Biopharma index seen spurring innovation from May 9

A new stock market index focused on biopharmaceutical equities will launch on May 9 and is expected to facilitate innovation in the industry, besides spurring high-quality development in the country, experts said on Wednesday.

The Shanghai Stock Exchange and China Securities Index Co Ltd jointly announced on Tuesday that the STAR Market Biology and Medicine Index will include 50 large-cap biopharmaceutical companies listed on the STAR Market, which is part of the Shanghai bourse.

The top five heavyweights in the index are Shanghai Junshi Biosciences Co Ltd, Zhejiang Orient Gene Biotech Co Ltd, Shanghai Medicilon Inc, CanSino Biologics Inc and Qingdao Haier Biomedical Co Ltd. They will get a combined 33 percent weighting.

The SSE said the 50 companies best exemplify the STAR Market's role as an incubator of "hard technologies", as they cover cancer, tumors, immune system diseases, infectious diseases and other therapeutic areas.

Orient Gene, a prominent name in the industry, saw its annual sales revenue top 10 billion yuan ($1.6 billion) last year.

CanSino, known for its single-shot COVID-19 vaccines, completed its IPO on the STAR Market in August 2020 by adopting the fifth set of listing rules, under which profitability is not required as long as the company possesses at least one key product.

This, market observers said, demonstrates the inclusiveness of the STAR Market. But the Shanghai bourse clarified the new index will be improved down the line to provide more business benchmarks and investment targets.

Serving as key gauges and investment tools, indexes facilitate capital flows and help promote long-term, rational and value investments, said experts from China Universal Asset Management.

The average price-to-earnings ratio of the new index works out to below 30 times, according to China Universal's calculations－an all-time low since the STAR Market commenced trading in July 2019.Investment value has thus emerged given the companies' low market valuations, huge growth potential and dedication to research and development, experts said.

Data in the public domain showed the biomedicine companies listed on the STAR Market reported an average 54 percent year-on-year increase in sales revenue in 2021.The median gross profit rate and net profit rate came in at 73 percent and 24 percent, respectively, last year, which outperformed all other sectors on the STAR Market.

Meanwhile, biomedicine companies accounted for an average 7.3 percent of all mutual funds' investment allocations in the third quarter of 2021, second only to the holdings in companies in the food and beverage sector.

According to China's 14th Five-Year Plan (2021-25), sales revenue and profit of the country's healthcare industry are both expected to register 8 percent annual growth during the period. The industry is expected to account for 5 percent of all the industrial added value by 2025, up from 3.9 percent recorded at the end of the previous five-year plan period.

Sun Yuanyuan, co-chief analyst of the pharmaceutical industry at Industrial Securities, said the average R&D investment in the biomedicine industry will grow by 10 percent during the 14th Five-Year Plan period, and the growth rate may further accelerate in the next decade.

As the Chinese healthcare industry shifts its focus from quantity to quality, the industrial structure will be further optimized with the nurturing of more hard technologies, Sun said.