Yesterday, Hong Kong stock pharmaceutical ushered in a big outbreak, a number of Hong Kong stock pharmaceutical ETFs rose more than 3%, the limelight is second only to the brokerage sector. The rally was mainly due to the decline in inflation in the United States, which far exceeded market expectations, and the US biotechnology sector rose sharply.
In the past year, Hang Seng Hong Kong's Biotech Index has plummeted 56%. Even though Hong Kong stocks began to rebound in mid-March, the pharmaceutical sector still did not improve in July.
For the pharmaceutical sector, we have introduced A-share listed companies many times before, and today we mainly focus on Hong Kong stock pharmaceuticals. As a Hong Kong stock pharmaceutical that is closely linked to the trend of Biotech in the United States, what opportunities will there be in the future as inflation in the United States falls?
1 The trend of Hong Kong pharmaceuticals and the US biotechnology sector converges
In February 2020, the COVID-19 pandemic began to break out in countries around the world, and the market's concerns about the future economy caused a sharp correction in the stock market. The U.S. opened the printing press to open a day of easing, a large amount of liquidity poured into the market, and the stock market began to rally in late March.
The cause of the epidemic, whether it is the state or the enterprise, has invested huge amounts of money in the research of drugs related to the new crown. The expected benefits from the vaccine and innovative drug R&D pipeline have attracted more market financing, and the Hong Kong stock and US medical and biological sectors where biotechnology companies are concentrated have rebounded sharply.
During this period, China and the United States successively approved the emergency use of inactivated vaccines and mRNA vaccines. The actual development of the COVID-19 vaccine has been much faster than the 18 months predicted by WHO in the early stages of the outbreak, further supporting the rise in stock prices.
However, with the advent of the COVID-19 vaccine, the forward gains are beginning to materialize. Investors have gradually woken up from the enthusiasm for the biotechnology sector, realizing that the overvaluation of the sector has formed a bubble, resulting in a sharp correction in the BIOTECH sector in the United States and Hong Kong.
Among them, the Hong Kong stock medical sector has resumed a strong rise after a brief decline due to the small bubble and the expected returns combined with high demand, which is still strong.
Until July last year, under the pressure of factors such as price reductions in health insurance negotiations and the failure of innovative drugs to go overseas, the Hang Seng Healthcare Index fell sharply, and then began a downward pattern.
The disappearance of the epidemic dividend and the tight financing situation have made the biotechnology industry, which is highly dependent on financial support, gradually enter a cold winter.
With the increase in vaccination rates and the normalization of overseas COVID-19 control, the phased dividends and non-recurring benefits brought by the epidemic are difficult to sustain. At the same time, record high inflation in the United States, expectations of tighter monetary policy at the Fed, and the impact of the Russia-Ukraine conflict have led to a shift in global investors' risk appetite and greater caution about risky assets such as biotechnology.
2 Pain points are exposed, and the innovative drug industry is differentiated
Under the pressure of policies such as collection and procurement, traditional pharmaceutical companies in mainland China have gradually embarked on a journey of innovation and transformation, while Biotech companies based on innovative technologies have also sprung up like mushrooms, and the industry boom is relatively high.
However, with the passage of time and the intensification of competition, the pain points that were previously covered up by the overall rapid development of the industry began to appear, mainly including:
1. The phenomenon of homogenization of research and development is serious, and R&D resources are wasted;
2. Medical insurance control fees restrict the pricing power of enterprises, and the return on cash flow of products decreases;
3. The road to FDA approval of the pioneer enterprise has been tortuous, and the sea has been frustrated.
Therefore, it further triggered the capital market's concern about the performance of innovative drug companies, superimposed on the loosening of funds in the pharmaceutical sector after the stabilization of the epidemic, and the overall innovation industry entered the valuation bubble digestion stage.
At present, the market is worried that pharmaceutical innovation has entered the deep water area, and with the increasing difficulty of research and development, as well as the emergence of over-development of popular targets, etc., it will seriously hit the enthusiasm for new drug innovation, which is not conducive to the pharmaceutical innovation industry chain.
However, Xiangcai Securities believes that:
The increased difficulty of innovation will not dispel the enthusiasm of pharmaceutical companies for innovation and research and development, the life cycle of generic drugs has become shorter, and the normalization of procurement with quantity is already an indisputable fact, but higher requirements are put forward for pharmaceutical innovation in the future.
In the future, the flower fist embroidery leg style will follow the target, and the innovative layout of the casting net will be difficult to sustain in the future, but rely on "true innovation". In the past, the strategy of target following has tended to be ineffective, and only the innovation of the source is real innovation.
In the current situation where the innovative pharmaceutical industry is facing tight cash flow but financing difficulties, the hematopoietic ability and financing ability of enterprises are the key to whether they can survive in differentiation:
1. Hematopoietic capacity refers to the need for heavy products that have been commercialized by enterprises to be able to generate sufficient cash flow;
2. Financing ability is related to the comprehensive image of the enterprise and the potential of the product at the clinical stage.
3 Hong Kong Pharma ETF
Biotechnology is also different from the pharmaceutical sector that we often mention. The same is the same purpose, all hope to use advanced medical means to treat pain, improve the quality of life, and prevent future diseases.
But the difference is that medicine is mainly oriented to the past, including those mature drugs, reagent consumables, and medical services that have been listed, which belong to the past scientific and technological achievements and are relatively mature.
Biotechnology focuses more on the word "science and technology", emphasizing the future, most of which do not have clear products or use scenarios, but whether it is to solve the pain, improve the quality of life or interventional prevention, there is a large room for development in the future.
Since it is difficult for innovative pharmaceutical companies to obtain profits in the early stage, listing on A-shares is limited. In April 2018, after the amendment of the Listing Rules of the Hong Kong Stock Exchange, biotech companies that have no income or profit can be listed on the main board of Hong Kong.
As of the latest, there are 45 un-revenue biotech companies listed on Hong Kong stocks, and the Hong Kong Stock Exchange has gradually become the world's second largest biotech company after the United States.
At present, there are 10 pharmaceutical-related ETFs in the Hong Kong stock market, the largest of which is the Hang Seng Medical ETF.
The overall industry of innovative drugs has the characteristics of long-term growth + cycle fluctuations, when there are catalytic events such as technological breakthroughs or blockbuster varieties in the industry, the market heat will attract more funds into the plate, and due to the long overall cashing cycle of innovative drugs, performance or research and development performance can not keep up with the heat and then spawn valuation bubbles, the plate will usher in a correction.
From the perspective of the trend of the U.S. stock biotechnology sector (XBI), since 2010, the overall increase has reached 400%, of which the highest increase is more than 800%, although it has also experienced three retracements in the middle, but each time it can usher in a more substantial rise.
The previous article gave the reader a detailed explanation of the trend trend of Hong Kong stock medicine and the US biotechnology sector, with the decline in inflation in the United States, and considering that the overall development history of the mainland innovative drug industry is not more than 10 years, it is in a stage of rapid development, and innovative drugs are still one of the main themes of the future pharmaceutical industry in the mainland.
Therefore, after the Biotech industry has been cold and the overall experience has undergone a sharp correction, perhaps the innovative drug industry has shown allocation value to a certain extent. Is it the darkness before dawn or the dawn before the abyss? See.
This article is derived from the ETF evolutionary theory