healthcare医药保健系列之三：Maxim中国医药保健

Maxim group
Dec 17, 2008

Equity research industry report (73 pages)

Contents
EXECUTIVE SUMMARY AND OVERVIEW ............................................................................ 5
Positive drivers are in place ........................................................................................................ 5
Selection criteria are mainly fundamental driven ....................................................................... 5
Detailed presentation about unique aspects and opportunities ................................................... 6
INVESTMENT THESIS FOR CHINESE HEALTHCARE SECTOR.......................................... 7
Three major themes should be considered.................................................................................. 7
The Chinese healthcare sector is rapidly growing and has multiple positive macro-factors in
place ........................................................................................................................................... 7
Figure 1: Healthcare expenditures in China are lower than those of developed countries
........................................................................................................................................ 7
Figure 2: Recent medical expenditures as percentage of GDP in China have increased
consistantly ..................................................................................................................... 8
A defensive investment play at a challenging market environment ........................................... 9
Figure 3: Drug and biotech indexes performed better than Nasdaq or S&P over the last
12 months........................................................................................................................ 9
A geographic hedge for the U.S. investors ................................................................................. 9
Recent government financial stimulus package could be a tailwind for the growth of several
healthcare sectors ...................................................................................................................... 10
INVESTMENT SELECTION CRITERIA................................................................................... 12
Sustainable top- and bottom-lines to build growth stories, supported by positive cash flows . 12
Superior marketing and sales capabilities to generate positive cash flows .............................. 13
Strong R&D capabilities to enhance pipeline through future product offerings ...................... 13
Management competency in regards to M&A and post-M&A integration .............................. 13
Proper assessments of the status of industry to determine appropriate investment strategies.. 14
Favorable valuation................................................................................................................... 15
SPECIFIC ASPECTS OF THE CHINESE HEALTHCARE INDUSTRY.................................. 16
Positive Attributes..................................................................................................................... 16
Robust Chinese economy growth propels healthcare expansion.............................................. 16
Figure 4: Rapid Gross Domestic Product (GDP) growth in China over the last decade
...................................................................................................................................... 17
Figure 5: Chinese pharmaceuitcal market is projected to have continued growth ....... 17
Growing middle class and increasing disposable income benefit many healthcare sectors ..... 17
Figure 6: Urban per capita disposable income in China continues to grow ................ 18
Aging population and increased urbanization expand healthcare usage .................................. 18
Figure 7: Aging demographic in China favors the healthcare industry ........................ 18
Continued significant government investment, including greater insurance coverage, should
benefit certain sectors ............................................................................................................... 19
Figure 8: National Medical Insurance Program coverage ............................................ 19
Continued government support for domestic companies and less stringent regulatory standards
facilitate greater product development...................................................................................... 20
Negative Trends ........................................................................................................................ 20
Continued price control puts pressure on pharmaceutical companies ...................................... 21
The regulatory environment has not yet reached normalcy and could remain an overhang for
the healthcare industry .............................................................................................................. 22
Figure 9: Registration classification and clinical trial requirements ............................ 23
Intensifying competition could continue to depress margins ................................................... 23
Room for improvement still exists in intellectual property protection ..................................... 23
An aging population and lifestyle changes create disease patterns similar to those of developed
countries................................................................................................................................... 25
Figure 10: Increase of the elderly population in China................................................. 25
Multiple industry sectors are very fragmented ......................................................................... 25
Figure 11: Chinese healthcare industry is fragmented across the board....................... 26
Many companies, including numerous state-owned enterprises, (SOEs) are larger in sales and
scope than U.S.-listed Chinese healthcare companies .............................................................. 27
Comparable companies should include domestic and non-Chinese peer companies ............... 27
Figure 12: U.S.-listed Chinese pharma company compares to the U.S. and China peer
groups........................................................................................................................... 27
Revealing the final version of the government healthcare reform in late 2008 or in 2009, in our
opinion, could afford significant visibility into the development of multiple sectors .............. 28
The pharmaceutical (Western-style medicine) sector is dominated by generic and branded
medications ............................................................................................................................... 29
Figure 13: Top ten pharmaceutical companies of 2007................................................ 29
Figure 14: Top ten pharmaceutical distributors of 2007............................................... 30
Hospital pharmacies, instead of retail pharmacies, are the mainstay for drug distribution ...... 30
Figure 15: More than 70% of drugs are distributed through hospital pharmacies........ 31
Figure 16: Breakdown of different hospitals in China.................................................. 31
A separation between prescribing and dispensing drugs could take more time to accomplish, in
our opinion............................................................................................................................... 31
Traditional Chinese Medicine (TCM) continues to garner significant market share ............... 32
Companies with export potential possess additional upside..................................................... 33
Mini review of the plasma product market ............................................................................... 34
Figure 17: Selected Chinese plasma product companies.............................................. 36
Mini review of the vaccine market ........................................................................................... 36
Figure 18: Vaccine distribution system in China before the change ............................ 37
Figure 19: Vaccine distribution system in China after the change ............................... 37
Figure 20: Selected Chinese vaccine companies .......................................................... 38
Mini review of the medical device market ............................................................................... 38
Figure 21: Growth of the Chinese medical device market .......................................... 39
Figure 22: The highlighs of Chinese medical device imports and exports of 1H08..... 39
COMPANY PROFILES............................................................................................................... 42
Mindray Medical International (迈瑞公司).............................................................. 43
Simcere (先声药业).................................................................................................. 45