On January 28, Pharmaron announced that its revenue in 2023 will be 11.396-11.704 billion yuan, a year-on-year increase of 11%-14%, and its net profit attributable to the parent company will be 1.567-1.636 billion yuan, a year-on-year increase of 14-19%.
Pharmaron's net profit fell by 17% in 2022, and now it has finally recovered, but the overall growth rate has shown weakness, and the reasons behind it are worth paying attention to by peers.
Pharmaron said that the company's mature segment revenue and profit continued to grow steadily, but macromolecule and cell and gene therapy services and some overseas operations were still in the early stage of investment, and the impact of fluctuating prices for experimental monkeys reduced the growth rate of profits.
In 2023, Pharmaron made efforts in its macromolecule and CGT businesses and made additional issuances for this purpose. However, it is obvious that in 2023, WuXi AppTec, Lonza and other leading companies in the industry will choose to withdraw from the CDMO business of CGT and macromolecules, and the impact of monkey prices will continue, it is expected that Pharmaron's performance will continue to be under pressure this year.
This is not the only one with unsatisfactory performance. On January 23, Zhaoyan New Drug released a performance forecast, saying that it will achieve a net profit of 311-418 million yuan in 2023, a decrease of 61.1%-71.1% from the previous year. The reason for the decline in the profit of Zhaoyan's new drug is obvious: large-scale hoarding of experimental monkeys, but catching up with the decline in clinical development in the whole industry, resulting in "a decline in the market price of biological assets held".
If you add WuXi AppTec, which was named by the United States because of Mu Xiu Yulin two days ago, CXO companies are simply unfortunate in their own way.
The era of collective expansion is gone
In recent years, CXO companies have been hoarding monkeys while frantically expanding their territory. Vertically, WuXi AppTec, Gloria Young, Zhaoyan and Pharmaron want to provide a one-stop full range of CRO+CDMO services, and horizontally, from small molecules to large molecules to cell and gene therapy products.
The expansion is due to the fact that the innovative drug industry has been pinned on high hopes. Even if the domestic biopharmaceutical industry is cold in 2021, the chill does not seem to be transmitted to CXO companies, and it has not stopped them from expanding production and business expansion in the slightest.
In recent years, Pharmaron has been expanding its facilities for laboratory services in Beijing, Xi'an, Qingdao, Chongqing, Zhuhai and other places, while accelerating the production capacity of small molecule CDMO services. Since 2020, Pharmaron has also entered the CRO+CDMO service system of macromolecule and cell and gene therapies through the acquisition of equity interests in AccuGen Group, Absorption Systems and AbbVie's companies, starting a large-scale layout of this business.
In 2021, Pharmaron operated its macromolecule segment independently with Pharmaron as the main body. In order to support the development of this business, since 2020, Pharmaron has built the first phase of the Ningbo Park 2 project as a macromolecule drug development and manufacturing service base, covering an area of nearly 70,000 square meters, providing drug substance and drug product production services from pilot to commercial stages ranging from 200L to 2000L. Originally, it was planned that the base would start undertaking macromolecule GMP production service projects in the first half of 2023. According to the official website of the Ningbo Qianwan New Area Management Committee, the first phase of the Ningbo Second Park project has been put into use in February last year.
The competition in the macromolecule business is fierce, and the timing of Pharmaron's entry into the market is not too good. Judging from the results, the utilization of this part of the capacity may have to wait for a period of climbing. In 2021 and 2022, this business will receive revenue of 151 million yuan and 195 million yuan respectively, and because of new orders, it is basically operating at a loss. In the third quarter of 2023, Pharmaron's gross margin for macromolecule and cell & gene therapy services in 2023 was -7.28%.
The basis for the expansion of upstream capacity in the industrial chain is the overwhelmed downstream business. However, in the past two or three years, many domestic biotech companies have begun to take out their own production lines to take over the CDMO business due to insufficient business volume, and some emerging CGT and other enterprises have no urgent production needs because of the difficulty in launching their products. Whether the timing of CXO's expansion is the right one is actually worth debating.
In March 2023, WuXi AppTec announced the closure of WuXi Biologics' Lingang plant, which focuses on cell and gene therapy. Since 2022, more and more biotechs who had previously entered CDMO have also chosen to retreat, with CStone closing its Suzhou plant and Elpiscience selling its manufacturing facility to WuXi Biologics.
Prudent expansion of production
According to Pharmacube data, in 2023, there will be a total of 908 investment and financing events in the global primary market for innovative drugs, a decrease of 12.4% from 1,036 last year. Among them, there were 400 domestic cases, with a total financing amount of 4.75 billion US dollars, and the number of incidents and the amount decreased by 20% and 31.9%, respectively, in such an environment, even the CDMO giants are in an existential crisis, and in the 2023 annual report, Lonza Group confirmed the closure of two factories in Guangzhou, China and Hayward, USA.
The upstream's woes have been passed on to CXOs downstream, but they don't stop there. The main arena for CXOs is still overseas. Several leading CXO companies in China are using domestic workers and land to make money in Europe and the United States. More than 80% of Pharmaron's business comes from abroad, and Zhaoyan's overseas business accounts for 17%.
At present, the overseas business on which domestic CXO companies rely for survival is facing a crisis. From WuXi Biologics' inclusion in the U.S. Department of Commerce's unverified list of UVLs to the collapse of WuXi Biologics' collective stock price triggered by the Senate and House of Representatives proposal of the American Biologics Act...... In recent years, the United States has frequently cracked down on Chinese entities, and the impact may not have really appeared, but the secondary market has been rumored. The shadow of the bill incident has not yet passed, and the stock price of WuXi has almost fallen recently, hovering at the bottom of recent years and has little upward momentum.
A clear signal is that now is no longer the time for CXOs to expand significantly.
The industry is always looking for something new. The recent expansion of WuXi AppTec's production has been placed on the highly popular track of peptides. On January 8 this year, WuXi AppTec's two bases in Changzhou and Taixing in Jiangsu Province were officially put into operation, increasing the peptide production capacity to 32,000 liters. At present, Gloria is also increasing its peptide CDMO business.
Peptide CDMOs will soon become a red ocean as well. Sirnaomics and Nuotai Biotech take peptide CDMO as their main business, and Jiuzhou Pharmaceutical has built a peptide platform in 2022, waiting for the big orders from Novo Nordisk and Eli Lilly. Domestic CXO companies seem to only see the popularity of diet pills, but do not see the reality of more wolves and less meat, and the impact of the overall economic environment on the public's demand for weight loss.
Prudently expanding business and avoiding homogeneous competition are all important to CXOs at present.
Written by丨Yang Xixia
Editor|Jiang Yun Jia Ting
Operations|XXIII
Source: Visual China
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