"Science and Technology Innovation Board Daily" October 9th News (Reporter Zheng Bingxun) "In the domestic market, due to factors such as the slowdown in investment and financing for innovative drug companies and intensified competition among CRO companies, there has been a decrease in revenue." At the earnings conference for the first half of 2024 held today, Dai Lan, Chairman and General Manager of the CRO company Jiangsu Hengrui Pharmaceuticals (688073.SH), explained the reasons for the decline in performance during the reporting period.

Data shows that in the first half of 2024, Jiangsu Hengrui Pharmaceuticals' domestic revenue was 0.233 billion yuan, a year-on-year decrease of 9.37%. The corresponding gross profit was 64.8925 million yuan, with a gross margin of 27.86%, a decrease of 3.46 percentage points from 2023. As a result, Jiangsu Hengrui Pharmaceuticals' overall revenue for the first half of the year only slightly increased by 1.83% to 0.532 billion yuan, while net income attributable to shareholders plummeted by 38.15% to 51.8391 million yuan.

In fact, the reason Jiangsu Hengrui Pharmaceuticals was able to maintain a slight increase in overall revenue in the first half of the year was entirely due to the growth of its overseas business. During the reporting period, revenue from overseas regions reached 0.299 billion yuan, a year-on-year increase of 12.68%. The corresponding gross profit was 0.145 billion yuan, with a gross margin of 48.57%, far superior to the domestic performance, and a slight increase of 0.24 percentage points from 2023.

Driven by overseas business, Jiangsu Hengrui Pharmaceuticals' overall gross margin, which had been declining for many years, gradually stabilized in the first half of 2024, decreasing by 0.49 percentage points from 2023 to 39.51%. Prior to this, Jiangsu Hengrui Pharmaceuticals' overall gross margin had decreased from 49.46% in 2021 to 44.38% in 2022, further dropping to 40.00% in 2023.

During the earnings conference, Dai Lan further revealed, "The company's overseas revenue continues to grow, and the gross margin of the overseas market has been on the rise from the fourth quarter of 2023 to the first and second quarters of 2024. The company's overall gross margin is becoming stable."

Jiangsu Hengrui Pharmaceuticals is a pharmaceutical company that provides drug molecular building blocks and scientific reagent products and services. Among them, drug molecular building blocks are the core raw materials for chemical innovative drug research and development, making the development of this business closely related to the prosperity of the innovative drug industry. As of the end of June 2024, Jiangsu Hengrui Pharmaceuticals has over 0.12 million types of spot products, making it one of the leading enterprises in the molecular building block industry.

In terms of corporate customer reserves, BeiDe Medicine has representative multinational pharmaceutical companies such as Roche, Merck, Pfizer, and AbbVie, as well as innovative drug companies in China such as Jiangsu Hengrui Pharmaceuticals and Beigene, and CRO institutions including Wuxi AppTec and Shanghai Medicilon Inc.

Actually, in 2022 and previous years, the revenue from the domestic region has always been the largest source of revenue for BeiDe Medicine, accounting for over 50% of the overall revenue. Until 2023, the overseas revenue surpassed the domestic revenue for the first time with 0.557 billion yuan compared to 0.534 billion yuan, becoming the new main revenue source for BeiDe Medicine, accounting for 51.02% of the total revenue.

In the first half of 2024, the contribution of overseas revenue to BeiDe Medicine's overall performance further widened the gap with the domestic region, increasing to 56.24% of the total revenue, 12.48 percentage points higher than the domestic region.

During the earnings conference, when asked by a reporter from 'Star Market Daily' about BeiDe Medicine's focus on overseas market layout, they did not directly reply but instead mentioned, 'The United States has the largest proportion of medical research and development investment globally, Europe is also a new drug research and development center, and the CRO industry in India has been developing rapidly in recent years. The company determines that there will be huge opportunities in the future in overseas markets.'

However, Dai Lan also revealed that BeiDe Medicine will increase business development personnel for promotion activities in the overseas market in the future.

It is understood that BeiDe Medicine is planning to implement smart warehouse layout in the USA. Recently, during an investor communication meeting, BeiDe Medicine disclosed the latest progress of this initiative, 'It is currently in progress, with an expected investment of two to three million US dollars,' and stated, 'If the implementation effect in the USA is significant, it will be expanded to other regional centers in the future.'

Faced with intensified competition in the domestic market, Dai Lan revealed during the earnings conference that they will strengthen cooperation with suppliers upstream and downstream, expand product lines, further optimize synthetic processes for key products, and explore the extension of some products from hundreds of grams to kilogram scale and above.

In the first half of 2024, BeiDe Medicine's total research and development investment amounted to 30.0506 million yuan, an increase of 12.23% year-on-year. The total research and development investment accounted for 5.65% of the revenue, an increase of 0.53 percentage points compared to the previous year.