Reporter | Liang Yi
In recent years, thanks to the introduction of the national incentive policy for innovative drugs and the growth of R&D investment in the domestic pharmaceutical industry, China's CRO industry market is highly prosperous. CRO is an institution that provides R&D outsourcing services to pharmaceutical companies through contracts, and its "three missions" are to shorten the drug research and development cycle, control research and development costs, and reduce research and development risks.
Recently, Anhui Wanbang Pharmaceutical Technology Co., Ltd. (hereinafter referred to as Wanbang Pharmaceutical), a comprehensive CRO enterprise providing pharmaceutical research and clinical research services, submitted an application for listing on the Growth Enterprise Market (GEM), sponsored by Minsheng Securities.
It is reported that at present, China's CRO industry is mainly based on the three giants WuXi AppTec (603259.SH, 02359.HK), Tigermed (300347. SZ, 03347HK) and Kanglong Huacheng (300759.SZ, 03759HK) are the mainstays, of which Tigermed is the boss of clinical CRO, and entered Wanbang Pharmaceutical on the eve of listing.
From 2018 to the first half of 2021 (reporting period), the revenue growth rate of Wanbang Pharmaceutical was slower, but the gross profit margin was higher than the industry average, and the net profit margin rose rapidly, from 26.67% in 2018 to 39.56% in 2020. However, from the perspective of R&D investment, the company's R&D expense rate is not as good as its peers, and there are fewer R&D projects. Under the strategic transformation of the pharmaceutical industry from imitation to independent innovation, domestic CRO enterprises must accelerate the transformation from undertaking generic drug consistency evaluation projects to undertaking innovative drug research and development projects, and the company's innovative drug research and development service capabilities are weak.
<h3>Before the listing, peer Tigermed entered the market</h3>
Wanbang Pharmaceutical Co., Ltd., the predecessor of Wanbang Pharmaceutical, was established on March 1, 2006 with a registered capital of 1 million yuan. Among them, Tao Chunlei, Xu Chengfa and Wu Jinsong each contributed 300,000 yuan, and Lu Yiping contributed 100,000 yuan. In September 2019, Wanbang Limited was changed to a joint-stock company with a share capital of 10 million yuan, at that time Tao Chunlei held 56.70%, Xu Xinluo held 24.30%, Bairuibang Investment held 10%, QianYeyin held 4%, Shen Ying held 3% and Sima Wenlong held 2%.
In August 2020, the registered capital of Wanbang Pharmaceutical increased from 10 million yuan to 10.7273 million yuan. Among them, Zhaofeng Investment subscribed for the new registered capital of 333,300 yuan, Tiger Investment subscribed to the new registered capital of 166,700 yuan, Hefei Hangbang subscribed to the new registered capital of 145,700 yuan, Senlei subscribed to the new registered capital of 60,000 yuan, and Guo Jun subscribed to the new registered capital of 21,700 yuan. The price of the capital increase is 60 yuan per share, corresponding to a valuation of about 645 million yuan.
The interface news reporter noted that the identity of the new shareholder Tiger Investment (Hangzhou Tiger Equity Investment Partnership (Limited Partnership)) has a lot of origins, but the prospectus does not disclose its specific information.
According to Tianyan' investigation, the actual controller of Tigermed investment after equity penetration is Tigermed, the leader of clinical CRO, and from the perspective of business structure, clinical trial technical services are the main source of Tigermed's revenue, including drug clinical research, device clinical research, medical registration, BE trial, etc., followed by clinical trial related services and laboratory services.
In the third quarter of 2021, Tigermed achieved operating income of 1.339 billion yuan, an increase of 57.77% year-on-year, and net profit attributable to shareholders of listed companies was 526 million yuan, an increase of 64.80% year-on-year; in the first three quarters, the company achieved operating income of 3.395 billion yuan, an increase of 47.58% year-on-year; and net profit attributable to shareholders of listed companies was 1.781 billion yuan, an increase of 35.13% year-on-year.
In addition, Tiger Capital also holds a 30.00% partnership share of Zhaofeng Investment, which is the limited partner with the largest share of Zhaofeng Investment.
In September of the same year, Wanbang Pharmaceutical increased its share capital by 39.2727 million shares with capital reserves, and the share capital increased from 10.7273 million shares to 50 million shares.
Subsequently, in December, Xu Xinluo transferred 1,562,500 shares of the company he held to Su Min Investment Fund and 37,500 shares to Tianyou Investment. The price of the share transfer is 16 yuan per share, corresponding to a valuation of about 799 million yuan. Among them, the second largest shareholder of Su Min Investment Fund is Jiangsu Provincial Government Investment Fund (Limited Partnership), and the actual controller of Tianyou Investment is Yuan Angen, who serves as vice chairman and secretary general of Jiangsu Medical and Health Industry Alliance and vice president of The Investment and Financing Institution Branch of China Non-public Medical Institutions Association.
As of the date of signing of the prospectus, the controlling shareholder of the company is Tao Chunlei, and the actual controller is Tao Chunlei and Xu Xinluo. Tao Chunlei and Xu Xinluo are mother and son, and together they directly hold 72.31% of the company's shares, in addition, Tao Chunlei controls 10.68% of the company's shares through Bristol Investment and Hefei Hangbang (both of which are employee shareholding platforms).
<h3>The CRO industry is booming and the track is highly competitive</h3>
It is reported that the development of a new drug needs to go through six main links from compound research, preclinical research, clinical research, drug registration and approval, commercial production, sales, etc. Pharmaceutical outsourcing services (CXO) can cover the entire new drug development process, including CRO, CMO, CSO, respectively, serving the three major links of pharmaceutical research and development, production and sales.
As an industry that provides pharmaceutical R&D outsourcing services, CRO's revenue is highly dependent on the R&D investment of pharmaceutical companies. According to Frost & Sullivan data, China's pharmaceutical R&D investment in 2014 was 9.3 billion US dollars, which increased to 17.4 billion US dollars in 2018, with an average annual compound growth rate of about 17.0%, and the R&D investment in China's pharmaceutical industry will reach 27 billion US dollars in 2020.
From the perspective of industry policies, in recent years, the state has successively introduced a series of policies and reform measures for the pharmaceutical research and development industry, including the consistency evaluation of generic drugs, drug marketing authorization holders, and procurement with quantity. For example, under the catalyst of the procurement policy with quantity, the demand for innovative drug research and development will be further enhanced, and CRO enterprises will accelerate the layout of innovative drug research and development services and further transform into comprehensive CRO service providers.
According to Frost & Sullivan's statistics, the market size of China's CRO industry in 2016 was 22 billion yuan, and by 2020, the industry market size will grow to 52.2 billion yuan, with an average annual compound growth rate of 24.11%; it is expected that in the next few years, China's CRO market will maintain a compound annual growth rate of 24.84%, and grow to 158.3 billion yuan by 2025.
Zhongtai Securities Research Report pointed out that CRO2021H1 newly signed orders continued to increase (+119.4%), the proportion of high value-added innovative therapy projects continued to increase, with the gradual increase of "volume" and "price", the industry's long-term high boom is expected to continue.
As far as the domestic CRO industry pattern is concerned, there are a large number of local CRO companies, but the head effect is obvious, mainly represented by the three leaders of WuXi AppTec, Kanglong Huacheng and Tigermed. Among them, WuXi AppTec is one of the few that can provide all-round and integrated new drug development and production services, basically realizing the layout of the whole industry chain, and the main business includes laboratory services in China, contract production research and development services (CDMO), laboratory services in the United States, clinical research and other CRO services.
The second echelon of domestic CRO specializes in subdivisions, mainly focusing on preclinical CROs and clinical CROs, including Zhaoyan New Drugs (603127. SH,06127.HK), Pharmaceutical Stone Technology in the Field of Compound Research (300725. SZ), Medici (688202. SH) and so on.
During the reporting period, Wanbang Pharmaceutical achieved operating income of 105 million yuan, 103 million yuan, 139 million yuan and 100 million yuan respectively, with an average annual compound growth rate of 15.23%, and the company's market share in 2020 was negligible in terms of the domestic CRO market size of 52.2 billion yuan.
In terms of profit indicators, the company's net profit during the reporting period was 27.7913 million yuan, 26.49 million yuan, 54.5156 million yuan and 39.5865 million yuan, of which the net profit margin increased as a whole, from 26.67% in 2018 to 39.56% in 2020, mainly due to the company's high gross profit margin.
During the reporting period, the gross profit margin of Wanbang Pharmaceutical's clinical research services was higher than the industry average, even comparable to Tigermed, due to the company's effective cost control and complete industrial chain layout.
<h3>R&D investment is lacking, and the development of innovative drugs is weak</h3>
According to the prospectus, the company's revenue mainly comes from clinical research services, and the whole process of clinical research services is the mainstay, including clinical trial operation services (CO services), clinical trial site management services (SMO services), biological sample analysis services (BA services), data management and statistical analysis services (DM/ST services) and other processes.
In terms of clinical CRO, Wanbang Pharmaceutical has built a research and development platform such as BE/PK research, BA, DM, in vitro and in vitro correlation technology research, etc., providing systematic professional support for the implementation of clinical trials, and building a Phase I-IV clinical trial research service platform, establishing a complete quality management system, which will rapidly expand the Phase I clinical trial research service business and gradually expand the Phase II-IV clinical trial research service business.
CICC Research Report pointed out that the high-quality clinical hospitals and potential innovative drug resources connected by clinical CRO make it have strong resource attributes; the core sections of the clinical CRO execution stage include SMO, CRA, data management and statistical analysis, all of which have a greater connection with the project execution team, and the number of business personnel is the main indicator to measure the production capacity of clinical CRO.
In terms of downstream customers, the company mainly focuses on domestic large and medium-sized pharmaceutical enterprises and CRO enterprises, and has served the companies of China Resources Group, as well as Huazhong Pharmaceutical Co., Ltd., Shanghai Modern Pharmaceutical Co., Ltd., Xi'an Lijun Pharmaceutical Co., Ltd., Anhui Baker Biopharmaceutical Co., Ltd. and other well-known pharmaceutical enterprises.
From the perspective of employee composition, as of the first half of 2021, the company has a total of 182 employees, including 160 technical personnel, accounting for 87.91%, and 7 core technical personnel, of which the actual controller Tao Chunlei is also a core technical personnel, a master's degree, and a deputy chief pharmacist. Tao Chunlei once served as a salesman, workshop director, deputy general manager of sales, general manager of Anhui Shengying Pharmaceutical Co., Ltd., and teacher of Anhui University of Traditional Chinese Medicine of Hefei Sixth Pharmaceutical Factory.
From the perspective of employee education, as of the first half of 2021, there are 152 people with bachelor's degree or above, accounting for 83.52% of the total number of employees; of which 21 are masters and doctors, accounting for 11.54% of the total number of employees.
It is worth noting that the company's R & D investment is low, and the R & D expense rate is not as good as its peers. During the reporting period, the company's R&D expenses were 5.6048 million yuan, 6.7346 million yuan, 7.7831 million yuan and 4.8696 million yuan, respectively.
Due to the lack of R&D investment, as of the end of the reporting period, the company and its subsidiaries have a small number of independent research projects, specifically involving pharmacy and analytical methods, of which 4 pharmaceutical independent research projects have been completed, and 2 research and development projects have been completed; 7 analytical method development projects have not been completed at present.
The interface news reporter learned that according to the "major new drug creation" major scientific and technological projects implemented by the State Council, it is required to develop a number of innovative drugs with independent intellectual property rights and market competitiveness, establish a number of advanced technology platforms, form a new drug innovation ability and technology system that supports the independent development of China's pharmaceutical industry, and promote the strategic transformation of the pharmaceutical industry from imitation to independent innovation; in addition, after the introduction of the medical insurance supporting policy with quantity procurement, the price of generic drugs has dropped significantly. The R&D of traditional pharmaceutical enterprises has accelerated the transformation to innovative drugs, so domestic CRO companies must accelerate the transformation from undertaking generic drug consistency evaluation projects to undertaking innovative drug research and development projects.
The company intends to raise 483 million yuan to invest in the drug research and development and pharmacokinetics engineering center project and supplementary working capital project. Among them, 403 million yuan was used for drug research and development and pharmacokinetics engineering center projects, including clinical trial service capacity improvement projects, pharmaceutical research center upgrade construction projects, and innovative drug development platform construction projects.
Wanbang Pharmaceutical said that in order to adapt to the new situation in the pharmaceutical industry, it is necessary for the company to accelerate the construction of an innovative drug development platform, and further enhance the company's innovative drug research and development capabilities by introducing a team of scientists to jointly develop innovative drugs and improved new drugs.