The pharmaceutical industry is very large. It can be divided into API, generic drugs, innovative drugs, OTC, biopharmaceutical, medical devices and medical services.
Apis generally include vitamins, antibiotic intermediates and so on. The investment logic is similar to that of chemicals, which are cyclical industries. Fluctuations in product prices generally come from changes in the competitive pattern caused by unexpected events, such as natural disasters, production accidents and environmental pressure. The valuation of API sector is the lowest among pharmaceutical stocks.
Generic drugs have the attribute of manufacturing industry, and the direct consequence of the current procurement policy of the industry is the sharp drop in drug prices. On the one hand, the common people must be the beneficiaries, but on the other hand, the profits of related pharmaceutical companies are also sharply reduced, which is also one of the reasons for the sharp drop in pharmaceutical stocks in 2018.
More than half of the listed pharmaceutical companies are concentrated in the generic drug field, and the investment opportunities in the generic drug industry are not great at present.
Innovative medicine is a technology stock, with high growth and high risk. Beigene, a leading innovationist listed in both The US and Hong Kong, has suffered huge losses in recent years but has a market capitalisation of HK $90bn. Investing in innovative drugs is very difficult because professional investors are a bit confused about how to value them.
An OTC product is one that can be bought at a pharmacy without a prescription. As for the INVESTMENT in OTC industry, first, it depends on the product, such as good resource endowment (top-secret formula, historical inheritance, etc.); second, it depends on the marketing channel and pricing power, whether it has the ability to continuously raise prices and can grasp the balance between price and sales volume. Third, it depends on the ability of management.
There are five main directions :(1) insulin, (2) vaccines, (3) blood products, (4) diagnostic reagents, (5) monoclonal antibodies, polyclonal antibodies, etc.
Biological medicine is an absolute sunrise industry, good growth and high barriers, can give a high valuation, to find a relatively reliable company. The long-term future should be precision medicine, including gene sequencing and cell therapy.
Medical equipment and services
The medical device industry is optimistic in the long term. Although the short-term valuation is high, new investment opportunities will emerge in the long term. The profit model of the medical service industry is not very clear, but there is a broad space for long-term growth. There are three related models: specialty chain (ophthalmology, oral medicine, physical examination), hospital trust, and public hospital restructuring.
In general, investment in pharmaceutical stocks requires special professional knowledge, because the valuation of more than 200 pharmaceutical stocks can be said to vary widely, including 10 times of active substance drugs, but also more than 100 times of innovative drugs. We should not only look at the p/E ratio to invest. Understanding the basic logic of the industry, along with some technical skills, should help you invest in pharmaceutical stocks.