Key investment points
What is a UVL list? How? How?
UVL list focuses on checking the end customers and end uses of export controlled items. It is one of the most relaxed management lists of bis for dual-use export items. According to the export administration regulations (ear) of the United States, enterprises need to apply to government departments for dual-use controlled items that require licenses to be exported. If the Bureau of industrial safety (BIS) of the U.S. Department of Commerce cannot verify the legitimacy and reliability of an entity's end-user and end use through pre license inspection, post shipment verification or other alternative measures, the entity will be included in the UVL list.
After listing, additional documents and evidence shall be provided to prove the end user and end use of the company. The main impacts are as follows: (1) the entities on the unconfirmed list cannot receive the items exported, re exported or transferred from the United States through licensing; （2） Even for the export of items that are not subject to control, the exporter needs to obtain and keep records from the above-mentioned individuals or entities when dealing with individuals or entities on the unconfirmed list; （3） If U.S. exporters export tangible goods under ear control to entities in UVL, regardless of the final destination or amount of the goods, they need to declare the electronic export information in advance in the automatic export system.
Enterprises listed in UVL can submit an application for removal from the list. Ear stipulates that the entity needs to send the removal request in writing to the law enforcement Analysis Office under the BIS to start the removal procedure. At the same time, materials that can prove the legitimacy and reliability of the end user, consignee or other roles of the product shall be submitted. After being removed from the list, the relevant results will be announced on the official website.
Yaoming biology: it can be solved in the short term, has no impact in the medium term and will remain bright in the future. Yaoming Biology (Shanghai and Wuxi) was listed in UVL due to the verification of the impact of the epidemic The usual review form of bis needs to send personnel or entrust personnel of embassies abroad to the destination country for on-site verification of end use. We believe that the inclusion in UVL this time is due to the obstruction of verification by the United States in China after the outbreak of covid-19 epidemic in 2020, which also explains the main reason why the company's production capacity in Germany, the United States, Ireland and other countries did not enter the UVL list.
The list is expected to be removed in the short term. If the company wants to be removed from the list, it will actively communicate with the Ministry of Commerce and submit materials as soon as possible to prove the rationality and legitimacy of the purpose of the company's purchased goods. Referring to the October 9, 2020 BIS's removal of UVL from 16 Chinese mainland entities, we believe that the company is expected to solve the problem within 2-12 months after submitting the material.
There is no obvious impact on the performance in the medium term, and the self owned products have achieved a comprehensive breakthrough in 1-2 years. The items affected this time are mainly the hardware of bioreactor purchased by Yaoming biology and a small amount of ultrafiltration membrane package. Shanghai plant 17 and Wuxi plant 5 have completed the procurement of fixed assets, of which Wuxi plant has been successfully put into operation in 2021. In addition to the United States, there are still three European suppliers of ultrafiltration membrane package to ensure the company's consumables demand. The company has established a "double source" strategy of material procurement and disclosed the safety of key materials in the global supply chain for 6-9 months. We believe that this event has little impact on the company's interim performance. In addition, Yaoming biology is also actively laying out its equipment and consumables, which may achieve a comprehensive breakthrough in the next 1-2 years.
Cdmo, the world's top three molecules, has just started to accelerate, and the future is still bright. In 2021, the company added 156 comprehensive projects (including 138 endogenous and 18 Suqiao biological projects), with yoy accounting for 86%. In the first year of CMO, there are 9 commercial projects. We believe that with the large volume of commercial projects, the increment of short-term covid-19 and the rapid development of long-term CMO will become an important driving force for the company in the future.
What do you think of CXO under the unstable relationship between China and the United States?
Since the end of 2021, with Asymchem Laboratories (Tianjin) Co.Ltd(002821) , Porton Pharma Solutions Ltd(300363) successively receiving large orders from Big Pharma in the United States, rumors that CXO has entered the list of entities in the United States, and five Chinese manufacturers authorized by MSD covid-19 drugs through MPP and the listing of drug Ming organisms in Shanghai and Wuxi this time, investors have paid more and more attention to the future development of CXO under the unstable relationship between China and the United States.
We believe that:
① the accelerated growth of local CXO is obvious to all global participants. CXO, especially cdmo, has entered the stage of accelerating the market share. In the capacity accumulation of 10-20 years, cost control, technical capacity, delivery experience, stable quality and safe production have been gradually recognized by customers. There are obvious breakthroughs in capital expenditure, order growth and product structure. We believe that the accelerated growth of local CXO is based on the constant engineer bonus Mature chemical integration, stable supply capacity and rich project experience are jointly created. This growth is obvious to all participants in the world.
② why do we insist that the United States will not restrict local CXO? From the end of 2021, we saw Asymchem Laboratories (Tianjin) Co.Ltd(002821) and Porton Pharma Solutions Ltd(300363) successively received large orders from Big Pharma in the United States. We think this shows the important position of local cdmo in the industrial chain. Local cdmo has proved its stable supply capacity, technical capacity, undertaking capacity and delivery capacity to customers. This view is once again confirmed by the five Chinese manufacturers authorized by MSD covid-19 through MPP. China is the country with the most licenses except India, but it is worth noting that China is not among the 105 low - and middle-income countries with free licenses. We believe that this further shows the significance of China's drug supply chain to the United States and the world under the unstable relationship between China and the United States.
③ it is imperative to strengthen the independent control of local equipment / consumables. ① From the perspective of domestic substitution and track breakthrough, the equipment such as biopharmaceutical core reactor is mainly overseas brands, and the subdivided track with certain technical barriers such as consumables (disposable bags, probes, etc.), purification fillers and filtration equipment in the reactor also has large domestic substitution space. ② From the perspective of preparation and product competitiveness of Chinese companies, we believe that Sensong international, Tofflon Science And Technology Group Co.Ltd(300171) , Truking Technology Limited(300358) and other companies have successively cut into the supply chain of Chinese foreign pharmaceutical enterprises in the fields of upstream cell culture, downstream separation and purification and post packaging of biological drugs. Since 2021, companies have made great progress in consumables, filler self research and M & A integration; In addition, we are also concerned that after financing in the primary market, companies such as duoning biology, Lechun biology, Jinyi Shengshi and kebaite are beginning to become competitive in new product R & D & promotion and personnel construction. We believe that in some areas, the performance of domestic equipment / consumables has basically met the needs of production / R & D, but high-end products still need iterative breakthroughs. We are optimistic about the development space of domestic equipment / consumables under the background of increased application cases, in-depth supply chain cooperation and accelerated financing.
Investment advice
① CXO: we emphasize that the improvement of supply capacity leads to the simultaneous increase of volume and price of front-end cro and the enhancement of back-end cdmo's participation in the world. We recommend focusing on Wuxi Apptec Co.Ltd(603259) , Porton Pharma Solutions Ltd(300363) , Joinn Laboratories (China) Co.Ltd(603127) , Hangzhou Tigermed Consulting Co.Ltd(300347) , Asymchem Laboratories (Tianjin) Co.Ltd(002821) , Pharmaron Beijing Co.Ltd(300759) , Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) , Fangda holdings, Pharmablock Sciences (Nanjing) Inc(300725) , Shanghai Medicilon Inc(688202) .
② pharmaceutical upstream: we emphasize the investment opportunities of different upstream tracks in the short, medium and long term from the dimensions of large volume (rapid growth with large volume of commercialization and sticky replacement), price increase (technological breakthrough and category upgrading rather than price increase), ceiling (M & A integration, etc.), and focus on Shanghai Titan Scientific Co.Ltd(688133) , Tofflon Science And Technology Group Co.Ltd(300171) , Truking Technology Limited(300358) , Sensong international, Jenkem Technology Co.Ltd(688356) Shanghai Aladdin Biochemical Technology Co.Ltd(688179) and other companies, and it is suggested to pay attention to Nanjing Vazyme Biotech Co.Ltd(688105) , Suzhou Nanomicro Technology Co.Ltd(688690) and other companies.
Risk tips
Risk of order fluctuation caused by trade friction; Industrial policy changes such as weak capacity integration and risk; The price reduction of core products exceeded expectations; R & D progress is less than expected.
