In recent years, the demand for R&D and production outsourcing has soared and fallen, and the impact of geopolitical frictions such as the Biosecurity Act has caused the stock prices of leading companies in the CXO sector to continue to fluctuate, and the investment and financing trends in the primary market have also risen and fallen.
R&D and production in the primary market, CXO investment and financing trends
In the entire CXO industry chain, in the past, the market focused more on the upstream and midstream R&D and production outsourcing leading companies, and ignored the downstream commercial CXO for a long time.
As China's innovative pharmaceutical industry moves from R&D to commercialization, China's innovative drugs have begun to produce "blockbuster drugs" with annual sales of one billion US dollars, and companies with strong commercialization capabilities have been pushed into the spotlight. Among them, the industry and capital have begun to realize that the downstream commercial CXO, which has been neglected for a long time in the past, is a value depression, and there is greater potential for valuation improvement in the future.
Recently, BAHEAL Pharmaceutical, a leading commercial CXO company, disclosed its 2023 financial report. Through an in-depth analysis of the company's development dynamics, we can get a glimpse of the future growth opportunities and potential of pharmaceutical commercialization in China.
The brand effect is gradually released
According to the 2023 annual report, BAHEAL Pharma achieved an operating income of RMB7.564 billion, a revenue of RMB8.585 billion if the two-invoice system is restored, a net profit attributable to shareholders of listed companies of RMB656 million, a year-on-year increase of 29.55%, and a continuous growth of three years after listing, and a net operating cash flow of RMB610 million, an increase of 99.41% over the same period.
According to the first quarter report of 2024 disclosed on the same day, BAHEAL Pharmaceutical achieved operating income of 1.661 billion yuan in the first quarter of 2024 and net profit attributable to the parent company of 165 million yuan after deducting non-profits, a year-on-year increase of 30.71%.
From the perspective of each sub-business direction of BAHEAL Pharmaceutical, it can be seen that BAHEAL Pharmaceutical is increasingly focused and refined in the operation of its core business brand. In 2023, BAHEAL Pharma will continue to optimize its business structure, further reduce its wholesale and distribution business, and focus on brand operation business, and its brand effect will gradually emerge.
Among them, the revenue of BAHEAL Pharmaceutical's brand business in 2023 will be 4.4 billion yuan, a year-on-year increase of 18.91%, and if the two-invoice business is restored, the revenue of the brand business will be 5.420 billion yuan, and the profit contribution will account for 83.78%, which is the main source of the company's profit.
Different from traditional pharmaceutical commercial companies that only act as product porters, do channel coverage, and traditional pharmaceutical companies exchange market share through "crowd tactics" and "product space", BAHEAL Pharmaceutical is committed to brand building, and by virtue of in-depth exploration of medical scenarios, BAHEAL Pharmaceutical can quickly integrate products into application scenarios, occupy users' minds, and form a brand effect.
This commercialization model with "branding" as the core is also reflected in the financial data of BAHEAL Pharmaceutical. According to the 2023 financial report, BAHEAL Pharmaceutical's sales expenses were RMB1.062 billion, down 5.3% year-on-year, and the proportion of sales expenses in revenue was 14%, far lower than the proportion of sales expenses in revenue of more than 20% for A-share pharmaceutical companies.
The ability to efficiently commercialize the brand with a relatively low sales rate depends on the long-term realizable brand capability and brand equity established by BAHEAL Pharmaceutical in the past 20 years: after nearly 20 years of accumulation, BAHEAL Pharmaceutical has formed a professional brand operation capability and a strong marketing network, and has cooperated with 14,000 large and medium-sized hospitals and nearly 400,000 pharmacies, and successfully incubated imported calcium brands Diqiao, A number of leading brands such as dyspepsia brand Secrete have accumulated rich experience in in-hospital and out-of-hospital channel brand operation, and have established a professional commercialization platform that can replicate successful experience, which can maximize the commercial value of the brand more efficiently and accurately.
In 2023, the performance of BAHEAL Pharmaceutical's core brand will remain outstanding, and the brand effect will continue to be released. During the reporting period, the Diqiao series, the core brand of BAHEAL Pharmaceutical, achieved a revenue of 1.897 billion yuan, a year-on-year increase of 16.53%, and a revenue of 1.987 billion yuan, a year-on-year increase of 15.91%, ranking first in the domestic imported calcium supplement market for eight consecutive years. The Haylou and Newt Shuma brands achieved revenue of 640 million yuan and 83 million yuan respectively, a year-on-year increase of 49.88% and 44.36%, and Anlize achieved revenue of 238 million yuan, and if the two-invoice business is restored, the revenue was 276 million yuan.
According to Zhongkang CMH data, the drug sales scale of China's pharmaceutical retail market will reach 501.5 billion yuan in 2023, a year-on-year increase of 3.3%, of which the drug scale of physical pharmacies (including O2O) will increase slightly by 1.0% year-on-year in 2023, and the growth rate of e-commerce B2C will reach 21.0%, which is much higher than the growth rate of physical pharmacies (including O2O), and the proportion of channels will increase by 1.9%, further highlighting the importance of channels.
Data source: Zhongkang CMH
BAHEAL Pharma took the lead in capturing the changing trend of marketing channels, and with its keen market insight and flexible response to changes in consumer purchasing behavior, its online business showed a significant growth trend, with online sales revenue of RMB508 million in 2023, a year-on-year increase of 52.16%.
Innovative products have become a new growth pole
According to the 2023 financial report, BAHEAL Pharma has fully launched the ecological innovation strategy, relying on the long-term investment and incubation of the parent company of the Group in the field of pharmaceutical and medical device innovation, more and more innovative pharmaceutical and medical device products are constantly entering BAHEAL Pharmaceutical and becoming a new engine for the commercialization platform.
In terms of innovative drugs, in November 2023, BAHEAL Pharma signed a Strategic Agreement on Commercialization Cooperation with ROSCEPT, and obtained the post-marketing commercialization rights and interests of ROSET's series of radiopharmaceuticals and imaging equipment such as SPECT. RODIO is an investment and incubator of BAHEAL Pharmaceutical Group, which has independently developed the first self-developed Class 1 innovative drug 99mTc-3PRGD2 in the field of nuclear medicine in mainland China, which has completed phase III clinical trials in China and will be declared for marketing soon.
In addition, in the field of innovative drugs, BAHEAL Pharma has also locked in advance the commercial operation rights of the FIC innovative drug for the treatment of osteonecrosis invested and incubated by the Group, which is a polypeptide drug conjugate PDC.
In terms of high-end medical devices, Tongxin Medical, an innovative device company that has invested in the research and development of artificial heart for several rounds, was approved for marketing in November 2021, becoming the first fully magnetic levitation artificial heart in China, and has also entered the commercial operation platform of BAHEAL Pharmaceutical. At present, the product has been implanted in more than 50 hospitals across the country, and more than 220 cases have been implanted.
In addition, high-end medical device products such as Medis Medical's electromagnetic positioning puncture guidance equipment for ultrasound and Wuweikang's home electrocardiometer have also entered the commercialization stage one after another, and BAHEAL Pharmaceutical is responsible for commercial operation.
This series of blockbuster innovative pharmaceutical and medical device products is just a microcosm of BAHEAL Pharmaceutical's ecological innovation strategy. Leveraging the long-term synergy with the major shareholder BAHEAL Pharmaceutical Group in R&D and innovation, BAHEAL Pharmaceutical has demonstrated an efficient ecological innovation model to the capital market: BAHEAL Pharmaceutical's strong commercialization team conducts clinical scene exploration and transmits clinical needs to the R&D side, and the major shareholder group acts as a high-risk industrial investment and incubator to cultivate innovative projects, and after the incubation and maturity of innovative projects, the listed company undertakes commercialization at a reasonable price, and shares growth dividends with the secondary market. This model not only demonstrates BAHEAL Pharmaceutical's true innovation strength, but also demonstrates its unique advantages in risk management and commercial operation.
In fact, with the support of steady performance, BAHEAL Pharma has begun to share the fruits of enterprise development with the majority of shareholders. In 2023, BAHEAL Pharmaceutical plans to distribute RMB 7.62 to all shareholders for every 10 shares.
As this benign ecosystem continues to promote innovative achievements into application scenarios, the new journey of commercialization belonging to BAHEAL Pharma is accelerating.
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