① “With regard to the relative oversupply side of the domestic industry, the local internal volume has intensified. I believe that as competition deepens and the industry continues to clear up, the competitive landscape will gradually become clear in the future.” ② “If the clinical CRO business can continue to grow steadily and bring more market share and customer resources to the company, then this short-term profit pressure is worth it.”
“Science and Technology Innovation Board Daily”, May 10 (Reporter Zheng Bingxun) At the performance briefing held on the 10th, Li Qian, chairman of Sunshine Nuohe (688621.SH), said in response to the current state of the pharmaceutical CRO industry, “The penetration rate of the domestic CRO industry is steadily increasing. In recent years, the number of registration applications accepted by the Drug Review Center has continued to grow, which also confirms that domestic demand for drug research and development is still increasing year by year.”
In fact, judging from the results for the first quarter of 2023 and 2024, Sunshine Nuohe did not perform well in the overall domestic CRO circuit. However, due to the unfavorable macro environment and the intensification of internal industry pressure, the slowing trend is also reflected in it.
According to the data, in 2023, Sunshine Novo achieved revenue of 932 million yuan, an increase of 37.76% over the previous year. Due to individual customer operating difficulties and poor repayment, Sunshine Nuo made bad debt provisions for such accounts receivable to achieve net profit of 185 million yuan. The growth rate decreased by 29.51 percentage points compared to the same period in 2022, and an increase of 18.08% over the previous year. The first quarter of 2024 achieved revenue of 252 million yuan, a year-on-year increase of 8.53%. The growth rate decreased by 48.56 percentage points compared to the same period in 2022, and realized net profit of 72.5738 million yuan, an increase of 51.77% over the previous year. Part of the increase in net profit was due to a significant increase in government subsidies received over the same period last year.
Li Qian believes, “With regard to the relative oversupply side of the domestic industry, local internal pressure has intensified. I believe that as competition deepens and the industry continues to clear up, the competitive landscape will gradually become clear in the future.”
As a pre-clinical and comprehensive clinical drug research and development service CRO, Yangguang Nuohe currently has two major CRO businesses, “Pharmaceutical Research Service” and “Clinical Trial and Bioanalysis Service”. Pharmaceutical research services are its basic business for many years. In 2023, it achieved revenue of 569 million yuan, an increase of 28.67% over the previous year, accounting for 61.00% of overall revenue, and a gross margin of 67.41%.
In contrast, clinical trials and bioanalysis services are businesses that Sunshine Nuohe only gradually began to lay out in 2016. Although revenue is growing year by year, the current revenue is far lower than that of pharmaceutical research services. Taking 2023 as an example, clinical trial and bioanalysis services achieved revenue of 362 million yuan, accounting for 38.88% of overall revenue, gross margin of only 39.72%, and operating costs were 17.91% higher than pharmaceutical research services, reaching 218 million yuan.
In response, Li Qian said that by expanding the clinical CRO business, it can help Sunshine Nuohe further improve its strategic layout in the field of pharmaceutical R&D services, diversify its business, reduce its dependence on a single business, and reduce the impact of market fluctuations on the company's performance.
In response to the low gross margin situation in this business, Li Qian said that the gross margin was low due to the large amount of high investment in the early stages, but as the scale of the business expands and experience is accumulated, the company may achieve an increase in gross margin by improving efficiency and reducing costs.
“In the short term, the low gross margin of the clinical CRO business may put some pressure on the company's profitability. In the long run, if this business continues to grow steadily and bring more market share and customer resources to the company, then this short-term profit pressure is worth it.” Li Qian said.
It is worth mentioning that while providing CRO services to customers, Sunshine Nuohe is trying to establish self-research projects around innovative drugs, improved new drugs, and generic drugs. Among them, more than 100 new self-research projects were established in 2023, and the total number has now exceeded 350.
At an earlier investor conference, Sunshine Nuohe revealed that the product selection idea for independent R&D projects is to avoid popular target tracks as much as possible, select products with large market capacity, obvious clinical value, and meet the rules of pharmacoeconomics for research and development, and will comprehensively consider the post-marketing recycling cycle and profit situation.
At the performance briefing, Li Qian further explained, “An independent project means that the company selects R&D targets with good market prospects, invests in the R&D expenses themselves in the early stages, takes the opportunity to recommend them to customers, and accepts requests from customers to continue providing R&D services.”
He also added, “The company and some customers also agreed in the contract to retain part of the rights share after the drug is marketed. During the effective life cycle of the drug, the company can continuously obtain stable benefits in the form of equity sharing, achieve greater market value, and achieve the goal of integration and sharing between the company and customers.”
Li Qian revealed that in terms of self-development projects, by the end of 2023, Sunshine Nuohe had obtained production approval for a total of 7 projects, which are expected to contribute part of the performance in 2024.