26 October 2016
Chen Qiyu, the president of Fosun Pharma runs a firm that is heavily invested in R&D. Photo: HKEJ
Chen Qiyu, the president of Fosun Pharma runs a firm that is heavily invested in R&D. Photo: HKEJ

Fosun Pharma to benefit from Nobel Prize effect

Tu Youyou has become the first Chinese woman to win a Nobel Prize, for her work in discovering a novel therapy, based on traditional Chinese medicine, against malaria.

Speculation in Chinese pharmaceutical stocks has already started.

Among the “Tu Youyou” concept stocks, I would recommend Shanghai Fosun Pharmaceutical Group Co. Ltd. (02196.HK) to investors.

Fosun Pharma has the highest ratio of expenditure on research and development — 17 percent — among its peers.

While many other listed pharmaceutical firms just “repack” prescription drugs for which patents have expired and sell them as new drugs, the firm’s heavy investment in R&D makes it more attractive.

Fosun Pharma is one of the largest healthcare companies.

Its business includes making and distributing drugs and medical equipment and hospital services.

Its financial performance was good in this year’s first half and met analysts’ expectations.

In its drug-making business, the firm has a diversified portfolio.

Its main products include antidepressants and insulin.

It is also able to cooperate with its parent company, Fosun International Ltd. (00656.HK), in exploring China’s booming elderly care industry.

The medical services involved offer a high profit margin and could increase Fosun Pharma’s profitability.

In addition, it acquired a 30 percent stake in a US day surgery center, in the hope of exploring a new medical service model and bringing it to the domestic market.

In the past several years, mainland pharmaceutical firms have increased their R&D expenditures to about 7 percent of revenue (a level similar to those of their US or Indian competitors).

The emphasis on R&D and the “going out” strategy by Chinese pharmaceutical giants is likely to fuel a rise in the price of stocks in the sector.

In the first seven months of the year, there has been a strong demand for medical and healthcare products, making pharmaceutical stocks a good defensive choice.

Fosun Pharma’s share price is more stable than that of other H shares.

It is worth our attention regardless of market ups and downs.

This article appeared in the Hong Kong Economic Journal on Oct. 7.

Translation by Myssie You

[Chinese version中文版]

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