In the previous section, “Imitation CRO Industry In-depth Report - Meeting Multi-Level Customer Needs and Exploring the Performance Drivers of the Imitation CRO Sector”, we explored the sustainability of imitation CRO growth; among them, Baicheng Pharmaceutical, as one of the most comprehensive imitation CRO companies, has integrated drug research and development service capabilities, which is expected to increase its market share in the industry upgrade competition. First coverage, giving a “Highly Recommended” investment rating.
Build an integrated service platform, and maintain a high growth rate of traditional contract business: providing customers with “pharmacy+clinical” integrated R&D services. The sector's revenue increased from 69 million yuan in 2018 to 531 million yuan in 2023, or about 50% CAGR. On the customer side, by the end of 23, a total of 700+ services had been provided to 500+ customers; in terms of orders, the total growth rates of new orders in 2022 and 2023 were 25% and 35%, respectively (including entrustment and self-developed conversion).
Emerging businesses are gaining strength rapidly and achieving multiple growth points:
Strengthen self-research transformation efforts, from water sellers to R&D partners: the company independently set up projects for some drugs, and after achieving phased results, it converted the sector's revenue of 370 million yuan (yoy +78%) in 23 years. Judging from the number of projects, a total of 247 projects were converted in 2018-2023, and nearly 300 projects had not been converted (as of the end of 23); judging from the project quality, 19 Class 1 innovative drugs are under study. Among them, BIOS-0618 has completed phase I clinical phase I, initiated phase 1b and phase 2 studies, and 4 Class 2 drugs have received IND approval.
Equity sharing extends the service life cycle and enhances service market value: The company and some customers retain a share of sales rights after the drug is marketed to achieve greater market value. For example, the company cooperated with Huayuan Pharmaceutical on valsartan amlodipine tablets (I) and held 37% equity share. By the end of '23, the company had sales rights divided into 85 projects (including 13 listed).
With CDMO's rapid layout, MAH customers are expected to become an important performance driver: in 2019, the subsidiary Thermo Pharmaceuticals was established to provide customers with CDMO services. Foreign service revenue in 2023 was 52.49 million yuan (yoy +152%). Considering that MAH companies are an important customer group of the company (accounting for 23% of revenue in 2008), they often lack production bases. We expect that as MAH's projects are approved one after another, the company is expected to undertake this part of commercial production and achieve continuous release of CDMO production capacity.
Covered for the first time, giving it a “Highly Recommended” rating. The company actively grasps generic drug development service outsourcing opportunities, seizes the dividends of the MAH system, strengthens the competitive advantage of contract R&D services, and actively promotes self-development transformation, CDMO, and equity sharing services to drive the company's long-term development. Net profit due to mother is expected to be 3.8/5.1/670 million yuan in 2024-2026, with growth rates of 39%/34%/32%, respectively; corresponding PE is 17/13/10X, respectively. First coverage, giving a “Highly Recommended” investment rating.
Risk warning: Risks such as drug development failure, pharmaceutical policy changes, and increased market competition.