In the past two days, when combing the fundamentals of the CRO plate, I saw a voice similar to this:
Since CRO is a total business, the growth rate of the number of IND new drugs will drop to less than 10% after 2022, and the industry prosperity will decline significantly in two or three years;
In the past, small and medium-sized CRO enterprises enjoyed high valuations due to high elasticity, but the subsequent lack of flexibility will lead to the expected decline in valuation killing behavior.
I have to say that the growth of the CRO industry in the future has become the main divergence of the market at present, the growth of an industry directly determines the company's valuation and performance growth, and the valuation will always fall before the decline in performance, in order to prevent unpredictable situations, we will discuss the growth of the CRO industry today.
References are prospectuses of five medical R&D outsourcing companies that have just been listed this year.
First, these 5 sub-IPO companies have maintained a high growth trend
In the past year, among the 54 new stocks listed in the pharmaceutical and biological industry, there are 5 companies that belong to the medical research and development outsourcing industry, namely Notai Biological, Sunshine Nuohe, Haoyuan Pharmaceutical, Baipusaisi, Yiqiao Shenzhou, these five companies have not exceeded 7 months since their listing, for Nortai Biologics, the least is only more than a month, for Baipusaisi.
Overall, these five companies have performed well after the listing, although the current stock prices have different trends, but they have enjoyed a premium of at least more than 1 times compared with the original issue price.
Taking the performance of the past two years, these five companies have maintained a high growth momentum.
Since we don't make individual stock comparisons today, let's take a look at what these companies do.
Nuotai Bio mainly focuses on peptide drugs and small molecule chemical drugs for independent research and development and customized research and development and production, as of 2020, customized products to achieve revenue of 412 million yuan, accounting for 72.76%;
Haoyuan Pharmaceutical is committed to the research and development of molecular blocks and tool compounds in the field of small molecule drug discovery, as well as the research and development and production of small molecule drug APIs and intermediates, and achieves revenue of 346 million yuan and 285 million yuan in 2020, respectively;
Bepsais mainly provides recombinant protein and other biological reagent products and technical services, and in 2020, recombinant protein products achieved revenue of 214 million yuan, accounting for 86.88% of revenue;
Yiqiao Shenzhou mainly provides a variety of biological reagent products and technical services, and the above-mentioned Baipusais is similar, but yiqiao Shenzhou's product range is a little wider, including recombinant protein biological reagents, antibody biological reagents, genetic biological reagents, etc., in 2020, the sales revenue of products reached 1.546 billion yuan, of which the sales revenue of new coronavirus-related products accounted for 84%, although Baipusaisi also sells new crown products, but the scale is smaller;
Sunshine Novo is a R&D service enterprise, while providing services for innovative drug development, generic drug development and consistency evaluation, the main business includes pharmaceutical research services, clinical trials and bioanalytical services, as of 2020, the two revenues are 205 million yuan and 142 million yuan respectively.
In summary, we can know that the income scale of the above five enterprises is not large, and the highest income is Yiqiao Shenzhou, but it is affected by the sales growth of new crown products, followed by Haoyuan Pharmaceutical, which belongs to CDMO service enterprises;
There are similarities and differences in the business between them, and Noctite Bio and Haoyuan Pharmaceutical have similarities, and they can provide R&D and production services for small molecule chemical drugs;
Yiqiao Shenzhou, Baipusaisi and Nuotai Biological Business Layout all have the scope of biological drug research and development;
Sunshine Novo is mainly based on R&D services, and prefers a one-stop "pharmacy + clinical" integrated enterprise based on generic drugs.
Second, summarize the future development trend of the CRO industry from the prospectus
As far as the five new stocks we mentioned are concerned, although they are all smaller enterprises, they have maintained high valuations due to higher performance growth rates, so in order to explore their development potential, let's first look at the current market environment of the industry.
1. Benefit from the transfer of global pharmaceutical R&D industry chain
By looking at the prospectuses of these five companies, it can be seen that the expiration of innovative drug patents has become the most powerful underlying logical support for the development of the CRO industry.
According to the prospectus of Haoyuan Pharmaceutical, one of the important development trends of the current global pharmaceutical market is that many blockbuster drug patents will expire one after another, and once the innovative drug patents lose protection, their prices will fall sharply under the impact of low-priced generic drugs.
Therefore, in order to prevent this phenomenon as much as possible, the original pharmaceutical factory is more inclined to seek professional pharmaceutical outsourcing under financial pressure to achieve the purpose of process optimization and cost reduction; generic drug factories (non-original pharmaceutical manufacturers) hope to seize this opportunity to break the monopoly of traditional European and American pharmaceutical companies and rapidly expand market share.
According to statistics, 2022 will usher in the peak of the expiration of innovative drug patents, with drugs worth $40 billion being affected, and $57 billion in 2023, reaching the peak of nearly a decade.
It is conceivable that in this context, neither the original manufacturers nor the generic drug manufacturers will give up the pace of innovative drug research and development, so as to seize the dividends of the innovative drug market, and they all have R&D outsourcing needs;
On the other hand, the expiration of a large number of patented drugs will promote the continuous growth of the international generic drug market, and will also drive the increase in demand for APIs.
In other words, China's pharmaceutical outsourcing enterprises are less affected by downstream pharmaceutical enterprises, but at the same time face outsourcing opportunities.
(Source: Sunshine Nuohe Prospectus)
(Information from Haoyuan Pharmaceutical Prospectus)
2, leading enterprises are more certain, while some small enterprises are still resilient
In the CRO industry with prominent technical and talent barriers, it is an inevitable trend that the leading advantage is highlighted to increase the concentration of the industry.
In fact, after years of mature development, the global CRO market has emerged a number of large multinational CRO companies, such as the world's top Quintiles (Quintiles), Covance (Covance), Charles River (Charles River), PAREXEL (ProMeding), ICON (iKang), etc., these large CRO companies occupy more market share in the global CRO industry, and the average revenue scale reaches more than 1 billion US dollars.
Therefore, with the increasing incentive of competition, China's CRO industry market will also be concentrated in the head, from this point of view, the certainty of the development of leading enterprises will be higher than that of small enterprises.
However, the development of the CRO industry is still in the dividend period, and the development of small-scale enterprises with differentiated development is still elastic, which speaks of another logic of the development of the CRO industry, and the development process of innovative drugs will not slow down.
On the one hand, as mentioned earlier, the outsourcing needs of pharmaceutical companies brought about by the transfer of the global pharmaceutical industry chain have increased, and on the other hand, the pharmaceutical industry itself has continuously promoted the process of innovative drug research and development, and the research and development of innovative drugs is not a one-time thing.
In terms of total, in the next few years, the research and development speed of China's pharmaceutical innovative drugs will continue to be higher than the global industry level, and in 2019, the global drug research and development expenditure scale will be 182.4 billion US dollars (1185.6 billion yuan), 2024
It is expected to reach US$227 billion (RMB1,475.5 billion) annually, with a compound annual growth rate of 4.5%;
In 2019, China's drug R&D expenditure totaled US$21.1 billion (137.2 billion yuan), and it is expected that China's drug R&D expenditure will reach US$47.6 billion (309.4 billion yuan) in 2024, with a compound annual growth rate of 17.7%.
Secondly, from a structural point of view, the biopharmaceutical market may present a blue ocean.
In 2018, the total global pharmaceutical market size was 1.2 trillion US dollars, and with the acceleration of the aging of the population, the improvement of the global medical security system and the support of capital, the global pharmaceutical market will maintain a growth level of about 5%, and it is expected to reach 1.5 trillion US dollars in 2023;
Meanwhile, according to the Frost & Sullivan report, the global biopharmaceutical market size was $286.4 billion in 2019
(RMB 1,861.6 billion), which is expected to reach US$456.7 billion (RMB 2,968.6 billion) in 2024,
The compound annual growth rate is 9.8%, which is higher than the growth rate of the pharmaceutical industry as a whole and other pharmaceutical markets.
Third, to sum up
Overall, I am still confident in the development of the CRO industry in the next few years, at least proving that they are not one-time businesses, and the cyclicality is not obvious, so long-term development is sustainable;
In addition, China's CRO industry is still facing industry development opportunities, including outsourcing opportunities brought about by the transfer of the global pharmaceutical research and development industry chain, replacement opportunities for domestic innovative drugs brought about by patent expiration, and accelerated research and development speed of biological drugs to promote R & D investment, etc., so in the future, even if the number of pharmaceutical innovative drug INDs in China will decrease, as long as the R & D investment (not limited to China) as long as it will not decline, it will not bring a fatal threat to the CRO industry.
Finally, for these five companies, I have not studied too deeply, and due to the limited space, I will not do too much interpretation.