From a short-term perspective, commercial orders continue to be fulfilled, and the apparent performance of CDMO is under pressure; the mature overseas CXO clinical pipeline is steadily advancing, while preclinical demand still needs to recover.
According to the Zhito Finance APP, Southwest Securities released research reports stating that the CXO industry's revenue will rebound quarter by quarter in 2024 Q1-3, but overall profits are still under pressure. In terms of quarterly analysis, the revenue of 20 selected CXO companies in 2024 Q3 is 22.61 billion yuan (a year-on-year decline of 1.8%; a quarter-on-quarter increase of 7.6%); net profit attributable to the parent company is 3.59 billion yuan (-28.8%); the growth rate of net profit excluding non-recurring items is -31.6%. From a short-term perspective, commercial orders continue to be fulfilled, and the apparent performance of CDMO is under pressure; the mature overseas CXO clinical pipeline is steadily advancing, while preclinical demand still needs to recover. From a long-term perspective, AI technology is widely applied in various stages of new drug development across multiple disease areas; emerging businesses such as CGT are still in the early stages of development, where order acquisition and R&D construction determine core competitiveness.
The main viewpoints of Southwest Securities are as follows:
Macroeconomic perspective: geopolitical struggles are materializing, and pessimistic expectations in the sector are about to be repaired.
With two interest rate cuts by the Federal Reserve this year, the primary investment and financing environment for biomedical may improve, market liquidity expectations are recovering, and there will be valuation repair opportunities in the innovative drug industry chain; leading CXO's COVID-19 commercial orders have been fully digested, and geopolitical struggles still need to be implemented; the sector's valuation has fallen to historical lows, while individual stock valuations are still showing divergence.
Industry perspective: Global pharmaceutical R&D investment is steadily increasing, and the CXO industry's prosperity remains volatile.
Southwest Securities expects that global pharmaceutical R&D will continue to grow steadily at a rate of 2.6% from 2021 to 2028; after 2022, the capital markets will become more subdued; overseas: from the primary market perspective, the total amount of investment and financing in 2024 Q3 will be 148.37 billion yuan (-7.3%), and the total number of financing events will be 614 (-19.3%). In the period from July to September 2024, the total amounts of investment and financing will be 48.68 billion yuan (-16.2%), 29.95 billion yuan (-29.5%), and 69.74 billion yuan (+17.1%) respectively; the total number of financing events will be 224 (-7.8%), 177 (-21%), and 213 (+20.3%) respectively.
In the domestic market, the intensity of investment and financing activities in the first-level medical health market is still fluctuating. The total investment and financing amount in Q3 2024 was 7.67 billion yuan (-74.4%), with a total of 97 financing events (-65.8%). From July to September 2024, the total investment and financing amounts were 3.52 billion yuan (-74.9%), 2.06 billion yuan (-75.5%), and 2.08 billion yuan (-72.2%), with the total number of financing events being 40 (-63%), 30 (-69.4%), and 27 (-65.4%) respectively.
The prosperity of innovative drug research and development is waiting to be restored. In 2023, the number of new INDs for innovative drugs in China was 1561 (+26.6%) and the number of new NDAs was 257 (+61.6%), with a rapid increase in approval numbers; in the first half of 2024, the number of new INDs was 691 (-10.7%) and new NDAs was 113 (-4.2%), showing slight fluctuations year-on-year.
In terms of companies: The revenue of the CXO industry is gradually recovering seasonally, but overall profits are still under pressure.
The CXO sector selected a total of 20 companies. The revenue of the 20 representative CXO enterprises in Q1-Q3 was 62.8 billion yuan (-8%), and the growth rate is still slowing down from the high base in 2023; the net income attributable to the parent was 10.683 billion yuan (-33.9%); the total net profit excluding non-recurring items was approximately 9.98 billion yuan (-32.1%). In 2024 Q1-3, revenue gradually recovered seasonally, but profits remained under pressure overall. Analyzing quarterly, the revenue of the 20 CXO companies in 24 Q3 was 22.61 billion yuan (a year-on-year decline of 1.8%; a quarter-on-quarter increase of 7.6%); net income attributable to the parent was 3.59 billion yuan (-28.8%); and the growth rate of net profit excluding non-recurring items was -31.6%. In 24 Q3, performance indicators slightly improved, and the gross margin gradually recovered, with gross margins of 36.8%, 38.8%, and 39.6% in Q1, Q2, and Q3 of 2024, respectively.
Investment advice
From a short-term perspective, commercial orders are continuously being consumed, while the apparent performance of CDMO is under pressure; overseas mature CXO clinical pipelines are advancing steadily, but preclinical demand still needs recovery. From a mid-term perspective, the commercialization of peptide drugs is imminent, and the GLP-1 industry chain is taking off; domestic companies' small molecule CDMO business is more mature, while biopharmaceutical CDMO is still in the growth phase. From a long-term perspective, AI technology is widely applied in various stages of new drug development across multiple disease areas; emerging businesses like CGT are still in the early stages of development, and order acquisition plus R-side construction determines core competitiveness.
Related symbols
The integrated platform-type CXO enterprises in the industry chain layout are: 1) Integrated leaders in CRDMO/CTDMO such as wuxi apptec (02359), wuxi bio (02269), and wuxi xdc (02268); 2) Clinical CROs with performance elasticity such as tigermed (03347) and pharmaron (300759.SZ); 3) High valuation small molecule and peptide CDMOs including nuotai bio (688076.SH), asymchem laboratories (002821.SZ), shengnuo bio (688117.SH), zhejiang jiuzhou pharmaceutical (603456.SH), and porton pharma solutions (300363.SZ); 4) Steadily operating generic drug CROs such as baicheng pharma (301096.SZ) and sunshine novo nordisk (688621.SH); 5) Companies expected to see operational turning points like pharma block sciences (300725.SZ) and haoyuan pharma (688131.SH).
Risk warning
The CXO industry's capacity transfer is not as expected; CXO companies' orders are below expectations; exchange rate fluctuation risks; the progress of clinical trials for innovative drugs is not as expected; the launch and commercialization progress of innovative drugs is not as expected; other policy risks in the medical industry, etc.
