ADC drugs are expected to lead a new era of precision chemotherapy. Research and development will drive demand from ADC CDMOs to exceed 10 billion US dollars in sales of ADC drugs already on the market in 2023, including 6 blockbuster drugs with sales exceeding 1 billion US dollars. The ADC drug market performance far exceeded expectations and is expected to attract more pharmaceutical companies to invest in the ADC R&D wave.
The barriers to ADC R&D and production are high. About 70% to 80% of ADC projects will be outsourced to CDMO companies, which is far higher than the outsourcing rate of about 34% for other biologics. The higher penetration rate is expected to bring new opportunities to relevant CRDMO companies.
Pharmaceutical Federation has built sufficient production capacity in the Yangtze River Delta. CDMO is forward-looking, and Chinese pharmaceutical companies have the largest number of ADC drug development pipelines in the world. Domestic ADCs will collectively enter the international market in 2023, which is expected to break through the space limitations of the domestic market and stimulate the explosion of ADCCDMO demand. The Yangtze River Delta region is a gathering area for ADC R&D companies. Pharmaceutical and Ming Alliance is building abundant production capacity in the Yangtze River Delta, which is conducive to speeding up R&D progress and reducing costs and increasing efficiency for customers.
CDMO going overseas is a general trend. In order to meet the demand for surging production capacity and avoid the risk of a single supply chain, the Pharmaceutical Federation has adopted a “global double factory” strategy. Pharmaceutical Federation is building production capacity in Singapore, where the Asia-Pacific headquarters of multinational pharmaceutical companies gather. We believe this move is strategically forward-looking.
The advantages of the integration and empowerment of Yao Ming Union are obvious, and its performance is expected to continue to grow at a high level. It fully empowers customers from R+D+M, provides WUXI XDC solutions for the development of the XDC industry, and its market share continues to grow: the global market share of Pharma Ming Union has risen from 1.8% in 2020 to 4.6% in 2021, and further to 9.8% in 2022.
Most ADCs at home and abroad are in the early development stage, and are expected to be converted into high-quality clinical development and commercial orders in the future, which will drive up the demand for ADC CDMO. Yao Ming Union's production capacity construction in China has been completed, and production capacity in Singapore is under construction. It is expected that the market share will be further expanded as production capacity increases, thus continuing to drive strong growth in performance.
Profit forecast and investment rating: Based on the number of orders in hand, the R&D stage, and the distribution of customer pipeline progress, we predict that the company's net profit for 2023/2024/2025 will be 292/568/883 million, respectively, and adjusted net profit of 4.01/6.03/918 million yuan, respectively.
The ADC circuit is at the beginning of an explosion, and as a leader in the segment, Yao Ming Union has an absolute competitive advantage, and its performance is expected to continue to grow at a high rate; considering that the current market value of Pharmacom Allied Corp. is only 0.44 PEG in 2024, we believe that the company is currently underestimated. First coverage, giving a “buy” rating.
Risk warning: the risk of increased policy uncertainty; the risk of increasing competition; the risk that customers cut R&D expenses or built their own production capacity, and the risk of outsourcing demand falling; the risk of brain loss.