Author: Perry
Recently, A-shares, which have entered the first moment, have become the focus of investors' attention.
However, for this **, investment institutions have different opinions:
According to Chen Ding, an analyst at the Oriental Wealth Research Institute a few days ago, he said that the current A** field is in the first stage after the overfall, and the difference in the performance of various industries is more affected by the transformation of market style and the preference of external incremental funds.
According to Huafu**'s point of view, in the medium and long term, the domestic economy will continue to pick up and improve, and the fundamentals of listed companies have appeared in the second quarter of last year, and this year's earnings are expected to continue to improve. Overseas, the Federal Reserve may start a cycle of interest rate cuts this year, the global liquidity margin has improved, and the medium and long-term market has not yet ended.
So, for most investors, which industry does it look more reliable to invest in?
Let's look at the dynamics of investment institutions.
In 2024, pharmaceutical investment will be busy
Looking back on 2023, in China and even in the world, the healthcare sector is the busiest track for investment institutions.
Recently, Bain & Company (Bain Capital was born out of Bain & Company) released the 2023 Global Healthcare Private Equity Report, which shows that investment in the healthcare sector is one of the core of global private equity transactions in 2023. As of November 30, 2023, the total value of global acquisitions was $444 billion, of which the healthcare sector accounted for 15%, or approximately $66.6 billion.
Global acquisition transaction value, 2010-2023, data as of November 2023, data**: Bain & Company.
Among them, biopharma and related services transactions, such as contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs), accounted for the largest share of global transaction value, reaching 48%, and industries related to peptides (known in the market as GLP-1, peptide 1, is one of the peptide types) are also important investment trends. It is worth mentioning that in 2023, there will be 6 transactions of more than $2 billion, and 375 transactions will be less than $2 billion, and small businesses may be more active.
2023 Global Healthcare Acquisition Deal Value, Data**: Bain & Company.
North America remains the most active region, with a published deal value of approximately $29 billion, of which biopharmaceuticals account for 25% of deal activity and 54% of deal value, with TPG and Cencora acquiring OneOncology from General Atlantic ($83 billion in assets under management) for $2.1 billion. The Asia-Pacific region is more diversified, with a announced deal value of around US$14 billion, with China remaining one of the most important regions, accounting for the highest share of deals.
2023 Global Healthcare Acquisition Value by Region, Data as of November 2023, Data**: Bain & Company.
China vs. India Transaction Value vs. Number of Transactions, Data as of November 2023, Data**: Bain & Company.
In 2023, the amount of private equity financing in the domestic pharmaceutical and biotechnology fields will exceed US$6 billion, although it has decreased compared with 2022, but the transaction amount and number of projects are significantly higher than in 2019. The sector accounts for more than 50% of private financing in the healthcare sector, which is in line with the global situation.
Entering 2024, the outlook is more volatile, with both opportunities and challenges.
First of all, in February 2024, the National Health Insurance Administration issued a draft of the "Notice on Establishing a Mechanism for the Formation of the First Listing of Newly Listed Chemical Drugs to Encourage High-quality Innovation" (hereinafter referred to as the "Consultation Draft"), which mentions that enterprises can take a seat and self-evaluate from the three aspects of pharmacy, clinical value and evidence-based evidence, open up the independent pricing power of innovative drugs, and encourage the innovation and development of China's pharmaceutical industry. This is undoubtedly a blockbuster policy for China's pharmaceutical industry. In addition, in 2023, the top academic journal "Science" will release its annual scientific breakthrough, and the miracle drug GLP-1 will be on the throne, a phenomenal explosive drug, which has promoted the market value of many overseas related pharmaceutical companies, and then promoted the development of the peptide industry in the domestic market. In 2023, a number of financings have also occurred in domestic peptide-related industries, such as in November 2023, Chengdu Taihe Weiye Biotechnology *** hereinafter referred to as "Taihe Weiye") announced the completion of nearly 300 million yuan in "A+" round of financing. This round of financing is jointly invested by CITIC**, Moutai Jinshi**, Qiming Venture Capital, Hillhouse Venture Capital, etc. In addition to Taihe Weiye, there are also many star companies in the domestic peptide field, such as AmbioPharm and Sirnaomics. According to Frost &Sullivan, the global peptide drug market will grow from $62.8 billion to $96 billion in 2025, while the domestic peptide drug market will grow from $8.5 billion in 2020 to $18.2 billion in 2025. In addition to the field of peptides, RNAi technology (for cancer genes**) and CNS (psychiatric diseases**) are the key tracks for future development. Taking CNS as an example, in 2023, Tonghua Jinma will develop a new CNS drug, succinate octahydroacridine tablets, which supports its stock price to rise by nearly 300% throughout the year. But the healthcare industry is not all good. For example, from February 7 to 16, the share prices of three "WuXi companies" WuXi AppTec, WuXi Biologics and WuXi XDC fell respectively. 2%, it is understood that the reason for the sharp drop in the stock prices of these three companies is not only the asset split, the management ***, but also the lack of investor confidence is also an important aspect.
Secondary transactions and mergers and acquisitions will become the mainstream of investment in the healthcare sector in 2024
Overall, the global healthcare sector is on the lookout. However, judging from Bain's report, the field will be dominated by mergers and acquisitions and secondary transactions in the future.
In 2023, the private equity market faces a number of challenges, including difficulties in raising capital and reduced exit opportunities. According to data released by PreQin (a global alternative asset data company), the original target for global private equity fundraising in 2023 was 3$3 trillion and only $1 trillion actually raised, the difference is huge, and the difficulty of exiting the healthcare sector is particularly evident in the private equity sector. To address these issues, LPs have taken two main approaches: first, by investing in opportunities that add value, such as projects that improve business efficiency, pricing, and profit margins; The second is to explore ways to increase exit liquidity, and achieve partial or early exit through secondary trading.
From an institutional perspective, in 2023, a number of PE institutions, including Blackstone (over $1 trillion in assets under management), Ardian ($164 billion in assets under management), Lexington Partners (one of the world's largest secondary trading asset managers with $75 billion in assets under management) and Goldman Sachs, raised about $50 billion in secondary trading specials**. From an M&A project perspective, in the first three quarters of 2023 alone, there were 19 M&A deals, including Pfizer's announcement of its acquisition of Seagen (founded in 1997, a cancer company**) for just under $45 billion**, the largest biopharmaceutical acquisition since Abbvie's $63 billion acquisition of Allergan in 2019.
Generative AI enters the gamewill drive change in investment in the healthcare sector
In 2023, foundational models, large language models (LLMs), and artificial intelligence (AI) attracted many players in the healthcare industry, and the changes brought by AI to the healthcare field such as efficiency, innovation, and increased effectiveness are the core drivers of their development. While traditional analytical AI has been used in healthcare for many years, generative AI is characterized by the ability to create new content, summarize and translate existing content, and ultimately enable "reasoning and planning."
From the perspective of application scenarios, generative AI has application potential in many fields.
HCA Healthcare is leveraging technology through partnerships with companies such as Google to reduce the burden on physicians by reducing the time spent on patients and submitting medical reimbursements. At the same time, AI is also beneficial in the field of biomedical research and drug development, which can enable accelerated drug innovation, such as Sanofi's AI platform to optimize the drug development process. There are also many applications of AI in areas such as insurance and payment management and medical technology, such as AI for rapid data analysis and claims management to help consumers improve claims efficiency, such as UnitedHealth Group's virtual patient communication assistant, and Philips' generative AI in collaboration with Amazon Web Services to optimize diagnostic devices and smart monitoring devices.
While there are many use cases for generative AI, investment in this space is still early.
At this stage, some tech companies are experimenting with AI tools with major healthcare companies. For example, Microsoft and Epic are teaming up to develop tools to reduce efficiency in doctors' visits, Google is working with ICAD to integrate artificial intelligence tools into the company's devices to detect breast cancer, and IBM is partnering with Microsoft Azure to analyze complex medical records. In LP, companies with generative AI as their core technology are an important direction for venture capital and growth equity** investment. For example, General Catalyst (early-stage ventures**) and Andreessen Horowitz (A16Z) co-led a $50 million seed round for Hippocratic AI. Andreessen Horowitz, Fidelity (Fidelity Investment Group, total AUM of about 4.).US$5 trillion) and BlackRock ($10 trillion in total AUM) jointly contributed US$200 million in Series B funding to drug discovery platform Genesis Therapeutics.
Looking at the domestic market, generative AI has also made many achievements, among which XtalPi and Insilico Medicine are typical examples. In May 2023, XtalPi announced a collaboration agreement with Eli Lilly and Company to leverage its proprietary small molecule drug discovery platform, ID4INNOTM, to identify potential drug candidates and receive up to 2$500 million in upfront payments and earnings. In September, Insilico Medicine entered into an exclusive worldwide license agreement with Exelixis (Cancer**) for the inhibitor ISM3091, which will see Insilico Medicine receive an upfront payment of $80 million and potential follow-on payments.
It is believed that with the maturity and development of science and technology, there will be more changes in the healthcare field, and as an already popular investment area, more investment opportunities will emerge.