A-share medical health market value of 100 billion Top3: Mindray, Hengrui, WuXi AppTec's globalization, localization, innovation logic

Ren Zhengfei's latest internal speech mentioned that the global economy will face a continuous recession and a sharp decline in spending power in the

The day before this speech flowed out, the listing of the United Film Medical Science and Technology Innovation Board rose by 65% on the first day, and the market value rose to more than 140 billion yuan, ranking among the 100 billion market value enterprises on the day of listing, and the A-share pharmaceutical and biological sector was the 7th

At present, in the pharmaceutical sector, there are 10 A-share enterprises

Mindray Medical topped the list with a market capitalization of more than 360 billion yuan;

WuXi AppTec ranked second with nearly 270 billion yuan;

Hengrui Pharmaceutical ranked third

Top3 belongs to the three major sectors of medical devices, CRO and pharmaceuticals

▲A-share pharmaceutical and biological sector (Shenwan industry 2021) market capitalization top 10 companies list (medical trend mapping) data as of August 22, 2022 close

At this moment of transmitting "cold gas", what is the logic of the rise and fall of the market value of Mindray, Hengrui and WuXi AppTec? Internationalization, domestic competition, and "hard innovation" are undoubtedly important logical lines

01 The international market is an indispensable position

Whether it can achieve a market value breakthrough and whether it has an "overseas" growth curve is very important

Among Chinese enterprises,

CRO has the highest degree of internationalization; CRO company WuXi AppTec occupies the second position

This is followed by medical devices;

The internationalization of pharmaceuticals is difficult

WuXi AppTec: Up to 82% internationalization

WuXi AppTec has its global genes, which also makes its revenue performance very "international" - revenue outside China accounts for 82%, which is the most international enterprise among the A-share pharmaceutical Top3 companies

In the first half of the year revenue,

Revenue from U.

Revenue from European customers was 1.

Revenue from Chinese customers was RMB3.

Revenue from customers from Japan, South Korea and other regions was RMB819 million, up 15%

WuXi AppTec continues to increase its international layout:

In May 2022, WuXi AppTec announced its H-share issuance plan, which intends to use 70% of the proceeds of the additional offering to build

On July 19, WuXi AppTec announced plans to establish an R&D and production base in Singapore and expects to invest A total of S$2 billion (US$1.

Mindray Medical: Overseas revenue accounted for 40%

Mindray Medical entered the U.
S.
market as early as 2003, and also quickly deployed through mergers and acquisitions of overseas companies:

In 2008, it acquired Datascope, a veteran monitor manufacturer in the United States;

In 2013, it acquired ZONALE Medical Systems
, an American manufacturer of ultrasound diagnostic systems, for $105 million.

Acquisition of Hytest
, an upstream raw material company for IVD reagents, for approximately $545 million in 2021.

Therefore, mindray medical's degree of internationalization is relatively good
.
In the release of the financial report in the first half of 2022, Mindray Medical's overseas revenue was 6.
08 billion yuan, +17.
7%
year-on-year.
The proportion of domestic and overseas revenue was 3:2
.

At present, Mindray Medical has 53 overseas subsidiaries
in about 40 countries in North America, Europe, Asia, Africa, Latin America and other regions.
There is a localization team
of nearly 600 people in the United States.

Mindray Medical highlighted its overseas high-end breakthroughs – breaking through more than 400 new high-end customers in the international market, and nearly 400 existing high-end customers achieving horizontal breakthroughs
.

▲Mindray Medical's financial report data

In the case of domestic IVD collection approaching, IVD's overseas revenue is a sharp tool
to alleviate the anxiety of the capital market.
In this situation, Mindray Medical's international IVD production line grew by nearly 60% in the first half of the year, of which international chemiluminescence increased by more than 70%.

Hengrui Pharmaceutical: Less than 3% of overseas revenue in 2021

In the stock market, Hengrui Pharmaceutical, the former brother of pharmaceutical stocks (the total market value of the highest point once exceeded 620 billion yuan), is currently ranked third, surpassed
by Mindray Medical and WuXi AppTec.

Hengrui Pharmaceutical's "going to sea" has not been able to achieve the ideal state
.
Compared with Mindray Medical's overseas revenue of 40% and still accelerating its overseas layout, Hengrui Pharmaceutical's progress is relatively slow
.

In May this year, Hengrui Pharmaceutical established a wholly-owned subsidiary, Luzsana Biotechnology, to be responsible for the internationalization (overseas development and commercialization)
of Hengrui Pharmaceutical pipeline products.

In the United States and Europe, a complete clinical research and development team covering medical science, clinical operation, registration, pharmacology, statistics, quality management and other departments has been established, and nearly 20 international clinical trials have been carried out, and the overseas registration application of
generic drugs has been continuously promoted.
During the reporting period, Hengrui Pharmaceutical's overseas R&D investment totaled 519 million yuan, accounting for 17.
85%
of the total R&D investment.

However, Hengrui Medical did not disclose the revenue of overseas markets in the first half of the
year.
In 2021, its overseas market operating income was 617 million yuan, accounting for only 2.
38%
of the company's total revenue.

02 In the Chinese market, collection and localization affect the logic of the industry

For Chinese enterprises, the Chinese market is their source market
.

The particularity of China's medical industry determines that enterprises in this industry are deeply affected by policies, especially at the moment when
medical reform has entered the deepening area.

Collection and domestic substitution have become important factors affecting the performance of enterprises
.
However, whether it is a tailwind or a headwind, for different companies, the performance is very different
.

WuXi AppTec: The business model is relatively "blunt" to the policy and has strong anti-risk ability

WuXi AppTec's services cover the entire process
from concept generation to commercial production.

Because the CRO industry plays the role of "water seller" and "shoveler" in the pharmaceutical research and development track, it is reflected in the business model, before the downstream customer pharmaceutical enterprises obtain commercial income through drug sales, CRO companies can obtain profits from it, which makes its performance anti-risk ability strong, and the policy is relatively "blunt"
.

According to statistics, since the first quarter of 2018, in addition to the first quarter of 2020 affected by the outbreak of the new crown pneumonia epidemic, WuXi AppTec has achieved 17 quarters of positive revenue growth
from the previous quarter.
In the second quarter of this year, in the face of the challenge of the epidemic, it still maintained a month-on-month growth of 9.
53%.

▲WuXi AppTec's financial report data

In addition to WuXi AppTec, other top CRO revenues also ushered in significant growth
.
Labcorp, IQVIA and PPD, the top three global CRO segments, had revenue of $8 billion, $6.
847 billion and $2.
95 billion, respectively, +43%, +30% and +42%,
respectively.

Mindray Medical: Downwind! Step on the new infrastructure and domestic substitution outlet

The medical reform policy and new medical infrastructure to promote the expansion of the industry is one of the main positive factors for the future development of China's medical device industry
.

Mindray Medical achieved +21.
8% growth
in the domestic market.
Among them, Mindray Medical's market share in new medical infrastructure projects continued to increase, and the revenue of new medical infrastructure projects in the first half of the year was about 3.
4 billion yuan, which doubled year-on-year
.

"The promotion of domestic substitution" is also a major boost for the development of local medical devices
.
In various types of bidding and procurement, self-research of "limited domestic production" appears more and more frequently
.
Mindray Medical, which has a relatively extensive layout, stands on the cusp
.

Mindray Medical even quickly seized the market
of the original weak business through collection and procurement.

In February 2022, the "Beijing-Tianjin-Hebei 3+N" procurement alliance conducted centralized procurement of orthopedic trauma medical consumables, Mindray medical reported results and achieved good results of 57509 sets, and the proportion of industry reports is expected to reach 8%, and the previously weak orthopedic business entered the head camp
of the orthopedic industry.

In August last year, in anhui's collection of 23 chemiluminescent projects in 5 categories (tumor-related antigens, infectious diseases, myocardial diseases, hormones, procalcitonin), Mindray Medical was the biggest winner in China, taking this opportunity to enter the top three hospitals in large quantities, and the high-end market share increased
significantly.
In the first half of 2022, Mindray's chemiluminescent business grew by nearly 80% in Anhui, overtaking in curves
.

Of course, mindray medical equipment is difficult to include in the collection, which is a major factor
supporting Mindray Medical's stock price.

Hengrui Pharmaceutical: Headwind! It has failed to form a closed loop of "volume for price" in the negotiation of collection and medical insurance

The logic that works for Mindray Medical does not work
here in Hengrui Medicine.

Unlike mindray medical's high growth in revenue and net profit, Hengrui Pharmaceutical's revenue and net profit both declined
.
This is also the first time since the listing of Hengrui Pharmaceutical that the revenue and net profit have fallen
year-on-year.

In the first half of 2022, Hengrui Pharmaceutical's revenue fell sharply by nearly 3 billion yuan to 10.
228 billion yuan, a year-on-year increase of -23.
08%; Net profit was 2.
119 billion yuan, -20.
55%
year-on-year.

Hengrui Pharmaceutical attributed the decline in revenue and net profit to: collection, medical insurance negotiations, the epidemic and rising
costs.

In September 2021, the fifth batch of collection and collection began to be implemented successively, Hengrui Pharmaceutical has 8 drugs included, and the revenue in the first half of 2022 is only 250 million yuan, a decrease of 1.
76 billion yuan over the same period last year, a year-on-year -88%, and the revenue of generic drugs has fallen
off a cliff.

From January 1, 2022, Hengrui Pharmaceutical Apatinib, pirroltinib, thiopeficrostigstine, remazolam, fluzopali, Haitropopa and other innovative drugs implemented new medical insurance negotiated prices, and the average medical insurance sales price decreased by 33%

For Hengrui Pharmaceutical, the logic of "price for volume" of collection and medical insurance negotiations has not formed a closed loop
.

This year, Hengrui Pharmaceutical also has many drugs entered the pharmaceutical negotiations
.
Because Hengrui Pharmaceutical has no obvious overseas increment, it must fully participate in the collection/medical insurance negotiations to obtain domestic market competition qualifications
.

03 "Hard innovation" is the deepest moat

A large part of the reason why the medical industry is optimistic is that its barriers are high
.

Innovation is as important to healthcare companies as breathing is to people
.

With the fierce competition in the market, the "hard innovation" that can really be played is more popular
with the capital market.
"Hard innovation" requires real innovation, innovation in core technologies, rather than copying or imitating
.
For example, the research and development of core components of devices, the development of first in Class products of pharmaceuticals
.

Therefore, whether it is medicine, equipment, or CRO, they are increasing investment in research and
development.

Mindray Medical: R&D investment of 1.
46 billion yuan, +25% year-on-year

Under the mode of independent research and development, Mindray Medical has established a R&D innovation platform based on global resource allocation, with ten R&D centers with a total of 3599 R&D engineers, distributed in Shenzhen, Wuhan, Nanjing, Beijing, Xi'an, Chengdu, Silicon Valley, New Jersey, Seattle and Europe
.

In the first half of 2022, Mindray Medical invested 1.
46 billion yuan in research and development, +25% year-on-year, of which R&D expenses were 1.
35 billion yuan, +27%
year-on-year.
A number of innovative products have been launched
in the three major business areas of in vitro diagnostics, medical imaging, life information and support.

Hengrui Pharmaceutical: R&D investment of 2.
9 billion yuan, +13% year-on-year

Innovative drugs are now a moat that almost all pharmaceutical companies need to spend a lot of money to build, who has enough innovative drugs, or even the only innovative drugs, who has more development prospects
.
This is the biggest logic
of the valuation system of pharmaceutical companies.

The sharp rise in R&D investment is a pillar
of the market's continued optimism about Hengrui Pharmaceutical.

In the first half of 2022, Hengrui Pharmaceutical's cumulative R&D investment reached 2.
909 billion yuan, +12.
74%
year-on-year.
Although it affected the profit of the current period to a large extent, Hengrui Pharmaceutical said that this "provides strong support for the company's long-term development"
.

At the end of June, with the approval of the second-generation AR antagonist Revirutamide, Hengrui Pharmaceutical has 11 innovative drugs approved for domestic listing, ranking among the best
in the domestic industry.

WuXi AppTec: R&D expenditure of 657 million yuan, +63% year-on-year

For the CRO industry, it is its core competitiveness
to quickly follow the industry's R&D hotspots and provide corresponding services.

WuXi AppTec's R&D expenses were RMB657 million, +62.
50%
year-on-year.
During the Reporting Period, WuXi AppTec further strengthened its service capabilities
for new molecular types such as PROTAC, oligonucleotides, peptides, antibody-conjugated drugs (ADCs), dipenacts, cells and genes.

From the perspective of internationalization, the influence of China's local policies, and research and development, the newly baked 100 billion market value enterprises - Lianying Medical is slightly weak in the field of internationalization, accounting for only 7%
of overseas revenue in 2021.
Internationalization is definitely a point that Lianying Medical needs to overcome urgently
.
In the past, Hengrui, a brother of A-share medical treatment, was also trapped in internationalization
.

In the Chinese market, Like Mindray Medical, Lianying Medical in the field of large-scale medical equipment enjoys favorable
policies.

In the field of research and development, Lianying Medical invested 1.
048 billion yuan in research and development in 2021, accounting for 14.
45%
of revenue.
According to its prospectus data, according to the number of new units favorable to it, The market share of Mr.
Equipment in China reached 20.
3%, ranking first
.
Among them, the market share of 1.
5T MR reached 25.
4%, ranking first
.
However, in the important high-end 3.
0T and above MR market, foreign medical care still dominates
.
Other CT, PET/CT, PET/MR fields show a similar pattern
.
To truly occupy a dominant position in the high-end field, we still need to continue to work hard, including the layout of the whole industry chain of core spare parts!

In the future, can enterprises with a market value of 100 billion yuan continue to maintain a market value of 100 billion yuan? For those of us who watch, wait for tomorrow
.