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Under the favorable influence of policies and labor costs, the domestic CXO industry has entered a stage of vigorous development in the past few years, and its performance and stock price have soared
.
However, since the second half of last year, due to unfavorable factors such as the turmoil of external market policies, this golden track, which has long been considered to be "stable and unlost", is no longer generally optimistic
.
Competition intensifies, profits decline, external "black swans" are frequent, stock prices break.
.
.
The CXO industry entered the second half, from a "breakout competition" to a "knockout round", Prosperity Pharma is belated, can it successfully advance?
Integrated CXO route
Integrated CXO route Founded in 2007, Prosperity Pharma is a one-stop integrated service provider for the R&D and commercial production of small molecule new drugs, with its main business covering drug discovery, process research and development, and commercial manufacturing
.
According to the prospectus, Prosperity Pharma's CRO and CDMO business provides integrated services from drug discovery to clinical drug candidate identification, clinical drug and drug registration starting materials (RSM) and key pharmaceutical intermediate process development and production, assisting customers to smoothly achieve seamless docking
from laboratory pilot test, pilot test to factory commercial production.
Scope of business services Source: Prosperity Pharmaceutical's prospectus
Integration is the most mainstream development trend
in the current CXO industry.
Throughout the development history of CXO giants at home and abroad, almost all of them have continuously covered the entire industry chain
from new drug discovery, research and development to manufacturing through the "acquisition + extension" model.
WuXi AppTec, the domestic CXO leader, has taken the advantages of integration to the extreme
.
Bind customers from the early stage of drug discovery, follow the development of drug molecules throughout the process, and provide services
at different stages as the customer's drug development process progresses.
From drug research and development, clinical trials to application for marketing and commercialization, every link can bring revenue to the company, and with the advancement of the new drug research and development process, the service scale and business income continue to expand
.
Prosperity Pharma also saw the development advantages of integrated CXO and regarded integration as a strategic goal
of the company's development.
However, new drug research and development is a complex system engineering, the whole process involves different disciplines, different systems, to cover the CXO business to the whole process not only requires a lot of capital, but also requires the accumulation
of time and experience.
Although Prosperity Pharma claims to have the ability to provide customers with one-stop comprehensive services from preclinical technical services to commercial production of drug development, it is clear that many of these subdivisions
are not involved.
For example, drug safety evaluation, drug analysis, materials science/preformulation, formulation development and production and analysis development services
.
From WuXi AppTec's experience, the key to integration is to follow the molecule from start to finish, and if one of these links needs to be handed over to other CXOs, it is very likely to lose this customer
.
It can also be seen from the top five customers of Prosperity Pharma that the top five customers change frequently, and the various sub-businesses, especially the commercialization business, are not connected with drug discovery, process research and development, and have not yet played the advantages of
integration.
On the whole, Prosperity Pharma has unique technical advantages in new drug discovery and process research and development, especially in computer-aided drug design and AI-aided design, which can greatly shorten the development cycle of new drugs and effectively improve the probability of
success.
However, on the road of integration, it is necessary to continue to extend the industrial chain and build new business sectors in order to truly realize the seamless connection
of upstream and downstream of new drug research and development.
Overseas business accounted for more than 70%.
In the wave of economic globalization, China's CXO has shifted overseas CXO production capacity to China by virtue of lower labor costs, faster service response speed and upstream and downstream industry chain advantages, and overseas orders have become an important source of income for
domestic CXOs.
Among them, Kanglong Chemical and Clarion accounted for more than 85% of overseas revenue, WuXi AppTec accounted for more than 75%, and Jiuzhou Pharmaceutical, Porton and PharmaBlock accounted for about
70%.
Prosperity Pharma also started to provide drug discovery services for overseas customers, and domestic customers started late
.
From 2019 to 2021, overseas sales revenue was 197 million yuan, 219 million yuan and 314 million yuan respectively, accounting for 81.
28%, 78.
53% and 70.
29%
of the main business respectively.
The main sales regions include the United States and India, of which the United States is mainly for new drug research and development services, and the sales proportion increased from 38.
42% in 2019 to 50.
74%; In India, the commercial production business decreased from 25.
97% to 6.
53%.
Main business income by region Source: Prospectus of Prosperity Pharmaceutical
From the data point of view, overseas business is still the main source
of revenue growth for Prosperity Pharma and the entire CXO industry in China.
However, over-reliance on overseas markets has also brought many overseas policy risks
to the CXO industry.
Reflected in the capital market, that is, the wind and grass of the international policy environment will trigger violent shocks
in the entire CXO industry.
Especially in recent years, the United States has emphasized the return of manufacturing industry, which has become the sword
of Damocles hanging over the head of the domestic CXO industry.
Since the "Entity List" incident in December last year, there have been at least three incidents
that have collapsed the domestic CXO industry across the board.
Prosperity Pharma is naturally also soberly aware that it cannot completely rely on overseas markets
.
In particular, the changes in the Indian market have sounded the alarm for
Prosperity Pharmaceutical.
The Indian market used to be the most important source of revenue for Prosperity Pharma's commercialization business, but since the new crown epidemic, due to the severe epidemic in India, the sales revenue in the fourth quarter of 2020 decreased by 74.
36% year-on-year, and in 2021, it fell sharply by 51.
74%, which adversely affected
the company's commercialization business.
Therefore, in recent years, Prosperity Pharma has begun to increase its efforts to develop the domestic market through various ways, including participating in exhibitions, taking the initiative to visit and introducing the same industry, etc.
, to increase the number of customers
in the R&D technical service business.
From 2019 to 2021, the domestic business revenue was 45.
404 million yuan, 59.
782 million yuan and 133 million yuan respectively, showing an overall upward trend
.
However, compared with its main competitors, Prosperity Pharmaceutical's domestic customer market development started late, coupled with the fierce competition in domestic CRO services, it still needs time to build trust with domestic customers, and continuously expand domestic business and deepen cooperation
between the two sides by providing high-quality and high-quality services.
Prosperity Pharmaceutical's rules of survival
Prosperity Pharmaceutical's rules of survival According to the latest Frost & Sullivan data, as the global pharmaceutical R&D market is still growing, it is expected that the average annual growth rate of China's CXO industry will still reach 25%
in the next five years.
In the short to medium term, the CXO industry is still the most certain track
in the pharmaceutical sector.
But there is no denying that this market is also gradually becoming crowded
.
On the one hand, for large innovative pharmaceutical companies, the cost of building their own clinical teams is lower and the quality is more guaranteed, and some large innovative pharmaceutical companies with more pipelines, such as BeiGene and Hengrui Pharmaceutical, have begun to build their own CXO teams
.
On the other hand, under the influence of policies such as medical insurance negotiations and collective procurement, traditional pharmaceutical companies have shrunk their profits and begun to transform into CXO, coupled with a large number of API companies, and even Biotech has crossed over into the CXO industry
.
In the face of increasing competition, the CXO industry has clearly diverged
.
Judging from the results disclosed by listed companies this year, the head companies are basically double-digit growth, while the tail companies have begun to show more negative growth
.
In order to have a chance to survive in this "law of the jungle" competition, some small and medium-sized CXOs began to seek a "differentiated" development route
.
In the subdivision of the field to continuously strengthen the technical advantages, dig deep moat, such as focus on safety evaluation of Zhaoyan new drugs, focus on gene therapy drugs Heyuan Biotechnology, focus on ADC drugs focus on Maybury, etc.
have achieved a certain advantageous position
in their respective fields.
Prosperity Pharma is also growing itself
in its own way.
In addition to basing itself on the existing small molecule innovative drug R&D service business, strengthening production capacity and technology platform construction, and expanding the upstream and downstream business layout, Prosperity Pharma also provides API intermediate production by taking advantage of its own API production
base and its technical advantages in pharmaceutical technology.
The API intermediates commercially produced by Prosperity Pharma are mainly ticagrelor series intermediates, and a small number of vepatavir series intermediates and peramivir series intermediates
.
The company's API intermediates revenue Source: Prosperity Pharma prospectus
Although the production of API intermediates is very unusual in the mainstream CXO, and the gross profit margin of this part of the business is much lower than the company's other businesses, it can really bring hundreds of millions of yuan in annual operating income
to the company.
Prosperity Pharma believes that since API companies can switch to CXO, CXO can of course also do APIs
.
What's more, through the production of APIs, customers can also see the company's commercial production capabilities, accumulate experience for future commercial production, and better achieve the goal
of integrated development.
Through continuous expansion of domestic and foreign business, Prosperity Pharma has demonstrated sustained and stable profitability
.
From 2019 to 2021, the operating income was 245 million yuan, 283 million yuan and 448 million yuan respectively, and the net profit attributable to the parent in the same period was 47.
25 million yuan, 48.
69 million yuan and 73.
58 million yuan
.
In the highly competitive CXO market, we are constantly strengthening our strength
.
Conclusion
Conclusion Different from biopharmaceutical CXO, China's small molecule drug CXO is scattered and has low concentration, and small and medium-sized CXOs
still have the opportunity to seize market share.
Resources:
Resources:
1.
Prospectus of
Prosperity Pharmaceutical.
Source: Official website
Prospectus of
Prosperity Pharmaceutical.
Source: Official website
2.
"Chen Ping, Chairman of Prosperity Pharmaceutical: Focus on Science and Innovation, Build a Technology "Moat", China Securities News, 2022-10-11
"Chen Ping, Chairman of Prosperity Pharmaceutical: Focus on Science and Innovation, Build a Technology "Moat", China Securities News, 2022-10-11
