2024 will be about -150 million yuan ~ -110 million yuan, with a change range of -1766.0% ~ -1268.0%.

In addition to the factor of 87.4185 million yuan of provision for impairment of fixed assets, Weikang Pharmaceutical mentioned that the unit price of the company's products declined, the sales and management were less than expected, and the addition of drug traceability codes to all of the company's products and the replacement of drug instructions for some products led to the return of product sales in the current year, which affected the company's revenue and profit data in 2024, especially in the fourth quarter of 2024.

Guangji Pharmaceutical (000952. SZ), it is expected that the net profit in 2024 will be about -299 million yuan ~ -270 million yuan, with a change range of -113.19% ~ -92.52%.

Innovative drugs are on the way

At present, innovative pharmaceutical companies stand out in the pharmaceutical segment.

With the approval of core products and the realization of commercial sales, Baili Tianheng, Shenzhou Cell (688520. SH), Sinovac Pharmaceutical (688136. SH), Shanghai Model Biology (688265. SH) and other innovative pharmaceutical companies have turned losses into profits.

Baili Tianheng, which is expected to have a net profit of about 3.6 billion yuan in 2024, explained that the company received an irrevocable and non-deductible down payment of US$800 million from Bristol-Myers Squibb (BMS), an overseas partner of its core product BL-B01D1 (EGFR×HER3 bispecific antibody ADC), based on the cooperation agreement during the reporting period, resulting in a significant increase in the company's revenue.

Shenzhou Cell, an innovative pharmaceutical company, has turned losses into profits, and is expected to make a net profit of about 90 million yuan to 130 million yuan in 2024.

Regarding the change in performance, the company explained, "The ® company's core product Anchor has stable sales, and the sales revenue of other listed products has increased, and the company's overall operating income has increased compared with the same period last year." The company's R&D investment remained at a high level, but decreased from the same period last year. At the same time, the company actively reduces costs and increases efficiency by controlling operating costs and improving R&D efficiency, all of which have a positive impact on the company's operations."

In addition to turning losses into profits, many innovative pharmaceutical companies have significantly reduced their losses.

Although BeiGene has not disclosed its 2024 earnings forecast, the company expects to achieve positive operating profit in 2025.

One of the main drivers of the company's profitability comes from the outstanding performance of its self-developed product zanubrutinib.

It is understood that one of the company's core varieties, BRUKINSA, has a strong momentum on the market, and has been approved for multiple indications in more than 70 markets around the world, and is the only BTK inhibitor that has achieved superior results compared with ibrutinib in head-to-head trials.

In addition, Junshi Biosciences expects a net profit of -1.292 billion yuan in 2024, a year-on-year decrease of about 43.42%.

In 2024, Junshi Biosciences' operating revenue will mainly rely on four commercial drugs: toripalimab injection (trade name: Tuoyi ®), adalimumab injection (trade name: Junmaikang ®), deuterium hydrobromide tablets (trade name: Humanwei ®) and ongreximab injection (trade name: Junshida ®).

Thanks to the improvement of the sales efficiency of the company's commercialization team, the increase in the number of approved indications for toripalimab and the indications included in the national medical insurance catalog, the sales of the company's core product toripalimab in the domestic market will increase significantly year-on-year in 2024.

Looking forward to the trend of the pharmaceutical industry in 2025, Sun Jian, an analyst at Zheshang Securities, believes that the industry as a whole is expected to usher in a certain recovery, and the chemical pharmaceutical and medical device sectors will have more opportunities. The chemical pharmaceutical sector will continue to benefit from the continuous advancement of innovative drug research and development and the growth of market demand, especially in the context of the adjustment of medical insurance policies and centralized procurement policies, the market space for innovative drugs will be further expanded.

In addition, the medical device sector will benefit from the recovery of global market demand, especially in emerging market countries, where the penetration and use rate of medical devices will further increase. In addition, technological innovations, such as the application of artificial intelligence and big data, will further enhance the performance and market competitiveness of medical devices.