Sean.Wu@morganstanley.comYolanda.Hu@morganstanley.comLaurence.Tam@morganstanley.comEthan.Ding@morganstanley.comAttractiveMORGANSTANLEYASIALIMITED+SeanWuEQUITYANALYST+8523963-0755YolandaHuEQUITYANALYST+8522848-5649LaurenceTamEQUITYANALYST+8522239-1753EthanDingRESEARCHASSOCIATE+8523963-0546MorganStanleyappreciatesyoursupportinthe2019InstitutionalInvestorAll-AsiaResearchTeamSurvey.Requestyourballot.ChinaHealthcareAsiaPacificIndustryViewChinaHealthcareChinaHealthcare||AsiaPacificAsiaPacific2019Outlook:Implementationof4+7CentralizedProcurementaKeyTheme;FocusonInnovationandR&DServicesWecontinuetoseepolicyheadwindsfordrugnamesinto2019,butwefavorthosewithrichinnovativepipelinessuchasHengruiandInnovent.R&DServicecompaniesshouldberelativelyimmuneandwecontinuetoOWWuXiBiologicsandWuXiAppTec.Thesefourareourtoppicksfor2019.Whatmattersin2019:Wethinkpolicyheadwindswillpersistintotherestof2019-centralizedprocurementforhigh-volumegenericdrugs,controlofadjuvantmedicines,andcentralizedprocurementforhigh-endmedicalconsumables.Weexpecthealthcaremultiplesmaynothavemuchroomtoexpandin2019,especiallyforgenericdrugnames.Atthesametime,zeromarkup,drugincomecontrol,andreimbursementcontrolmaystillhamstringhospitalfinances.Welikebusinessmodelsthataremoreresistanttosuchheadwinds,suchasservicecompanies-WuXiBiologicsandWuXiAppTec.Innovatorswillbenefitfromamorefavorableregulatoryenvironmentiftheyareabletodeliverontheirclinicaltimetables,suchasHengruiandInnovent.Oursegmentviewsandkeycalls:WelikeCDMOslikeWuXiBiologicsandWuXiAppTecbecausetheyarenotdirectlyaffectedbythenegativepoliciesandwillbenefitfromChina'sR&Dboom.Distributorswithnationalscalecouldbenefitfrommorereimbursementdollarsspentoninnovativeoncologydrugs,e.g.Herceptin,whereMNCsmostlyretainthetopdistributorssuchasSinopharm.Westaycautiouswithdrugnamesthathavelargeearningsexposuretogenerics,likeShanghaiPharma(EW)butarepositiveon3SBioandSSY(OW).Weareextracautiousonnamesthathaveadditionalexposuretoadjuvantdrugs,e.g.Livzon(UW).ThisyearweviewTCMorc...
