To The Moon

The pharmaceutical industry in 2022 is an industry with no good opinion. 

$WUXI BIO(02269)$ $MICROPORT(00853)$ $BridgeBio Pharma, Inc.(BBIO)$ $ Yaoming Biology. HK $ Yaoming Kant. HK $ Minimally Invasive Medical Care. Before HK, the pharmaceutical industry had always talked about collecting and color change. The collection of the Medical Insurance Bureau seemed to go to the pond to fry fish. Which drug was cut by the soul of the Medical Insurance Bureau, which was the fried fish.

However, judging from the negotiation situation of the Medical Insurance Bureau and today's market response, the impact of collective harvesting is not very negative, but more like pessimistic repair after bearishness. The medical index is obviously higher than the consumption index that also benefits from the economic recovery.

The market's collective procurement negotiations with the Medical Insurance Bureau have actually undergone several rounds of changes in recent years. From the beginning, the market was afraid that the price would be greatly reduced by the collective procurement to affect profits (pessimistic), to the large volume (optimistic) after some new drugs were included in medical insurance, and then to the excessive price pressure on innovative drugs (pessimistic). Finally, it was seen that the Medical Insurance Bureau said that it would encourage innovation and R&D in the pharmaceutical industry (be optimistic).

To be honest, in fact, there is no need to have a very deep understanding of the pharmaceutical industry. As long as we usually pay attention to the changes in some national policies, we can roughly guess the direction of change. Many policies in our country were suppressed at the beginning. Everyone was scared and the market panicked. But later, it was found that the impact was not very bad, and the market turned optimistic. As a result, the policy was further suppressed, the market sentiment completely collapsed, and the industry boom fell into a freezing point, but the policy also ushered in an inflection point and really bottomed out.

Therefore, there is no more unexpected decline in drug prices in this collective procurement negotiation, which is a very important confidence reshaping for the pharmaceutical industry. In particular, innovative drugs, because the valuation of innovative drugs is not a PE valuation system, many innovative drug projects are now unprofitable and use the DCF discount valuation method. When the market is pessimistic, innovative drugs are a garbage project that has no profit in the future and may work for nothing. But when the market is optimistic, the future of innovative drugs is full of imagination. Therefore, the stock price fluctuation of innovative drugs and some innovative medical devices is also very volatile.

I think the certainty of medical recovery in 2023 will actually be stronger than consumption, because many medicines are compulsory consumption. For example, a friend of mine has always wanted to go to the hospital to pull out his wisdom teeth, but I didn't eat some anti-inflammatory drugs because I was afraid that I would get COVID-19 in the hospital before. But now he is sunny, so he decided to pull out his teeth when he comes back after the holiday. In addition, there are many operations that have been postponed due to the epidemic before, and they must be done later.

However, there are many different consumptions, such as going to travel. Although everyone wants to go out for a walk after three years, they still earn more than 10,000 yuan a month three years ago. Now they may be unemployed. Before that, they may have gone abroad, but now they may change to go out of the market, and even just go to eat hot pot.

In addition, medicine has been affected by the collection before, and many profits have fallen significantly. But the collection is now coming to an end, and many drugs have been collected. That is to say, drug prices or profit margins are basically at the end, but with the deepening of China's population, the consumption of drugs is still increasing. That is to say, medicine will at least be a stage of "price parity rise" in the future, and profits can rise steadily again.

From the perspective of valuation, the current PE valuation in the pharmaceutical industry is about 30 times, which is very close to the bottom of the 2018 bear market valuation, which is cheap enough. Looking at the consumption 50 index, which is affected by pork stocks, the valuation of PE is 32 times, which is higher than that of the consumer industry. At present, it is not near the lowest valuation in history.

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