Innovation is still the core competitiveness.

Author: Xiao Se, Editor: Xiaobai

To discuss which industry is the worst in the stock market in 2024, the pharmaceutical and biological sector will definitely have a place, after all, the Shenwan Pharmaceutical and Biological Index fell 14.3% for the year, which is the worst performance among the 31 industry categories.

(Source: Choice Terminal, Chart: Market Value APP) In recent years, medicine can be said to be constantly suffering from internal and external troubles, affected by factors such as weak domestic demand, compliance rectification, and medical insurance cost control, and the prosperity of each segment has declined to varying degrees. In the 10th batch of centralized procurement in November 2024, the procurement scope of 62 products and 263 product specifications, and the procurement cycle of up to 3 years are the highest in the past. For CXO and other subdivisions for overseas markets, the Biosecurity Act is also a sword hanging over the head. Looking back at the downward market, it can be found that the trend of the pharmaceutical and biological index is basically synchronized with the Shanghai Composite Index, but most of the time it is the weak side, with a cumulative underperformance of about 27pct.

(Source: Choice Terminal, Chart: Market Value APP) However, under the negative beta, there are also stocks that have stepped out of the independent market, such as the pharmaceutical industry (refer to the Shenwan Industry Classification) Among the top ten market capitalization companies, four rose against the trend. In addition to Yunnan Baiyao, the remaining three are well-known innovative pharmaceutical companies. It can be seen that in the current industry environment, innovation is still the core competitiveness.

(Source: Choice Terminal, Chart: Market Value APP) Let's take stock of them one by one today.

Mindray Medical: Unable to do it

Mindray Medical (300760.HK) SZ) was the largest company in the industry by market capitalization at the end of the year, down 9.8% for the year, slightly stronger than the pharmaceutical and biological index and the secondary industry medical device index.

Especially in the first half of 2024, Mindray Medical's excess returns are obvious, mainly due to the fact that it spent 6.652 billion yuan at the end of January to win control of Huitai Medical (688617.SH), a leading electrophysiology company in China. This is the first time that Mindray Medical has acquired a domestic company since its listing, and Fengyunjun also released an interpretation of the event after the announcement.

Roughly speaking, in addition to the existing three major businesses of life monitoring, medical imaging, and in vitro diagnosis, Mindray Medical has opened up a new cardiovascular track, and the imagination space has been further expanded. However, in the first three quarters of 2024, Huitai Medical's operating income and net profit attributable to the parent company were 1.525 billion and 528 million respectively, which were only 5.2% and 5.0% of Mindray Medical's level in the same period. In addition, Mindray Medical's shareholding in Huitai Medical is only 24.61%, and the impact on performance is very limited, and the main body of the company is still the traditional three types of medical devices.

Mindray Medical has also fallen into the trouble of stalling growth, with revenue and profit growth in the first three quarters of 2024 both in single digits, no longer than the performance of more than 20% in previous years.

Especially in the third quarter, the net profit attributable to the parent company also fell by 9.3% year-on-year, which is the first time that Mindray Medical has experienced a single-quarter profit decline since its listing.

(Source: Choice Terminal) and the performance growth in the first three quarters was mainly due to the expansion of overseas markets.

(Source: Mindray Medical 2024 Third Quarter Report) As for the current situation of the domestic medical market, the statement in the third quarter report of 2024 is relatively negative, with the market growing by less than 2% in the first three quarters, mainly due to the fact that under the rectification of the medical industry, medical equipment procurement activities are generally in a wait-and-see state. To put it bluntly, it is the result of the chaos in the medical industry in the past few years, excessive medical treatment, corruption and other problems. In the face of these, Mindray Medical, which is the leader, is also a little powerless. Fortunately, even after the growth stalled, Mindray Medical's stock ranking is still ranked 22nd, and the fundamentals are still very stable.

(Source: Market Cap APP).

Hengrui Pharmaceutical: The first brother of innovative drugs has returned to growth

Hengrui Pharmaceutical, a leading innovative drug company (600276. SH), with a gap of less than 20 billion, ranked second. Hengrui Pharmaceutical's share price rose 2% for the whole year, outperforming the primary and secondary industry indices by 6.4pct and 16.3pct respectively, which can be regarded as a high-quality target in the industry.

(Source: Choice Terminal, Chart: Market Value APP) A large part of the reason is that Hengrui Pharmaceutical's outstanding performance. Since 2021, under the suppression of generic drug centralized procurement, Hengrui Pharmaceutical's performance has declined for two consecutive years, and it will not stabilize until 2023. After entering 2024, the upward channel of performance will be opened again, with operating income and net profit attributable to the parent company increasing by 18.7% and 33.0% respectively in the first three quarters, and the net profit scale of 4.62 billion yuan will hit a new high in the same period of the previous year.

(Source: Market Value APP) has fallen to nearly 1,000 in 2022, and its stock ranking has also returned to the top 50 position.

Hengrui Pharmaceutical mentioned in the third quarter report of 2024 that the main reason for the increase in performance was the receipt of a 1.6 euro downpayment from Merck Pharmaceuticals for external licensing, which is a very hot BD transaction in the innovative drug industry during the year.

(Source: Hengrui Pharmaceutical's 2024 third quarter report) This kind of transaction Fengyunjun introduced in a recent research report, and at that time, Hengrui Pharmaceutical planned to go public in Hong Kong, and its intention may be related to this.

From 2023 to the time of the release of the research report, Hengrui Pharmaceutical has successively completed 6 BD cooperation with multinational pharmaceutical companies, with a total transaction amount of nearly 10 billion US dollars. On December 30, Hengrui Pharmaceutical reached a BD transaction with IDEAYABiosciences, with a total down payment and milestone payment of more than US$1 billion, which further verified the logic of the normalization of BD transactions. In addition, the proportion of Hengrui Pharmaceutical's innovative drug sales revenue has increased from 38.1% in 2022 to 43.4% in 2023, and further increased to 47.7% at the end of the third quarter. At present, there are only 3 key generic drug varieties that have not been centrally procured, and the impact of centralized procurement is also weakening at the margin. The leading innovative drug will still be interesting in 2025.

BeiGene: A miracle medicine that dominates the world

In third place is another innovative drug leader, BeiGene (688235. SH), the stock price rose 15.8% against the trend for the whole year, and the alpha attribute is much stronger than Hengrui Pharmaceutical.

(Source: Choice Terminal, Charting: Market Cap APP) (Source: Market Cap APP) (Source: Market Cap APP) (Source: Market Cap APP) (Source: BeiGene Announcement) (Source: Market Cap APP) (Source: Choice Terminal, Charting: Market Cap APP) (Source: Market Cap APP) (Source: Market Cap APP) (Source: Choice Terminal, Charting: Market Value APP) (Source: Market Value APP) (Source: Choice Terminal, Cartography: Market Value APP) (Source: Choice Terminal, Charting: Market Value APP) (Source: Market Value APP) (Source: Choice Terminal, Charting: Market Value APP) (Source: Market Value APP) (Source: Zheshang Securities) (Source: Choice Terminal, Tabulation: Market Value APP) (Source: Choice Terminal, Charting: Market Value Fengyun APP) (Source: Market Value Fengyun APP) (Source: Market Value Fengyun APP) (Source: United Imaging Medical 2024 Third Quarter Report) (Source: Wantai Biotech 2024 Annual Performance Forecast) (Source: Choice Terminal, Charting: Market Value Fengyun APP) (Source: Market Value Fengyun APP) (Source: Market Value Fengyun APP) (Source: Baili Tianheng 2024 Interim Report).

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