Industry Frontiers

Against the backdrop of the continuous evolution of the global economic landscape and rapid technological development, the biopharmaceutical industry, as a key field related to human health and well-being, has always been at the forefront of the times, experiencing profound changes and challenges. In 2024, the biopharmaceutical industry feels like it is in the midst of a cold winter, with many challenges looming ahead. However, just as dawn always comes after a dark night, hope and opportunities for 2025 are quietly nurtured beneath the cold winter.

1、 Industry dilemma in 2024: Cold winter chill

Looking back at 2024, the external environment of the biopharmaceutical industry did not experience a significant turning point as expected. Despite the resilience demonstrated by traditional and emerging companies in adversity, partnering with multinational pharmaceutical companies (MNCs) through pre positioned pipelines in exchange for valuable cash flow, the capital winter in the field of innovative drugs remains harsh. Hengrui Pharmaceutical, once regarded as a benchmark for stable cash flow, has also taken steps towards an IPO in the Hong Kong stock market. Behind this measure, it reflects that even leading companies in the industry are facing financial pressure on the road of continuously promoting source innovation, and have to rely on the power of the capital market to replenish ammunition.

From a macro data perspective, according to Debon Securities, the overall revenue of the pharmaceutical industry in the first three quarters of 2024 only increased slightly by 0.2%, and the profit growth was in the negative range of -0.4%, which is far from the target of "maintaining a growth rate of 9%" set in this five-year plan. The root cause of this phenomenon is that, on the one hand, the "oversupply" caused by excessive internal competition in the industry during the epidemic is still being digested, and on the other hand, the implementation of anti-corruption, centralized procurement, and DRGs policies has accelerated the pace of industry adjustment.

In various segmented industries, consumables and active pharmaceutical ingredients show a certain reversal trend. In the field of consumables, due to the strong "stickiness" of clinical doctors to the use of consumables and equipment from specific manufacturers, the decrease in prices after the first round of centralized procurement has caused frontline doctors to be uncomfortable with targeted delivery products, leading to subsequent contract renewal and price increases. This can be seen as a self repair mechanism in the post centralized procurement era market. The recovery of the raw material pharmaceutical industry is mainly the result of the rotation of consumption and inventory replenishment after the epidemic, and is relatively weakly related to the core development driving force of the pharmaceutical industry.

Although revenue in the field of innovative drugs has increased according to brokerage statistics, this is mainly due to the contribution of license deals. License out is essentially a one-time discount on the future cash flow of high potential varieties, which to some extent sacrifices the profit space of future overseas commercialization. From the disclosed commercialization data of innovative drug companies, except for a few products such as BeiGene's Zebutinib and Legendary CAR-T that can achieve profitability in the international market, most new products have not yet formed mature mass production models in the domestic market. The restrictions on the payment end have made it extremely difficult for Chinese biotech companies to transition from innovative pipelines to growing into "mature Pharma".

Although the medical insurance department is constantly promoting the work of replacing medical insurance with new ones, such as the 2024 medical insurance negotiations, which have given some tolerance to "more innovative" varieties in terms of quantity and price, two heavyweight products from Kangfang have obtained ideal prices. However, the value return of innovative drugs cannot solely rely on national basic medical insurance, commercial health insurance, and diversified payment systems, which have become the focus of industry attention. Although there is expected to be a qualitative change in commercial health insurance by 2025, it may take another three to five years of cultivation to truly empower innovative drugs and achieve performance realization.

In other sub sectors, the equipment and machinery industry has not fully benefited from the large-scale replacement benefits brought by the equipment discount loan policy, and going global has become the main competitive direction for many enterprises; The structure differentiation in the CXO field is obvious, and the CDMO business with distinctive varieties supports the performance growth of related companies, while most outsourcing service companies that have not been able to connect with popular players are still in the initial stage of capacity clearing; The pharmacy and distribution industry is closely related to the overall scale changes of the pharmaceutical industry, with relatively flat overall growth, but the industry concentration is constantly accelerating.

It is worth noting that the horizontal and vertical integration between industries will become an important development trend in 2024. Platform based central state-owned enterprise leaders are actively carrying out project acquisitions in different fields, while large pharmaceutical giants are also conducting asset splits and incubation, and even cross-border cooperation has emerged. These restructuring actions aim to optimize resource allocation and improve industry efficiency, and it is expected that this trend will further accelerate in 2025, driving the reshaping of the industry landscape.

2、 BD and Collaboration: The Key to Breaking the Game

Although IPOs in 2024 have almost come to a halt, frequent occurrences of license deals, mergers and acquisitions, and NewCo collaborations have provided certain exit avenues for biopharmaceutical venture capital firms and injected momentum into the industry's preclinical and clinical development. The increasing frequency of Business Development (BD) activities marks the gradual maturity of the domestic pharmaceutical industry.

The flow of projects has driven the activity of funds, talents, patents, and upstream and downstream resources of the industry, forming a virtuous cycle and promoting the high-quality development of innovative products. However, this cycle relies on the sustained existence of external demand, especially opportunities in overseas markets, such as the reduction of biotech impact during the interbank interest rate hike cycle and the merger and acquisition demand released by acquirers to strengthen their industry position, which brings opportunities for Chinese biotech companies, but these opportunities are not static.

The fields of ADC (antibody conjugated drugs) and TCE (T cell redirecting bispecific antibodies) bispecific antibodies are highly anticipated in 2024. ADC has experienced explosive growth after the sky high cooperation between AZ and Daiichi Sankong on 8201. Many domestic enterprises have already laid out their plans in advance, and with rich technology and project reserves, they have gained a lot from this wave of enthusiasm. The TCE dual antibody is also similar. After the potential in the field of self immunity was discovered, domestic related enterprises quickly rose with their previous technological accumulation, and a series of sky high priced collaborations continued to emerge.

These successful cases reveal a pattern: long-term technological reserves and project layout are crucial before the industry trend arrives. It is speculated that in 2025 and the coming years, with the gradual emergence of early R&D investment results, immune 2.0 products such as B7 family ADC, Her3 targets, LAG-3, OX-40, DLL3, and even new technologies such as PROTAC and oligonucleotides are expected to give rise to new hot areas and create more development opportunities for domestic biotech enterprises.

3、 Technological Innovation: The Light of Hope

Looking ahead to 2025, the biopharmaceutical industry is expected to usher in a new dawn. As the impact of anti-corruption gradually dissipates, the market environment will become clearer and more transparent, allowing companies to focus more on research and innovation. The new diversified payment system is expected to make substantial progress, and the improvement of commercial health insurance and the emergence of other innovative payment models will alleviate the payment pressure of innovative drugs and provide strong support for the comprehensive recovery of the industry.

In terms of innovative drug research and development, continuous investment and accumulation will promote more new drugs to enter the market, especially in the fields of tumors, autoimmune diseases, rare diseases, etc., which are expected to achieve more breakthrough results. Enterprises will pay more attention to the quality and efficiency of research and development, strengthen cooperation with scientific research institutions and universities, integrate global advantageous resources, and enhance their own innovation capabilities. Meanwhile, with the deep application of emerging technologies such as artificial intelligence, big data, and gene editing in the field of biomedicine, the research and development process will become more precise and efficient, which is expected to accelerate the development of new drugs and reduce research and development costs.

4、 New industrial pattern: promising future

In terms of industrial structure, 2025 will be a big year for restructuring and integration. Enterprises optimize resource allocation, expand business areas, and enhance market competitiveness through mergers and acquisitions, cooperation, and other means. Platform based enterprises will further leverage their advantages, integrate upstream and downstream resources of the industrial chain, and create a more complete industrial ecosystem. Meanwhile, emerging enterprises will emerge in the market with innovative technologies and flexible business models, injecting new vitality into the industry.

For investors, the biopharmaceutical industry in 2025 is both full of challenges and enormous opportunities. In the investment process, it is necessary to have a more rational view of the relationship between risk and return, focusing on key factors such as the company's innovation capability, R&D pipeline, commercialization progress, and market competition pattern. Meanwhile, with the gradual recovery of the industry, the value of high-quality enterprises will be re examined and enhanced, highlighting the long-term investment value.

In 2025, the biopharmaceutical industry will stand at a new historical starting point, and enterprises that forge ahead in the cold winter will usher in more development opportunities. Despite still facing many uncertainties, as long as we adhere to innovation driven, optimize resource allocation, and actively expand the market, the biopharmaceutical industry will surely nurture new opportunities in the process of change, make greater contributions to human health, and continue to write its own brilliant chapter. We have reason to believe that with the joint efforts of all parties, the spring of the biopharmaceutical industry is coming and the future is promising.

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Source: Xianji.com

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