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Securities Times reporter Liu Yiwen

After more than three years of adjustment, has the pharmaceutical sector hit bottom? Are there any investment opportunities? With a series of questions, a Securities Times reporter interviewed Zhu Guoguang, chief analyst of the pharmaceutical industry at Soochow Securities.

"From the perspective of the entire pharmaceutical sector, especially the prescription drug sector, the big opportunities are estimated to be concentrated in the third and fourth quarters." He said that although there are not many opportunities in the semi-annual report, the raw material pharmaceutical industry can be paid attention to. Some target companies have already disclosed their performance, and the results are very good.

He also shared with reporters his insights from more than ten years of research: first, one must be professional, second, one must be diligent, and finally, one must focus on industrial research.

Emphasis on industrial research

Securities Times reporter: Can you introduce your research experience and insights?

Zhu Guoguang: I entered the industry in 2011. I first worked at Southwest Securities for 9 years and joined Soochow Securities in July 2020. I won the first place in Crystal Ball in 2014, the most promising analyst in New Fortune in 2015, and the third place in New Fortune in 2022.

I have been working in this industry for 13 years. Generally speaking, I have experienced many major cycles and have some research insights.

First of all, it is highly professional. The pharmaceutical industry, especially the pharmaceutical industry, has high research barriers, so many of the analysts we recruit are from professional backgrounds, and it may not be easy to cross disciplines.

Secondly, you need to be diligent. Being an analyst is a very hard job. You have to work on weekends and even holidays. It is generally quite tiring. If you don't have this state, it will be difficult to succeed. If you don't work hard, but your peers are working hard, then you will fall behind.

Finally, we need to attach importance to industry research. For the pharmaceutical industry, we should not only study companies and stocks, but also the industry. Industry research not only covers the secondary market, but also grasps the development trend of the primary market industry. Soochow Securities has trained many buy-side innovative drug analysts, who are distributed in Jianxin Fund, ICBC Fund, China Europe Fund, and Wells Fargo Fund. This is the result of Soochow Securities' emphasis on industry research.

At present, Soochow Securities holds an innovative drug conference every year, and has held it for four consecutive sessions. Chairmen, general managers, and chief scientists of major pharmaceutical companies will attend. This shows that our innovative drug research has gradually formed a certain influence in the market.

In addition, we also have the Innovative Chinese Medicine Conference, which is also very influential. For example, the chairman of Darentang, the general manager of Ejiao, and the general manager of Taiji will also attend. All of these show that we attach great importance to industrial research.

Optimistic about the performance in the third and fourth quarters

Securities Times reporter: Over a period of time, the pharmaceutical sector has seen significant adjustments. How do you view this change?

Zhu Guoguang: Since July 2021, the pharmaceutical sector has indeed adjusted, and the reasons for the adjustment may be multifaceted. First, it is related to the overall market environment, and the entire market has shown a volatile trend. Second, it is related to the pharmaceutical industry itself, such as centralized procurement, whether it is centralized procurement of chemical drugs, centralized procurement of medical devices, or centralized procurement of traditional Chinese medicines, which has a great impact. Third, it is related to the external environment. For example, WuXi AppTec and WuXi Biologics are greatly affected by the international situation.

Although the pharmaceutical sector has been adjusted in recent years, the underlying logic has not changed. What is its underlying logic? For example, the demand for the pharmaceutical sector due to aging. As the aging population becomes increasingly severe, the demand for medicine will also increase significantly. If the underlying logic remains unchanged, once the policy changes, the pharmaceutical sector may usher in a reversal. Overall, the pharmaceutical sector is still greatly affected by policies.

Securities Times: It is the window period for the disclosure of semi-annual reports. Do you expect the interim results to provide support for the subsequent performance of the pharmaceutical sector? Is this a good window period for layout?

Zhu Guoguang: From the perspective of the entire pharmaceutical sector, especially the prescription drug sector, the big opportunities are estimated to be concentrated in the third and fourth quarters. Why the third and fourth quarters? Because the anti-corruption campaign in the medical sector started at the end of July last year. For example, if we compare the first half of this year with the same period last year, the impact of the anti-corruption campaign has not yet appeared, and the year-on-year base is still relatively high. However, starting from the third and fourth quarters, the base effect of last year has begun to appear, and the year-on-year performance may be better.

Although the opportunities in the semi-annual report are not that great, the API industry is still worth paying attention to. Some target companies have already disclosed their performance, which is very good. Some Chinese medicine companies can also be relatively worth paying attention to. We believe that the third and fourth quarter reports should be paid attention to at the moment, with a focus on the prescription drugs, Chinese medicines and biological drugs in the third quarter reports. These drugs are rigidly needed and are less affected by other factors.

Securities Times: From the perspective of industry segmentation, which track in the pharmaceutical sector do you think will have a higher degree of certainty in the future? Can you share your ideas on stock selection?

Zhu Guoguang: I am optimistic about prescription drugs. Both Chinese medicine prescription drugs and chemical prescription drugs are expected to perform well in the third and fourth quarters. This is judged from the performance.

In general, innovative drugs are relatively the best. China is gradually selling more innovative drugs overseas, which is very worthy of recognition. For example, Kelun Pharmaceutical's Kelun Botai can be sold to Merck. It can be said that innovative drugs are one of the few industries in China that have global competitiveness.

AI helps new drug development

Securities Times reporter: What policies has the country introduced recently in the pharmaceutical industry? What impact do these policies have on the development of the pharmaceutical industry?

Zhu Guoguang: There are several policies. One is the anti-corruption campaign in the medical field. It has been one year since the campaign started. Now it has basically ended and achieved some phased results. In the future, anti-corruption campaign in the medical field may be normalized, but the impact of normalized anti-corruption campaign is relatively small.

The second is the national negotiation policy for innovative drugs. It was launched on July 1 this year, but the negotiations will not begin until October or November. Companies that can enter the list will benefit significantly.

The third is the centralized procurement policy. In the past, centralized procurement was mainly focused on chemical drugs, but now it may involve medical devices. In the future, centralized procurement may continue to focus on medical devices, including some traditional Chinese medicines.

Securities Times reporter: What changes might AI (artificial intelligence) bring to the pharmaceutical and medical track models?

Zhu Guoguang: The impact mainly has the following two aspects:

The first is the impact on drug development. In the process of drug development, we need to find some good molecules. For example, for some targeted drugs, AI can find the main signaling pathways that inhibit the formation of tumors. After the target is found, we need to find molecules, which is a very complicated process. Using the computing power of AI can solve this problem.

The second is the impact on diagnosis. For example, Huawei and Runda Medical are currently working together to use Huawei's computing power to empower Runda Medical. What are they doing specifically? Now the diagnosis of the examination report in the hospital can be interpreted by AI.