Health Care Alert:On high frequency data for August

More data suggest growth deceleration in August

    Other follow-on high frequency data further confirmed NBS drug consumptiondata in August, which we published 2 weeks ago. The data suggested 14.5%YoY growth in August, vs. 15.8% YTD July 13, which we ascribe to the impactfrom the anti-bribery campaign and reimbursement budget control. Weanticipate hospital drug sales data will also point in the same direction. Wethink this is likely to impact all players, especially Sinopharm (1099.HK) andShanghai Pharma (2607.HK).

    What’s new? Production data and anecdotal data on Shanghai Pharma

    We highlight two data points. Yesterday afternoon, news media cited datapoints from an internal meeting from Shanghai Pharma, which indicate MNCdrug sales dropped 20% in August vs. July (MoM) while domestic drug salesdropped 10% MoM. However it is unclear to us whether these data pointsrefer to sector data or Shanghai Pharma’s distribution arm. During ourconversation with the company this morning, management offered nocomment on the news report and the data points. Separately, pharmaceuticalindustry production data suggested 15.4% YoY growth in August, vs. 19.2%YTD July 13. Although we barely reference this data point as it is evendirectionally unreliable on occasion, we believe the large magnitude of the

    MoM decline may be somewhat indicative this time.

    Further implications: near-term volatility expectedWe believe it is more likely that the data points highlighted in the news reportrefer to Shanghai Pharma’s distribution business, which could be meaningfulas an indicator for the sector as SPH is the second-largest distributor. We alsoremain cautious on the sector and anticipate more volatility. We would focuson companies with positive near-term catalysts, such as Sihuan (460.HK),because of expected entries of key products in provinces that are going to startRDL tenders in the next few quarters.