"Going to sea" is unstoppable and looking forward to the upstream internationalization of China's life sciences

Driven by the growing demand from the downstream biopharmaceutical industry, China's upstream life science industry has broad space for future development

The upstream industry of life sciences is composed of multiple sub-segments.

The upstream industry of life sciences is booming

The upstream industry of life sciences is booming

●Under the influence of the new crown pneumonia epidemic and international logistics factors, domestic enterprises have obtained opportunities for rapid development

●The awareness of "independent and controllable" promotes the increase in the market share of domestic products, and the performance of the segment is expected to maintain rapid long-term growth

The upstream industry chain of life science refers to related industries that serve the whole process of life science research and production (such as biopharmaceuticals, in vitro diagnostics, etc.

equipment

The field of biomedicine is developing rapidly, and new technologies emerge one after another

Driven by the growing demand of the downstream biopharmaceutical industry, the upstream industry of life sciences has also developed rapidly, and the industry as a whole is on the fast track of sustained and rapid development

The barriers to subdivisions in the industry are high, and the customer stickiness is strong

The barriers to subdivisions in the industry are high, and the customer stickiness is strong

According to the "Technical Guiding Principles for Pharmacy Change Research of Listed Biological Products (Trial)" issued by the Center for Drug Evaluation (CDE) of the State Food and Drug Administration, for the listed biological products, the medium, cell culture process and separation and purification process in the production process The key process changes in the process are all major process changes, and it is necessary to provide supporting information on the performance, working principle, production capacity, etc.

drug

Difficulty in purchasing imported products, independent and controllable guarantee of supply security

Difficulty in purchasing imported products, independent and controllable guarantee of supply security

Chinese biopharmaceutical companies have long relied on imported upstream products

The market share of domestic products is low, and the development of local enterprises is accelerated

The market share of domestic products is low, and the development of local enterprises is accelerated

At present, from the perspective of the industry competition pattern, the penetration rate of localization is still low

Going to the international market is an inevitable choice

Going to the international market is an inevitable choice

●The upstream industry of life science is composed of multiple sub-segments, and the domestic market size of a single industry is limited

●At present, the proportion of overseas revenue of most domestic companies is relatively low, and going to overseas markets has become an optional way

The upstream industry of life sciences has a long process and high specialization requirements.

First, the functions of products in various fields in the industrial chain are relatively single, and the demand is limited but has strong rigidity.

enterprise

Second, the products are highly specialized

The international market in sub-sectors has massive potential for mining

The international market in sub-sectors has massive potential for mining

According to data from Frost & Sullivan, the size of China's biological drug market in 2020 is estimated to be 387 billion yuan, and the global biological drug market size is 313.

medicine

The emergence of innovative technologies in the bio-industry is also generating new industry demands, which in turn drives the development of new upstream fields of life sciences

Because CGT-related viral vectors and plasmids are closely related to the quality of drugs and need to go through complex and strict process development processes, in the field of CGT drug development, the provision of viral vectors and plasmid products usually becomes a part of CDMO development services.

Some companies have made breakthroughs in internationalization

Some companies have made breakthroughs in internationalization

Judging from the income structure of some representative upstream life science companies in China, most of the companies' main revenue still comes from China, and international business accounts for a relatively low proportion of total revenue

Some companies' overseas business income accounts for a relatively high proportion
.
Such as Baipsis, Yiqiao Shenzhou, Jiete Biotechnology and Gongdong Medical, their international business revenue in 2019 accounted for more than or close to 50%
.
The upstream reagent industry in life sciences is related to the detection of new coronary pneumonia virus and the research and development of new coronary pneumonia treatment drugs, and related overseas business will see more growth in 2020
.

Companies with a high proportion of international business can be roughly divided into two categories:

Companies with a high proportion of international business can be roughly divided into two categories:

One is the company with its own products
.
Baipsis, Yiqiao Shenzhou, etc.
mainly sell their own terminal products overseas
.
Such companies set up overseas branches or subsidiaries earlier, and built a complete system of operation, R&D and sales
.
For example, Bipsis established a US branch in 2013, which can provide some special products such as full-length membrane proteins that are scarce in the drug research and development market
.
China Cell Co.
, Ltd.
(the predecessor of the listed company China Cell) has established a US branch in 2016 to sell related products
.
Yiqiao Shenzhou can provide more than 6,000 kinds of recombinant protein reagents and more than 10,000 kinds of antibody reagents
.

The second is OEM/ODM manufacturers
.
Some domestic consumable manufacturers in the field of life sciences, such as Jiete Bio, Gongdong Medical, and Adoption, have developed the international market through OEM/ODM
.
From the perspective of industry attributes, consumables products have the characteristics of manufacturing, and China's engineer dividends and low-cost advantages can also be brought into play
.

A company with OEM/ODM as its main model, its main sales customers are some international leading companies in the field of life sciences and medical consumables, such as Thermo Fisher, VWR, Medline and Mckesson
.
Many of these manufacturers' products belong to the medical device category.
Internationally, governments in various countries have strict regulations and management on the market access of medical device products.
The market access barriers are relatively high, and they have better customer stickiness
.

medical instruments

Open up the road of "going overseas" for Chinese enterprises

Open up the road of "going overseas" for Chinese enterprises

●my country's life science upstream enterprises started late, and they are in the position of late-comer challengers in the world.
They need to choose a suitable path to go overseas and give full play to their differentiated advantages.

●Select a reasonable entry point, comprehensively consider the characteristics of overseas markets, and actively learn from international experience

The hardest start is the long road
.
Downstream customers will go through several years of inspection and certification before confirming their suppliers.
After confirming cooperation, they will not easily change suppliers due to technical and regulatory reasons
.
The overseas market expansion of domestic enterprises is expected to require a long period of program demonstration, product introduction, change filing and other links before the final replacement can be completed
.
Therefore, for domestic enterprises going overseas, entering the customer supply chain system is not only the first step, but also the most difficult step that requires a lot of time and energy
.

In the process of going global, it is necessary not only to have a clear strategic positioning in order to give full play to the advantages of Chinese enterprises, but also to pay attention to the specific conditions of different regions to determine development priorities
.
In addition, the downstream development of the industry should also be considered.
The internationalization of China's innovative drugs, cell therapy, and gene therapy products can be used as successful cases for domestic products to go overseas, helping upstream companies' products to go overseas at the same time
.
In addition to the technological progress and scale expansion of the enterprise itself, drawing on the development experience of overseas companies and attaching importance to capital market tools such as mergers and acquisitions, the international development of the enterprise can also be multiplied with half the effort
.

Concentrate resources to win the market from point to point

Concentrate resources to win the market from point to point

The upstream industry of life sciences in China started relatively late, and the status of domestic companies as late-comer challengers in the industry will not change in the short term
.
Even in the segmented field, limited resources need to be concentrated to form local advantages in some products
.
Focusing on a small and beautiful track can improve the company's focus and help the company achieve local breakthroughs
.
Only when the company has products with core competitiveness in the field can it establish a brand in the international market, which in turn drives the overall expansion of the company's products
.

Take full advantage of "Made in China"

Take full advantage of "Made in China"

Chinese enterprises have shown many differentiated competitive advantages in the competition, including the following four aspects:

One is excellent service support and response speed
.
The rich resources of practitioners have made the domestic company have a strong competitive advantage in terms of service; many domestic companies have strong sales and technical teams, and are able to quickly learn and deal with customer feedback problems, which is faster than overseas manufacturers.
fast
.

The second is high R&D and production efficiency
.
The rapid rise of the CXO industry in China has verified the key role of the engineer's dividend in the development of the life sciences industry
.
The upstream products of life sciences have high technical barriers and rapid updates and iterations.
Enterprises need to continuously invest in R&D to keep up with market demand.
They also need a large number of high-efficiency, high-quality and low-cost talents as the basis.
Domestic enterprises have advantages in this regard
.

The third is to provide customized products
.
The development and production of pharmaceutical products generally adopts a project-based development process, that is, for each drug, the development of relevant production processes, analytical methods, quality control standards, etc.
needs to be carried out separately, so it is inevitable that standardized products cannot meet the needs.

.
In addition to expanding product lines and providing more cataloged products, companies often need to provide customized products for customer projects
.
Such long-tail projects are often not the focus of large foreign platform companies, but a breakthrough point that domestic manufacturers can try when they go abroad
.

Fourth, the products are cost-effective
.
For cost-sensitive customers, the products of Chinese companies have great advantages in terms of cost performance
.
It should be noted that since a single product often accounts for a small proportion of the production cost, the final choice of the customer is usually a comprehensive choice after examining the performance of the product in the project and combining the price
.

Emerging markets have huge potential to tap

Emerging markets have huge potential to tap

Judging from the current situation of the industry, the use of various reagents, raw materials and consumables in the drug research and development process is not large, and customers are relatively insensitive to prices; and in the production stage, biological drugs have high gross profit margins, and customers choose suppliers when choosing suppliers.
More consideration will be given to the quality of products and the stability of the supply chain
.
From a global perspective, the development of innovative drugs is mainly concentrated in Europe and the United States, and the products will maintain a relatively high price for a long time after they are launched, so the demand for cost control is relatively weak
.

In contrast, many developing countries and regions other than China also have huge and unmet demand for medicines
.
In this type of market, the price-performance advantage of Chinese companies' products will be magnified, and they may seize a certain market share through price advantage
.

"Going overseas" of medicines is a huge boost for upstream products "going overseas"

"Going overseas" of medicines is a huge boost for upstream products "going overseas"

With the continuous internationalization of domestic downstream drugs and new treatment technologies, projects using domestic products will also appear
.
The overseas application demand brought by the “going overseas” of downstream drugs will also be fed back to the upstream industry chain, which will promote the improvement of domestic product standards and the process of internationalization of upstream products will be smoother
.

The Power of Mergers and Acquisitions

The Power of Mergers and Acquisitions

Reasonable mergers and acquisitions can quickly acquire overseas brands and corresponding channels
.
Since the development of the upstream industry of life sciences, mergers and acquisitions have been an important means to quickly supplement a company's product capabilities and customer channels
.
Take Danaher, a leading company in the industry as an example, which regards mergers and acquisitions as the driving force for the company's continuous growth.
In recent years, the company has acquired Cepheid, Integrated DNA Technologies, AVT, and Pall and other companies to supplement product lines and The acquisition of GE Life Sciences will be completed in 2020, which will further enhance its brand position and influence in the field of life sciences
.

When Chinese enterprises go international, they cannot forget the effective means and tools of mergers and acquisitions
.
Referring to Danaher's methodology, attention should be paid to the reinforcement or synergy of the company's existing business in the process of acquisition, and the irreplaceability and market position of the target in the market should be paid attention to when selecting the target
.
And the company also needs to have a clear business system and development ideas, through a good management system to avoid confusion after mergers and acquisitions, to help the merger target into the company
.
Danaher takes the DBS business system as the guiding principle to unify the management concept of the acquired company, and optimizes the business process of the acquired company through its superb lean management capabilities, so as to obtain higher returns
.
Such development models and company management experience are also worthy of reference and study by Chinese enterprises
.

Epilogue

Epilogue

The biotech space is full of catch-up opportunities
.
In fact, every breakthrough new biotechnology or new therapy has a huge impact on the global competition in the pharmaceutical field
.
For example, the recent rapid development of mRNA vaccine technology has spawned new stars such as Moderna, BioNtech and CuerVac in the global market, and a number of fast-rising companies such as Aibo Bio and Sci Micro have emerged in China
.

New technologies also create demand for new process routes and new related products
.
There are no shortcuts in product development and exploration for new technology routes
.
For example, the development of the emerging CGT field has promoted the expansion of the demand for upstream viral vectors and plasmid products.
This field has not been developed for a long time, and domestic companies can participate in the most advanced cutting-edge research and stand on the same starting line with traditional giants
.
In the wave of bio-innovative drug development, Chinese companies in the upstream field of life sciences have achieved rapid development and accumulation for the first time
.
In the era of visible new technologies, China's life science industry and its upstream have the opportunity to invest in the wave of technological innovation, and the best among them are also expected to become the next Thermo Fisher and Danaher.
to the world
.
(Author: Industrial Securities)