In the field of innovative drug research and development, the double ten law of "10 years, 1 billion US dollars" has been circulating, but in fact, the real situation is more cruel than the double ten law.
CXO (Pharmaceutical Outsourcing) can provide pharmaceutical companies with various outsourcing services from new drug R&D to production, which can effectively improve efficiency, reduce costs, and shorten the R&D cycle. Therefore, CXO is also regarded as a "water seller" in the pharmaceutical industry, ensuring income during drought and flood, and is known as the "best track".
For a long time in the past, benefiting from the continuous explosion of the demand side, CXO companies have generally had a good life. However, everything has a cycle, and since reaching its peak in 2021, the "chill" has gradually spread in the field of upstream innovative drugs, and the CXO field has slowly entered the "cold winter".
And these headwinds are ultimately reflected in the performance and share price.
Layoffs continued, performance declined, and the "water sellers" couldn't stand it
In June this year, the veteran companies in the pharmaceutical outsourcing industry, Bionova Sundia and Spring Pharmaceutical, were rumored to be laying off employees and unpaid wages. In September, Medicilon (688202SH) was also exposed to laboratory layoffs.
Although the relevant companies use the words "adjustment" and "optimization", the essence of layoffs and production capacity reductions is obvious.
These can also be seen from the financial reports of listed companies in the industry over the years.
The data shows that during the period from 2019 to 2022, including Gloria Ying (06821HK), Pharmaron (03759HK), Tigermed and many CXO-listed companies have increased the total number of employees year after year. It wasn't until 2023 that the situation diverged and some CXO businesses began to decline their employees.
WuXi Biologics (02269.)hk）The situation is slightly better, so farThe total number of employees has increased by 24 compared to the end of 2022, but the increase is far less than in previous years.
In 2023, the prosperity of the CXO industry will decline visibly, which is also reflected in the performance in 2023.
The data shows that in the first three quarters of this year, the net profit of a large number of CXO companies such as Kailaiying, Zhaoyan New Medicine, Proton Shares, and Medicilon suffered a decline.
Hong Kong-listed WuXi Biologics is a leading CXO in macromolecule biologics, and so is its performance.
According to the data, from 2019 to 2022, WuXi Biologics' revenue and net profit attributable to the parent company have been rising year after year, which is quite stableAnd even hit new highs. WhileIn the middle of 2023, the company's revenue still recorded growth, but the net profit attributable to the parent decreased by 10% year-on-year59% to 226.7 billion yuan (RMB, the same below).
It stands to reason that the market expects a decline in the performance of CXO companies, but an announcement issued by WuXi Biologics a few days ago still made investors break their defenses.
On December 4, WuXi Biologics held a business update meeting and gave a briefing. According to the disclosure, the biotechnology industry is growing at a single-digit annual rate due to the slowdown in biotech financing, in addition to the decline in revenue from COVID-related projects and the postponement of the production of several blockbuster drugsAs a result, the target revenue growth for 2023 was lower than expected.
WuXi Biologics said it remains optimistic about its future prospectsIt aims to achieve overall revenue growth of approximately 10% in 2023We will continue to invest in capacity enhancement to maintain strong gross profit and growth over the next two years.
It is important to know that from 2020 to 2022, WuXi Biologics' revenue growth rate has reached year-on-year. 38%。In contrast,The 10% growth rate that the company will strive to maintain in 2023 is also a significant decline compared to the past.
At the business level, the slower-than-expected revenue growth rate of the company's drug development business and the decline in production revenue are the main reasons for the lower-than-expected revenue growth of WuXi Biologics in 2023.
And so it goesWuXi Biologics increased its volume by 23 on December 479%。Although the company recently launched a buyback plan to hedge the bearish, it is still difficult to recover the continuous trend of the stock price, and by the afternoon of December 11, it has fallen by 3448%，And if you calculate it from the beginning of 2023, the decline has reached 5238%。
This is also a microcosm of CXO-listed companies, in fact, the stock price performance of companies such as Tigermed and Pharmaron is also relatively weak.
It can be seen that there is no eternal god in the market, and the industry has cycles, even the pharmaceutical "water sellers" who are known as drought and flood to ensure income will not be able to withstand the downturn in the economy.
Why is the industry's prosperity declining?
Combined with the industry background, CXO is the product of the fine division of labor in the pharmaceutical industry, for this track, the greater the demand for drug development, the more outsourcing contracts, the higher the industry prosperity, the more nourishing the life of enterprises in the industry, otherwise there will be layoffs and production reductions in 2023.
In the past few years, the domestic CXO industry has continued to prosper at a high rate, which is inseparable from the support of policies.
Since 2015, the State Food and Drug Administration has continued to reform the drug review and approval system, improve the supervision of drug research and development, registration and production, and accelerate the launch of new drugs.
In the following years, the field of innovative drugs ushered in great development, and even some pharmaceutical companies that had never been involved in and did not care about the research and development of new drugs before also entered the market for research and development under the guidance of the policy.
The continuous explosion of demand for new drug research and development has also stimulated the development of the CXO segment, which can also be supported by relevant data.
The investment and financing of the primary market of biomedicine is a leading indicator of the performance of CXO and the upstream of life sciences. The data shows that from 2018 to 2021, the overall amount of biotechnology financing in overseas and China has increased significantlySince 2021, the amount of biotech financing has been on a downward trend overall.
In addition, according to the data of Yaozhi.com, from 2017 to 2022, the number of IND varieties of Class 1 new drugs accepted by the CDE (Center for Drug Evaluation) was 208, 239, 302, 559, 953, and 944, respectivelyIt has also been declining since 2022.
To put it simply, in the past few years, the field of innovative drug research and development in China and overseas has exploded dramaticallyThe rapid development was followed by a bubble.
At the same time, the strong interest rate hikes in the United States in the past two years have led to the return of massive funds, and the market liquidity has dropped sharply, affecting both the primary and secondary markets.
When the bubble was in the bubble, there was money flowing in the market, and even the new drug projects with poor quality were rushed to invest, and there was a boom. And when liquidity is siphoned off and bubbles burst, low-cost projects will naturally be cutIn the end, it affected the CXO segment, and in order to win the project, even low-price competition began to be staged in this ** track, which further lowered the performance of CXO companies.
In addition,The CXO industry is heavily dependent on overseas markets, and the competition brought by some foreign giants will also put pressure on the performance growth of domestic CXO companies. It is reported that while WuXi Biologics lowered its performance forecast, Samsung Biologics from South Korea raised its performance guidance for 2023.
What is the outlook for WuXi Biologics?
Looking ahead, from the perspective of the industry, the long-term development potential of the pharmaceutical and health industry is still worth looking forward to in the context of an aging populationAlthough the investment in new drug R&D fluctuates, the general trend of overall growth will not change easily.
In fact, the downward cycle of the economy is also an opportunity for the industry to clear up, and the backward production capacity newly built in the past few years with the help of funds is expected to gradually close down or be acquired.
Comparatively,As one of the leaders in the CXO industry, WuXi Biologics is expected to gain more market share after the industry recovers, and its performance will explode again.
As for when the industry will be cleared and usher in the business cycle again, the investment and financing situation in the primary market is still a leading indicator worth paying attention to.
According to the research report of Southwest ** a few days ago, the total amount of overseas investment and financing in 2022 and the first quarter to the third quarter of 2023 will be 5609 respectively700 million yuan, 4483700 million yuan, down 52 percent year-on-year8%, a year-on-year increase of 05%；The total number of financing events was 2,970 and 2,264 respectively, down year-on-year. 4%。
Back in China, in the first quarter of 2022 and the first and third quarters of 2023, the total amount of medical and health financing will be 1458900 million yuan, 850200 million yuan, a year-on-year decline. 1%；The number of financing events was 1,091 and 962 respectively, down 24 year-on-year3%, a year-on-year increase of 121%。
Overall,Although the investment and financing situation in the primary market is still under pressure as a whole, it has also shown a hint of "warmth".
However, there is no consensus on when the industry will usher in a real recovery.
WuXi Biologics said in the announcement that it was affected by biotechnology financingThe industry expects single-digit growth over the next two years. In addition, the company has achieved a 3-4 times increase in the industry in the past ten yearsThe future goal is to double the growth rate of the industry.
When it comes to the recovery timeline, the company said that 2023 and the first half of 2024 will be the most challengingIt is expected to gradually recover in the second half of 2024. Management guidance also showsFrom 2024 to 2025, there will be more than 100 new projects per year.
Conclusion
In the long term, the future of the CXO industry remains bright, and WuXi Biologics is one of the leaders in the industryThe outlook should not be overly bearish.
However, some of the controversy surrounding the company is still worth paying attention to.
On the one hand, WuXi Biologics' performance has shifted from high growth to low growth, and whether its growth potential can return to the state of the past few years has been widely questioned by investorsOn the other hand, the company's controlling shareholder has continued to make a large number of ** in recent years, and the spin-off and listing behavior has also been criticized by investors, especially at the moment of declining performance.
In this case, it remains to be seen when its stock price will stop falling and recover.
Author: Yan XIV.