Open source securities pharmaceutical industry 2025 investment strategy: Long-term industry trends remain unchanged, focus on sectors stabilizing and rebounding.

Open Source Securities released a research report stating that the long-term trend of the pharmaceutical industry has not changed, and the sector is expected to stabilize and rebound. With the alleviation of base factors in the third quarter, the demand from the aging population and innovation supply are expected to drive the sector back to steady growth. Benefiting from the growth of innovative drugs domestically and overseas, coupled with improved operational quality, most pharmaceutical companies have stable performance. The pharmaceutical sector is entering a new commercialization cycle, with a focus on innovation and overseas expansion, and attention on the recovery of consumer demand in chemical pharmaceuticals and biologics. Key points from Open Source Securities: The long-term trend of the industry has not changed, and the sector is expected to stabilize and rebound In the first three quarters of 2024, the overall revenue growth of the pharmaceutical sector was -1.72%, and the net profit growth was -5.50%; looking at Q3 separately, the revenue growth of the pharmaceutical sector in Q3 2024 was -1.27%, and the net profit growth was -16.03%. The industry's operating performance is under pressure overall, but with the alleviation of base factors in the third quarter, the demand from the aging population and innovation supply are expected to drive the sector back to steady growth. In the first three quarters, the pharmaceutical market fluctuated downward overall. The market has fully reflected the pessimistic expectations at the operational level. After a significant pullback, the sector's valuation is more attractive. At the current stage, the long-term trends of the pharmaceutical industry, such as stable pharmaceutical policies, rapid growth of unmet clinical demands in the aging population context, and continuous improvement of corporate innovation capabilities, have not changed. With the macroeconomic recovery, the expected marginal increase in medical insurance revenue growth is expected to suppress the pharmaceutical sector. Looking ahead, the operating performance of the pharmaceutical sector is expected to stabilize and rise. The securities firm remains bullish on investment opportunities in the pharmaceutical sector, with improvements in both performance and valuation. The pharmaceutical market never lacks investment opportunities. Selected stocks, focusing on innovation and overseas expansion, and paying attention to the recovery of consumer demand in chemical pharmaceuticals and biologics As the impact of centralized procurement weakens, the pharmaceutical sector is benefiting from the domestic volume expansion of innovative drugs and the growth driven by overseas expansion, along with improved operational quality. Most pharmaceutical companies are performing stably as the pharmaceutical sector enters a new commercialization cycle. Domestic innovative pharmaceutical companies are rapidly integrating with the global market, with more "license-out" agreements emerging. The domestic commercial environment is gradually improving, and the industry's competitive landscape is getting better. Pharmaceutical industry chain: With the U.S. entering an interest rate cut cycle and continuous support for the innovative drug industry domestically, the operating performance of CXOs and research service providers is expected to gradually bottom out and rise. Their stock prices are currently at low levels, presenting new opportunities for the sector. Medical devices: Against the background of ongoing factors such as DRGs, centralized procurement, and medical compliance, the focus is on sectors with less resistance, short-term performance, and long-term growth potential. The direction is to emphasize overseas expansion, off-site medical device consumption, and equipment upgrades. Raw materials: In 2024, the PPI index for raw materials is at a historical low, indicating that the industry's price bottom is stabilizing, with an upward inflection point in production growth, sustained improvement in industry profitability, and a potential trend for both quantity and price to rise in 2025. In the current medical environment, the advantages of the integrated layout of "raw materials-pharmaceuticals" are expected to be demonstrated, with pharmaceutical business expected to rapidly contribute incremental performance. Traditional Chinese Medicine: It is recommended to select companies with real operational improvements that can withstand the epidemic cycle. In terms of direction, the preferred focus is on the segmented track of innovative medicines in traditional Chinese medicine supported by policies and new varieties. Additionally, the sector is expected to rise with positive policies, such as catalog adjustments of basic medicines. Consumer healthcare: Segmented tracks such as specialty healthcare services with stronger consumer attributes, Chinese/chemical medicine patches and ophthalmic drugs/devices, branded OTC Chinese medicine, pharmaceutical business, blood products, and vaccines are expected to benefit from the progressive recovery of domestic consumer capabilities following intensified macro policies. In the field of healthcare services, leading ophthalmology hospitals with strong brand power are expected to increase their market share and profitability. The penetration rate of traditional Chinese medicine diagnosis and treatment services is low, with optimism towards leading companies driving standardization both internally and externally. The oral healthcare services sector is in a phase of industry consolidation, with industry leaders expanding against the trend, and revenue growth is expected to accelerate in 2025. Recommended targets: Pharmaceuticals and biologics: Jiangsu Hengrui Pharmaceuticals (600276.SH), Humanwell Healthcare (600079.SH), Jiangsu Nhwa Pharmaceutical (002262.SZ), Shenyang Xingqi Pharmaceutical (300573.SZ), Hunan Jiudian Pharmaceutical (300705.SZ), Joincare Pharmaceutical Group Industry (600380.SH), Livzon Pharmaceutical Group Inc. (000513.SZ), Huadong Medicine (000963.SZ), Yantai Dongcheng Biochemicals (002675.SZ), Zhejiang Jingxin Pharmaceutical (002020.SZ), Chengdu Easton Biopharmaceuticals (688513.SH), INNOCARE-U (688428.SH), Suzhou Zelgen Biopharmaceuticals (688266.SH), SKB BIO-B (06990), Chongqing Genrix Biopharmaceutical (688443.SH), KEYMED BIO-B (02162), HUTCHMED (00013), Kexing Biopharm (688136.SH), Beijing Tiantan Biological Products Corporation (600161.SH) CXOs and research services: WuXi AppTec (603259.SH), Hangzhou Tigermed Consulting (3Shenzhen Changhong Technology(00347.SZ), WUXI XDC(02268), Pharmaron Beijing(300759.SZ), Porton Pharma Solutions(300363.SZ), Qingdao Baheal Medical INC.(301015.SZ), PharmaBlock Sciences(300725.SZ), Jiangsu Sinopep-Allsino Biopharmaceutical(688076.SH), Zhejiang Jiuzhou Pharmaceutical(603456.SH), Shanghai Haoyuan Chemexpress(688131.SH), Bide Pharmatech(688073.SH), Shanghai OPM Biosciences(688293.SH), Acrobiosystems(301080.SZ), GemPharmatech(688046.SH), ChengDu Sheng Nuo Biotec(688117.SH), R&G PharmaStudies(301333.SZ), Beijing Sun-Novo Pharmaceutical Research(688621.SH), Shanghai Aladdin Biochemical Technology Co.,Ltd(688179.SH)Medical Devices: Cofoe Medical Technology (301087.SZ), Hangzhou Alltest Biotech (688606.SH), Eyebright Medical Technology (Beijing) Co., Ltd. (688050.SH), Sanoco Medical (300298.SZ), Xiangyu Medical (688626.SH), Shenzhen Mindray Bio-Medical Electronics (300760.SZ), Sonoscape Medical Corp. (300633.SZ), Shanghai Aohua Photoelectricity Endoscope (688212.SH), Nanjing Vishee Medical Technology Co., Ltd (688580.SH) Active Pharmaceutical Ingredients: Aurisco Pharmaceutical (605116.SH), Zhejiang Xianju Pharmaceutical (002332.SZ), Jiangxi Synergy Pharmaceutical (300636.SZ), Zhejiang Huahai Pharmaceutical (600521.SH), Apeloa Pharmaceutical (000739.SZ) Traditional Chinese Medicine: Youcare Pharmaceutical Group (688658.SH), Zhejiang Jolly Pharmaceutical (300181.SZ), Hunan Fangsheng Pharmaceutical (603998.SH), Henan Lingrui Pharmaceutical (600285.SH), Hubei Jumpcan Pharmaceutical (600566.SH), KPC Pharmaceuticals, Inc. (600422.SH), Jiangsu Kanion Pharmaceutical (600557.SH), Chongqing Taiji Industry (600129.SH) Medical Services: JXR (01951), Topchoice Medical (600763.SH), HYGEIA HEALTH (06078), Meinian Onehealth Healthcare Holdings (002044.SZ) Pharmaceutical Retail: Yifeng Pharmacy Chain (603939.SH), LBX Pharmacy Chain Joint Stock (603883.SH), JZJ Chain Drugstore Corporation (605266.SH), Jointown Pharmaceutical Group (600998.SH) Risk Warning: Unexpected price reductions in centralized procurement, unexpected price reductions in medical insurance negotiations, policy risks in the medical industry, geopolitical risks.