Goldman Sachs Interpretation: How will the value logic of China's pharmaceutical industry be affected under the tariff fog? | Financial Nightline
The US government's tariff measures on pharmaceuticals have not yet been determined, and uncertainty is stirring up the global pharmaceutical sector. Looking at the Chinese market, although there are not many products exported to the United States, companies such as CXO will still face the storm. Today, China Business Network interviewed Chen Ziyi, head of Asia Pharmaceutical Research at Goldman Sachs, to hear how he analyzes the development path of China's pharmaceutical industry under the global tariff fog.
China Business Network: The tariffs on pharmaceuticals have not actually come out yet, but its uncertainty will actually affect the entire market. Do you think that if there are tariffs later, will it have a big impact on China's pharmaceutical industry? Chen Ziyi, head of Asia Pharmaceutical Research at Goldman Sachs: In fact, in general, the impact on China's pharmaceutical industry is relatively limited compared to other more export-oriented industries. So if we talk about medicine, China's truly export-oriented industries now actually include raw materials, and this part may have some impact. Of course, for finished drugs, the current export volume, whether it is generic drugs or innovative drugs, is relatively small, so the impact is relatively limited. For medical device companies, many medical devices are actually exported to the "Belt and Road" countries, emerging markets, etc., and the proportion that actually goes to the US market is actually relatively limited. Of course, we see that some of these companies with risk exposure in the United States may be affected by tariffs, and in the next few months they may give priority to consuming some of their warehouse inventory in the United States.
First Financial Daily: Now China's CXO (medical outsourcing) companies have occupied an increasingly important position in the global industrial chain. So what impact will tariffs have on such companies and industries? Is it facing reconstruction in the global industrial chain?
Chen Ziyi, head of Asian medical research at Goldman Sachs: This is a good question. Simply put, most of its tariffs will be borne by its clients, and the cost of the client will inevitably increase the cost of supply. But as to whether it has reached the level of reconstruction, I think we still have to observe. If the United States is talking about the relocation of the industrial chain, it is a very complicated process. For example, if we want to rebuild a new plant in the United States, it will take 2-3 years to rebuild the new plant. If you add regulatory inspection, it will take longer. This is still preliminary. What is more important is talent and how to build a talent pool. Because China has invested most of its investment in CDMO (contract research and development and manufacturing organization) in the past ten or twenty years, the reason why it has built a very large global influence is based on a very large supply of talent. In this regard, it is very difficult to replicate such a model in the current US market, European market, or anywhere else in the world. First Financial Daily: Then let's talk about innovative drugs. In fact, there is a rising trend in China's domestic innovative drugs, especially in the Hong Kong stock market. Innovative drugs and original research drugs have always performed well in Hong Kong stocks. But now for the product side, the market is still worried. Now its products have not come out, but its stock price has risen very well. So what is the logic behind this? Chen Ziyi, head of Asian pharmaceutical research at Goldman Sachs: That's right, you are right. We have a corresponding evaluation method for many products in the clinical stage. Simply put, everyone will evaluate what kind of peak sales this drug will reach in the future based on its current clinical effects, as well as the process of its production and sales climbing. So slowly, I believe that starting from 2018, the Hong Kong stock market began to open up the so-called unprofitable and unrevenue-generating innovative drug companies to go public. With the gradual opening of the Science and Technology Innovation Board and so on, everyone began to become more and more familiar with this evaluation system. You mentioned that there is actually another factor from the beginning of the year to now. Because in the past, when we looked at China's innovative drugs, we often put its value assessment in the domestic market and only looked at China's market potential. However, in the past 2-3 years, many of China's innovative drugs have been recognized in the global market, and its data has been more recognized. Then some products have begun to go overseas through licensing. Therefore, once we see that many companies have global competitiveness in their products, investors naturally begin to reflect their global expectations. This is the core reason that makes me think that innovative drug companies may be more prominent in the overall performance of the pharmaceutical market. There is such an expectation of authorization and global value realization. This expectation drives it.
Yicai: Have China's innovative drugs fully participated in the international market competition?
Chen Ziyi, head of Asia Pharmaceutical Research at Goldman Sachs: I think it should be said that China has of course actively participated in the global competition, but China's contribution to the global pipeline is still in a continuous climbing process. As for whether China's innovative drugs can now compete with some products of some global pharmaceutical companies, I think there is another step we need to observe: how they can be commercialized and whether they have the ability to compete in the commercial market. In this regard, we have seen relatively few examples now, and it may take another 3-5 years for us to continue to observe.
Yicai: Then the last question, which disease areas do you think are more promising? Chen Ziyi, head of Asia Pharmaceutical Research at Goldman Sachs: I believe that tumors should be a very big theme in the past decade, and there is still a lot of room for exploration in this area. But in addition to tumors, I believe in autoimmune diseases, metabolic diseases, and some neurodegenerative diseases.
