1. Since its listing, Shanghai Medicilon Inc. has suffered its first annual loss, with customer unit prices of its two main businesses declining by 36.81% and 23.59% respectively; 2. The company's operation reflects the survival situation of the entire CRO industry, where declining profitability is common; 3. Shanghai Medicilon Inc. employees have told reporters that the entire CRO industry has been under pressure since entering 2024.
"Science and Technology Innovation Board Daily" June 20 news (Reporter Zheng Bingxun) In response to the Shanghai Stock Exchange's inquiry letter on the 2023 annual report, CRO leading company Shanghai Medicilon (688202.SH) officially replied on the evening of the 19th. The focus of this inquiry first fell on the decline in operating performance such as operating income and gross margin.
A Shanghai Medicilon employee told reporters of "Science and Technology Innovation Board Daily" that since entering 2024, the entire CRO industry market still under pressure, and it still needs to continue to watch whether there are signs of improvement in the second half of the year.
It is worth noting that Medicilon's reply not only shows the company's own operating status, but also indirectly reflects the survival status of the entire CRO industry.
Low-price competition squeezes profit margins.
As a comprehensive preclinical research and development service CRO company in the field of biomedicine, Medicilon's main business includes CRO service business such as "drug discovery and pharmacology research" and "preclinical research", and the revenue and gross margin of the two main businesses both dropped significantly in 2023, leading to Medicilon's first annual loss since going public.
Specifically, in 2023, Medicilon's drug discovery and pharmacology research business achieved revenue of 632 million yuan, a year-on-year decrease of 14.07%, and a business gross margin of 15.92%, a year-on-year decrease of 17.03 percentage points; its preclinical research business achieved revenue of 734 million yuan, a year-on-year decrease of 20.55%, and a business gross margin of 30.53%, a year-on-year decrease of 16.50 percentage points. The company achieved revenue of 1.366 billion yuan for the entire year, a year-on-year decrease of 17.68%, and a net loss attributable to the parent company of 33.2106 million yuan, a year-on-year decrease of 109.82%.
The Shanghai Stock Exchange requires Medicilon to analyze the reasons for the decline in operating income and gross margin based on the number of customers, unit prices, and the progress of major orders, and explain the data such as the price of orders on hand and expected gross margin of the company.
According to the reply, the number of customers for Medicilon's drug discovery and pharmacology research business in 2023 was 684, an increase of 35.98% compared with 503 in 2022; the number of customers for preclinical research business was 681, an increase of 3.97% compared with the previous year. Unfortunately, the increase in the number of customers did not bring about a synchronous increase in unit price. The corresponding unit prices for the two businesses were 923,700 yuan and 1.0775 million yuan, respectively, a decrease of 36.81% and 23.59%.
Medicilon explained that the intensification of industry competition has led to a decline in order prices, and at the same time, due to the decline in investment and financing heat in the industry, the R&D progress of biopharmaceutical companies is more cautious, and some R&D service orders are delayed, comprehensively leading to a decrease in unit price. Medicilon further added that in order to compete for market business opportunities, it has taken the initiative to reduce the quotations of some business orders, and the order prices on hand have generally decreased compared to previous years. It is estimated that the company's gross profit margin will decrease compared to previous years in the near future, and there is a possibility that the company's net profit level will continue to decline.
It is worth noting that not only Medicilon, but the decline in profitability is also taking place in the entire domestic CRO industry.Medicilon selected Kanglong Huacheng (300759.SZ), Chempartner Pharmatech (300149.SZ), and Hongbo Pharmaceutical (301230.SZ), which have similar businesses in drug discovery and pharmacology research for comparison, and selected Joinn Laboratories (603127.SH) for comparison in preclinical research business.
The comparison results show that in 2023, Kanglong Huacheng's laboratory services, CMC services, macromolecule and cell and gene therapy services achieved revenue of 9.796 billion yuan, a year-on-year increase of 10.73%, and a gross margin decreased by 1.65 percentage points; Chempartner Pharmatech's chemical and macromolecule businesses achieved revenue of 534 million yuan, a year-on-year decrease of 13.25%, and a gross margin decreased by 5.87 percentage points; Hongbo Pharmaceutical's drug discovery, process research and development business achieved revenue of 371 million yuan, a year-on-year increase of 4.25%, and a gross margin decreased by 5.90 percentage points. In terms of preclinical research business, Joinn Laboratories' non-clinical drug research services achieved revenue of 2.309 billion yuan in 2023, a year-on-year increase of 4.31%, and a gross margin decreased by 5.09 percentage points.
It is worth noting that not only Medicilon, but the decline in profitability is also taking place in the entire domestic CRO industry.
To horizontally compare the operating conditions of other companies in the same industry, Medicilon selected Kanglong Huacheng (300759.SZ), Chempartner Pharmatech (300149.SZ), and Hongbo Pharmaceutical (301230.SZ), which have similar businesses in drug discovery and pharmacology research, for comparison, and Joinn Laboratories (603127.SH) for comparison in preclinical research business.
The comparison results show that in 2023, Kanglong Huacheng's laboratory services, CMC services, macromolecule and cell and gene therapy services achieved revenue of 9.796 billion yuan, a year-on-year increase of 10.73%, and a gross margin decreased by 1.65 percentage points; Chempartner Pharmatech's chemical and macromolecule businesses achieved revenue of 534 million yuan, a year-on-year decrease of 13.25%, and a gross margin decreased by 5.87 percentage points; Hongbo Pharmaceutical's drug discovery, process research and development business achieved revenue of 371 million yuan, a year-on-year increase of 4.25%, and a gross margin decreased by 5.90 percentage points. In terms of preclinical research business, Joinn Laboratories' non-clinical drug research services achieved revenue of 2.309 billion yuan in 2023, a year-on-year increase of 4.31%, and a gross margin decreased by 5.09 percentage points.
To horizontally compare the operating conditions of other companies in the same industry, Medicilon selected Kanglong Huacheng (300759.SZ), Chempartner Pharmatech (300149.SZ), and Hongbo Pharmaceutical (301230.SZ), which have similar businesses in drug discovery and pharmacology research, for comparison, and Joinn Laboratories (603127.SH) for comparison in preclinical research business.
Specifically, in 2023, Kanglong Huacheng's laboratory services, CMC services, macromolecule and cell and gene therapy services achieved revenue of 9.796 billion yuan, a year-on-year increase of 10.73%, and a gross margin decreased by 1.65 percentage points; Chempartner Pharmatech's chemical and macromolecule businesses achieved revenue of 534 million yuan, a year-on-year decrease of 13.25%, and a gross margin decreased by 5.87 percentage points; Hongbo Pharmaceutical's drug discovery, process research and development business achieved revenue of 371 million yuan, a year-on-year increase of 4.25%, and a gross margin decreased by 5.90 percentage points. In terms of preclinical research business, Joinn Laboratories' non-clinical drug research services achieved revenue of 2.309 billion yuan in 2023, a year-on-year increase of 4.31%, and a gross margin decreased by 5.09 percentage points.
The above-mentioned companies are also a reflection of the operating conditions of the entire CXO sector. Zhongtai Securities selected 27 core outsourcing targets with CRO and CDMO businesses as the main business and formed a sector to analyze the overall performance. The results show that in 2023, the income of core targets in the CRO and CDMO sector was about 118.87 billion yuan, a slight increase of 1.5 percentage points year-on-year, and net income attributable to mothers was 21.49 billion yuan, a year-on-year decrease of 11.5%.
According to the reply from Shanghai Medicilon Inc., reporters from the Star Daily found that the performance of its domestic business is significantly inferior to its overseas business in terms of growth rate and gross margin. This to a certain extent reflects that the domestic market is under more pressure than the overseas market.
Specifically, in 2023, Shanghai Medicilon Inc.'s domestic business achieved revenue of 978 million yuan, a year-on-year decrease of 22.24%, and overseas business achieved revenue of 387 million yuan, a year-on-year decrease of 2.59%. The decrease in overseas business growth rate was smaller than that of domestic business. At the same time, the gross margin of overseas business was 28.75%, which is nearly 7 percentage points higher than the gross margin of domestic business of 21.80%.
In terms of customer growth and per capita consumption, the performance of overseas markets is also better than that of domestic markets. In 2023, the number of overseas customers of Shanghai Medicilon Inc. increased by 31.76% to 224, and the number of domestic customers increased by 13.42% to 896. Combining the revenue situation at home and abroad, it can be found that the per capita consumption of domestic customers is about 1.0917 million yuan, while the per capita consumption of overseas customers is about 1.7297 million yuan, a difference of 58%.
Reporters from the Star Daily learned from personnel of Shanghai Medicilon Inc. that since entering 2024, the entire CRO industry is still under pressure, and they said, "It may still be necessary to wait until the second half of the year to observe whether the trend of the entire industry has improved."
Regarding what measures Shanghai Medicilon Inc. will take, they said that the main thing is to do a good job in the existing main business and further expand overseas markets. "At the end of last year, we established a new laboratory in the United States, and will focus on expanding preclinical research customers based on this," they said.
It is understood that in September 2023, Shanghai Medicilon Inc. has completed the construction of a research and development laboratory in Boston, USA, which covers chemistry, biology, and animal experimentation services, and has been put into use. Shanghai Medicilon Inc. regards it as an important part of global deployment.