摩根士丹利中国医疗保健行业中国医疗保健行业2019年展望201921894页

[e-mail]@[e-mail]@morganstanley.comAttractiveMORGANSTANLEYASIALIMITED+SeanWuEQUITYANALYST+8523963-0755YolandaHuEQUITYANALYST+8522848-5649LaurenceTamEQUITYANALYST+8522239-1753EthanDingRESEARCHASSOCIATE+8523963-0546MorganStanleyappreciatesyoursupportinthe2019InstitutionalInvestorAll-AsiaResearchTeamSurvey.Requestyourballot.ChinaHealthcareAsiaPacificIndustryViewChinaHealthcareChinaHealthcare||AsiaPacificAsiaPacific2019Outlook:Implementationof4+7CentralizedProcurementaKeyTheme;FocusonInnovationandR&DServicesWecontinuetoseepolicyheadwindsfordrugnamesinto2019,butwefavorthosewithrichinnovativepipelinessuchasHengruiandInnovent.R&DServicecompaniesshouldberelativelyimmuneandwecontinuetoOWWuXiBiologicsandWuXiAppTec.Thesefourareourtoppicksfor2019.Whatmattersin2019:Wethinkpolicyheadwindswillpersistintotherestof2019-centralizedprocurementforhigh-volumegenericdrugs,controlofadjuvantmedicines,andcentralizedprocurementforhigh-endmedicalconsumables.Weexpecthealthcaremultiplesmaynothavemuchroomtoexpandin2019,especiallyforgenericdrugnames.Atthesametime,zeromarkup,drugincomecontrol,andreimbursementcontrolmaystillhamstringhospitalfinances.Welikebusinessmodelsthataremoreresistanttosuchheadwinds,suchasservicecompanies-WuXiBiologicsandWuXiAppTec.Innovatorswillbenefitfromamorefavorableregulatoryenvironmentiftheyareabletodeliverontheirclinicaltimetables,suchasHengruiandInnovent.Oursegmentviewsandkeycalls:WelikeCDMOslikeWuXiBiologicsandWuXiAppTecbecausetheyarenotdirectlyaffectedbythenegativepoliciesandwillbenefitfromChina'sR&Dboom.Distributorswithnationalscalecouldbenefitfrommorereimbursementdollarsspentoninnovativeoncologydrugs,e.g.Herceptin,whereMNCsmostlyretainthetopdistributorssuchasSinopharm.Westaycautiouswithdrugnamesthathavelargeearningsexposuretogenerics,likeShanghaiPharma(EW)butarepositiveon3SBioandSSY(OW).Weareextracautiousonnamesthathaveadditionalexposuretoadjuvantdrugs,e.g.Livzon(UW).ThisyearweviewTCMorconsumernameswithsteadygrowthassafehavens,e.g.BJTRTCM(OW)andCRSanjiu(OW).Fordevices,welikeinnovatorslikeMicroport(OW)butwillkeepaneyeonpotentiallymajorpricecutsonhighvalueconsumables.Summaryofchangestoourstockcoverage:WehaverevisedourearningsforecastsandhencePTstoanumberofstocksunderourcoverage.Wehavealsochangedratingsontwo.Overallchangesaresummarizedinthetablebelow.Exhibit1:RatingsandPriceTargetsStockRatingPriceTargetsAction3SBioOWHK$21toHK$17CutPTAierEyeHospitalEWtoOWRmb30toRmb35UpgraderatingBeijingTongrentangUWRmb25toRmb24CutPTBeijingTongrentangChineseMedicineOWHK$17.8toHK$18.5RaisePTChinaMedicalSystemOWHK$18toHK$10CutPTChinaResourcesMedicalOWHK$10.5toHK$7.0CutPTChinaResourcesSanjiuOWRmb33toRmb34RaisePTCSPCOWHK$24toHK$18CutPTFosunPharmaAOWHK$57toHK$30CutPTFosunPharmaHOWRmb52toRmb31CutPTHarmonicareEWtoUWHK$3.0toHK$1.5DowngraderatingJiangsuHengruiOWRmb88MaintainLee'sPharmaOWHK$12.0toHK$8.8CutPTMicroPortScientificOWHK$11.5toHK$10.0CutPTShinewayEWHK$16.5toHK$10.0CutPTSinoBiopharmaEWHK$9.33toHK$8.50CutPTSSYEWtoOWHK$6.5toHK$8.5UpgraderatingWuXiAppTecHOWHK$81toHK$104RaisePTWuXiAppTecAOWRmb84toRmb90RaisePTWuXiBiologicsOWHK$70.00toHK$85.00RaisePTSource:MorganStanleyResearchEstimates.MorganStanleydoesandseekstodobusinesswithcompaniescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanleyResearch.InvestorsshouldconsiderMorganStanleyResearchasonlyasinglefactorinmakingtheirinvestmentdecision.Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoNASD/NYSErestrictionsoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.1February18,201909:00PMGMTExecutiveSummary1)Centralizedprocurementtospread:Recallthatin2018,thecentralizedprocurement4+7pilotschemewassetoutbytheStateCouncil,favoringhighqualitygenericswithlowprices.Thepilotschemeisexpectedtoberolledoutinthe11pilotcitiesinMarch2019.Thisyearweexpecttheimpactfromcentralizedprocurementtoexpand,withregardsto:1)Drugcategories.ItislikelythatmoredrugsthatpassedtheQualityConsistencyEvaluation(QCE)wouldbeincludedinthecentralprocurementlist.2)Drugprices.Whilewinningbidderslargelyadjusteddownpricestowin60-70%ofthemarket,thelosingbiddersarealsorequiredtocuttheirpricesby10-30%tocompeteintheremaining30-40%ofthemarket.Therefore,morecompaniesarelikelytoexperiencepricecutsandnarrowtheirgapscomparedwithwinningprices.3)Regions.RightafterthebiddingledbyShanghaiinDecember2018,non-4+7citiessuchasSichuan,Shandong,Anhui,andGansualsoencouragedlinkingdrugpricestothebiddingresults.Meanwhile,theFujiangovernmenthasrecentlyannouncedthatitwillbeoptingintothe4+7fortheentireprovincewithimplementationstartingonApril1,afterXiamenstartsimplementingitonMarch1asapartofthe4+7.Nevertheless,anationwidepricelinkageisnotlikelytoformin2019,inourview,