The 2023 results were in line with our expectations. Revenue for the first quarter of 2024 exceeded our expected 2023 results: revenue of $205 million, -29.69% year over year; net loss to mother of $128 million; net loss of $134 million; in line with our expectations. Results for the first quarter of 2024: revenue of 60 million yuan, +93.48% year over year, net loss to mother of 42 million yuan; net loss after deduction of non-return to mother of 0.47 million yuan; revenue exceeded our expectations, profit was in line with our expectations. Revenue exceeding expectations was mainly due to the recovery of CDMO orders and revenue.
Development trends
Continue to deepen the field of gene and cell therapy. Looking at 2023 by sector: 1) CRO: revenue of 79.45 million yuan, +20.56% year over year. The company actively expanded its service scenario, continuously launched new products and tried to expand into new fields to further increase its market share; 2) CDMO: Revenue of 107 million yuan, or -50.64% year over year, mainly due to a marked slowdown in biotechnology financing, and demand from downstream customers was generally weaker than expected. By the end of 2023, the company had helped customers obtain 32 IND approvals from China and the US, covering various fields such as oncolytic virus products, AAV gene therapy products, lentivirus products, cell therapy products, plasmids and mRNA products, and added more than 250 million yuan in new orders.
2024Q1 CRO is growing steadily, and CDMO orders and revenue are recovering. 2024Q1, cell gene therapy CRO's revenue was 17.96 million yuan, +30.98% year over year; CDMO revenue of cell gene therapy CDMO was 38.21 million yuan, +146.50% year over year. The main business was still affected by ongoing financing pressure in the downstream innovative drug development field. Pharmaceutical companies' R&D pipeline promotion was still cautious, but with the further release of production capacity at the company's Lingang base, application of new technology processes, and continuous expansion in new fields, CDMO business orders and revenue were gradually recovered. 2024Q1, the company added more than 80 million yuan in new orders.
GMP workshop construction and production capacity release, continue to increase investment in R&D. Heyuan Zhizao Precision Medicine Industrial Base has a total construction area of about 77,000 square meters, and the maximum reactor size can reach 2000L. Part of the production capacity of the first phase of the base project was officially put into operation in September 2023. By the end of 2023, Heyuan Zhizao had invested an additional 369 million yuan in the same year for the construction of the precision medicine industry base, with a total investment of 834 million yuan.
In 2023, the company spent 50.92 million yuan on R&D, +46.20% over the same period, and the 2024Q1 R&D expenditure was 13.79 million yuan, +22.3%; 40 new patents, trademarks, etc. were registered, and 12 new authorized patents were added, including 1 invention patent; the company has a total of 38 authorized patents, including 23 invention patents.
Profit forecasting and valuation
As CDMO's revenue side recovery exceeded our expectations, we raised our 2024/2025 net profit to -116 million yuan/-61 million yuan (-131 million yuan and -94 million yuan before adjustment). However, considering recent systemic adjustments in the pharmaceutical sector, we have maintained an outperforming industry rating and target price of 8.20 yuan (based on the DCF valuation method), which has 49.4% upside compared to the current stock price.
risks
Regulatory policies have changed, market competition has intensified, and customer commercialization has fallen short of expectations.