Whales are some of the most magnificent migrants on Earth, crossing tens of thousands of kilometres each year, swimming from the cold polar waters to the warm tropical waters in search of food.
Smelling the warm breath, the overseas CXO giants began to collectively attack on November 1, trading the logic of the end of the capital winter in advance.
Powell stopped pretending and made a sudden U-turn on December 14, making it clear that he would consider cutting interest rates next year. The yield on the US 10-year Treasury bond fell below 4%, and the improvement of biotech investment and financing is a foregone conclusion. At this inflection point, it would be anachronistic for anyone who is just starting to bearish the industry.
The latest core business guidance for most overseas CXO companies has been raised or maintained, Samsung Biologics' full-year revenue guidance has been raised to more than 20% from 15%-20%, Charles River has continuously raised its full-year drug discovery and safety assessment revenue guidance, Labcorp has continued to raise its basic diagnostics business guidance, and Icon and Lonza have maintained their full-year guidance unchanged. But the strongest CXO is not Samsung Biotech, but Medpace, which has raised its performance guidance for 4 consecutive quarters, and the stock price has hit record highs in a row.
Ironically, Medpace makes a living from small and medium-sized biotechs in the cold winter of service capital.
Left: Medpace's revenue over the years (US$ million) Right: Medpace's net profit over the years (US$ millions) Source**: MedPace company announcement, Minsheng ** Research Institute
What are the high booms reflected overseas?
Overseas mapping will provide a leading clue to China's innovative drug industry chain.
According to Bioworld statistics, the total amount of global biomedical investment and financing in 2023Q3 is 187$2.9 billion, up 781%, down 232%, still the strongest quarter of the year, with a clear quarter-on-quarter improvement trend. IQVIA was one of the few CXOs to lower its full-year guidance, mainly due to lower-than-expected commercialization segments, but the full-year guidance for clinical CRO business remained unchanged, with shares trading at **25% since November 1. CXO is the vane of the industry, combined with the statistics of people's livelihood ** medicine, let's take a look at the high prosperity direction of global biotechnology.
The biologics CDMO segment has the highest order growth rate:Samsung Biologics' CMO orders have maintained rapid growth, with commercialization contracts signed with a number of global pharmaceutical companies, and the orders in hand reached $11.8 billion as of Q3 2023, a year-on-year increase of 39%, including 10$800 million long-term contract and 2US$4.2 billion expansion of strategic cooperation contracts. Lonza CDMO's performance continues to grow strongly, with strong demand for commercial capacity and stable biopharmaceutical investment and financing.
Clinical CRO newly signed a single high boom:IQVIA's clinical CRO business signed a record US$2.6 billion in new orders and US$28.8 billion in orders on hand in Q3 2023, of which US$7.4 billion of orders will be converted into revenue in the next 12 months, benefiting from improved global biopharmaceutical investment and financing, and large pharmaceutical companies still maintain strong R&D activities. ICON's orders in hand were $22.2 billion, up 10% year-on-year0%, the clinical CRO industry benefits from the positive demand from the downstream and maintains healthy development.
Safety assessment business picks up:Charles River's revenue from the first three quarters of 2023 was 19$900 million, up 133%, with the normalization of China's NHP (experimental monkey) shipments is expected to gradually pick up, and the overall development trend is expected to be good in 2024-2026. In 2023Q3, the project cancellation rate and book-to-bill ratio of the safety assessment business both improved sequentially.
High Boom Drugs:Samsung Biotech's main areas of future expansion are ADC, mRNA, and aseptic filling, with plans to build an ADC facility at Plant 4, which is currently under construction and is expected to be operational in 2024. Alzheimer's disease testing requires PET CT brain scintigraphy or cerebrospinal fluid testing, PET testing is relatively high**, while cerebrospinal fluid testing requires puncture, Labcorp launched the ATN Profile product in the United States in September with a price tag of $626, which is a blood-based test that combines three blood markers, amyloid plaque, tau pathology, and nerve damage, to identify and assess the biological changes associated with Alzheimer's disease. Catalent's performance is expected to continue to improve in 2024 thanks to GLP-1 and Genomics**, with additional production capacity in Bloomington to meet demand for a number of new products, including GLP-1.
CXOs that cross the cycle
A mature investor who has gone through the cycle should know how to balance allocation.
The Nasdaq 100 has been 52% so far this year, and investors who focus on related ETFs have become winners in 2023. The Nasdaq Biotech Index is waiting for an opportunity, driven by the expectation of improved investment and financing, rising more than 4% on December 13 and **14% since November 1, but standing at the beginning of the interest rate cut cycle, this upward trend has just begun. The Nasdaq Biotech ETF (513290) is the only ETF in the whole market that tracks innovative drugs in the U.S. stocks, which can be traded intraday, and the over-the-counter connection *** is that the key constituent stocks of the underlying index include Medpace (the strongest CXO), Futai Pharmaceutical (gene editing**), Regeneron (the king of self-immunity), AstraZeneca (ADC leader), Aliram Pharmaceutical (small nucleic acid giant), Biogen (Alzheimer's disease icebreaker), Moderna (mRNA cancer vaccine), covering all the most promising directions of biotechnology.
Since 2000, the annualized return of the underlying index of the Nasdaq Biotech ETF (513290) is 609%, outperforming XBI's S&P Biotech Index (5.).90%）；And NBI has a higher Sharpe ratio, which is 1 of XBI3 times, striking a good balance between elasticity and returns. Starting from the bottom of the new business cycle, the biotech field is expected to give birth to a winner in 2024.
Founded in 2014, Medpace is a clinical CRO company benchmarked against the Chinese company Tigermed.
In the customer structure, small biotech revenue accounted for 78%, medium-sized biopharma accounted for 18%, large pharmaceutical companies accounted for only 4%, medpace can be described as a dark horse running out of the biotechnology sinking market, the stock price has risen by 41% since the beginning of this year, driven by high performance growth, and has also been among the highest share price increases in the medical and health industry for a long time in the past, **46% in 2018, **70% in 2019, **67% in 2020, and **62% in 2021.
Why is it so tough?
Medpace focuses on customers with financing capabilities and sustainable growth potential, keeps up with the frontiers of pharmaceutical innovation, and generally adopts a full-process service business model with high profit margins. In the first three quarters of this year, the revenue of the oncology business increased by 27% year-on-year6%, accounting for 32% of revenue, and metabolic business revenue increased by 66% year-on-year2. The proportion will be increased to 20%.
During the capital winter, Biotech prioritizes cutting early-stage clinical R&D projects, and instead concentrates resources on mid- and late-stage clinical projects to accelerate the risk of canceling backlogs.
Medpace's revenue for the first three quarters of 2023 was 13$8.7 billion, a year-on-year increase of 302%, net profit 20.5 billion US dollars, a year-on-year increase of 157%。Raised full-year guidance for 2023 to close at 1870~18.$9.0 billion, 2024 guidance, estimated revenue of $2150~22.0 billion dollars.
2023Q3 new signed order 6$1.2 billion, a record high, a year-on-year increase of 299%。The order in hand reached 26$9 billion, a year-on-year increase of 203%, of which 14The $6 billion order will translate into revenue over the next 12 months.
At the end of the third quarter, MedPace had 5,811 global employees, about 60% of Tigermed, but its revenue was 17 times. Clinical CRO is a manpower-intensive industry, and it still has a cost-effective advantage in China, but overseas first-class value business is more attractive. As of the 2023 interim report, Tigermed's overseas employees have increased to 1,525, accounting for 43% of overseas revenue, following the trend of innovative drugs going overseas, 269 projects have been carried out overseas, and 62 projects have conducted multi-regional clinical trials.
The end of winter may be the hardest, but as Medpace says:
There are still challenges with customer financing, but the hardest time is behind us.