Key investment points
Event: the US pharmaceutical supply chain security review announced to encourage investment and advanced manufacturing. On February 24, 2022, the White House released the news “the Biden Harris plan to revitalize American manufacturing and secure critical supply chain 2022”. One year after Biden signed executive act 14017, it reviewed the policies and changes of several US key supply chains, some of which involved
The content of pharmaceutical supply chain includes:
① in order to solve the supply chain vulnerability of API and starting materials in the United States (especially in the field of antibiotics), HHS invested US $105 million to provide more than 600 million doses of capacity for six shortage drugs (dexmedetomidine hydrochloride, rocuronium bromide, fentanyl, midazolam, propofol and atracurium CIS benzenesulfonate).
② HHS and other government agencies and non-profit organizations review the FDA list of essential drugs and recommend 50-100 drugs to ensure the production and supply in the United States.
③ cooperate with DARPA and the US air force to carry out two drug production works to support the continuous flow production of API and the production of cGMP grade sterile injection (analgesic / sedative) drugs. It is planned to submit to anda in 2022q1.
④ HHS reduces manufacturing costs by investing in advanced API manufacturing capacity and platform, including automation and continuous flow; In addition, ASRP has established an alliance of API, consumables and filling service providers among drug and vaccine supply chain partners.
In addition, the actions mentioned in the report that we hope to solve the loopholes in the supply chain in the future include:
① investment in capacity expansion: HHS plans to expand the capacity of infrastructure, disposable components, APIs and special enzymes through investment, with a total investment of US $2.65 billion.
② encourage new technology investment: establish API and drug manufacturing capacity through continuous flow production, 3D printing, portable and modular manufacturing platform, etc.
Viewpoint: the short-term impact is limited, and it is important to strengthen high-end manufacturing capacity in the long term
Current situation of basic drug supply chain in the United States: the supply outside the United States accounts for a high proportion, emphasizing the strategic significance of basic drugs to supply chain security. According to the 100 day supply chain review document issued by the United States in June 2021, as of March 2021, 52% of the preparation production facilities and 73% of the API production facilities in the United States were outside the United States, of which the preparation production facilities in China accounted for 6% and the API production facilities accounted for 13%. For anda, 63% of the preparation production facilities and 87% of the API production facilities in the United States are outside the United States, of which the preparation production facilities in China account for 8% and the API production facilities account for 16%.
Our view: the medium and short term will not affect the global industrial division of labor, and the medium and long term will strengthen the impact of new technologies on the market share and ceiling of API companies. We believe that the United States maintains the safety of the supply chain of basic drugs by encouraging investment, which has limited impact on China in the medium and short term. It is mainly based on ① the standardized market registration and change cycle of API and other products is generally more than 1.5 years, and then considering the time cycle of investment and construction and customer audit (2 years +), the short-term impact is limited; ② The advantages of Chinese API / intermediate exports are mostly concentrated in large tonnage varieties. Under the conditions of chemical supporting + economies of scale + whole industry layout, the cost and quality advantages of Chinese api companies are difficult to subvert in the short term. However, in the medium and long term, by encouraging the construction of high-end production capacity such as continuous flow and automation, the United States may significantly reduce production and manufacturing costs by means of new technology routes and processes, as mentioned in “API sector series report 1: from technology to growth” released on January 5, 2022, “We believe that the new synthetic technology platform and production process have a significant impact on the cost and yield of API companies. During the window period of successive patent expiration of heavy generic drugs, we believe that API companies with advanced production equipment and first upgraded supply capacity have more advantages over Indian competitors.”. At the end of October 2021, the national development and Reform Commission and the Ministry of industry and information technology jointly issued the notice on the implementation plan for promoting the high-quality development of API industry, which also emphasized the green and low-carbon direction, supporting equipment and consumables and the development of industrial clusters. We are optimistic about the industrial upgrading space under the construction of high-end manufacturing capacity of Chinese api companies.
At the same time, we believe that the supply chain review policy has little impact on China’s cdmo supply serving the innovative drug industry chain. From the perspective of supply capacity upgrading, global participation improvement and innovative drug development, China’s cdmo companies are still in the process of enhancing global influence and industrial chain upgrading.
Investment advice
In the medium and short term, we believe that the United States ensures the safety of the API and preparation supply chain by encouraging investment, which has a limited impact on the performance of Chinese companies. The manufacturing scale advantage of Chinese companies in large tonnage characteristic API varieties is difficult to be replaced in the short term.
In the medium and long term, we are more optimistic about companies with relatively high short-term R & D investment and leading potential platform production technology layout such as continuous flow / enzyme catalysis. We recommend Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) , Apeloa Pharmaceutical Co.Ltd(000739) , Brightgene Bio-Medical Technology Co.Ltd(688166) and so on. We suggest paying attention to the case accumulation and expansion of Cathay Biotech Inc(688065) , Aurisco Pharmaceutical Co.Ltd(605116) , Zhejiang Ausun Pharmaceutical Co.Ltd(603229) and other companies in the field of new technology. At the same time, we are optimistic about the accumulation of CGMP regulations, global sales, barrier variety approval and other capabilities of preparation export companies in the process of preparation internationalization. We recommend Nanjing King-Friend Biochemical Pharmaceutical Co.Ltd(603707) , Hainan Poly Pharm.Co.Ltd(300630) . In addition, we are optimistic about the accumulation and advantages of Zhe Jiang Hua Hai Pharmaceuticalco.Ltd(600521) and other companies in the field of difficult preparations and large tonnage product process development, as well as the proven cost optimization, quality control and green production capacity of Zhejiang Tianyu Pharmaceutical Co.Ltd(300702) and Zhejiang Starry Pharmaceutical Co.Ltd(603520) in large tonnage API.
Risk tips
Production safety accidents and quality risks, the risk that the standard flow or sales of core preparations are less than expected, the risk of exchange rate fluctuation, the risk of order delivery volatility, and the risk of changes in pharmaceutical regulatory policies.
