Goldman Sachs: Pharmaceutical industry returning to fundamentals. Focus on product cycles and global cooperation.

Goldman Sachs released a research report stating that they have updated the valuation predictions for the pharmaceutical companies/distributors they cover. Although generative artificial intelligence has become a popular term in the pharmaceutical industry, its adoption is still in the early stages and will not have a significant impact in the short term. Goldman Sachs predicts that its application in research and commercial investment returns will still be difficult to achieve in the short term. The highest increase in the 12-month target price is up to 13%. Goldman Sachs' main points are as follows: Factors of Change: 1) Recent industry trends, including more policy support for innovative drugs, the impact of volume-based procurement (VBP) on biosimilars, and the dynamics of demand/prices for active pharmaceutical ingredients (APIs); 2) Company-specific latest situations, such as cooperation income and the approval status of new drugs. While the industry does not expect policy disruptions (such as anti-corruption, disease diagnosis-related grouping/DRG/DIP reform, etc.) to bring about a V-shaped recovery, the industry expects 2025 to be a more normal year for most pharmaceutical companies as these companies adapt to new regulations. For large pharmaceutical companies and small to medium-sized pharmaceutical companies, product cycles and potential global collaborations may play a significant role in driving differentiation. Focus on the next product cycle In the coverage area, the past few years have been a mixed journey for most pharmaceutical companies. 1) The impact of the wave of volume-based procurement of generic drugs has gradually weakened, but the impact of policy disruptions continues, however, this impact will decrease gradually over time (for example, the potential volume-based procurement products that CSPC PHARMA may launch in 2024, and the future years Lufkin Pharma's ibuprofen ester and Livzon Pharmaceutical Group Inc.'s esomeprazole) these effects will gradually diminish. 2) After continuous efforts in building new drug R&D pipelines, a new product cycle is coming, such as the products from SIMCERE PHARMA in late 2024 and beyond, 3SBio's immune drugs to be launched in 2026, and the new products HANSOH PHARMA may introduce in 2027. However, there is still a 1-2 year growth gap to fill after the existing product series reach a growth bottleneck. Disease diagnosis-related grouping/DRG/DIP reforms, strict budget management of medical insurance funds may continue to limit the overall growth of the pharmaceutical market, keeping its growth rate at a single digit. Seizing the opportunity of the new product cycle is one way to gain potential excess returns. Global licensing outputs are key Similar to the view on biotech companies, releasing the value of R&D pipelines through global collaboration has become a common practice for pharmaceutical companies. Large pharmaceutical companies with a strong R&D pipeline and a record of global collaborations are more likely to achieve more transactions. Therefore, it is expected that some companies' licensing income will increase (for example, HANSOH PHARMA and Jiangsu Hengrui Pharmaceuticals, both have a strong R&D pipeline to facilitate sustainable transactions). Other companies with higher transaction expectations include CSPC PHARMA (01093) (whose EGFR-ADC drugs are undergoing three phase II clinical trials and one phase III clinical trial in China, with the first results expected in the first half of 2025), YZYBIO-B (02496) (UBT251, a drug targeting GLP-1/GCGR/GIP and other preclinical metabolic assets, such as peptide YY candidate drugs expected to submit new drug research applications in the first half of 2025), and Sunshine Guojian Pharmaceutical (688336.SH) (SSGJ-707, VEGF/PD1 bispecific antibody, in the China phase III clinical trial stage). Specific ratings and target price changes are as follows: