Pharmablock Sciences (Nanjing) Inc(300725) (300725)
Pharmablock Sciences (Nanjing) Inc(300725) : cdmo with core raw materials and large-scale realization is on its way
As a few product gene targets in the pharmaceutical CXO sector, the essential difference between them and service-oriented companies comes from the design of product independent innovation. ① The innovation of molecular block is the beginning of everything: starting from the demand for new drugs, novelty, diversity and high quality are the most important aspects of customers for molecular block providers in the R & D stage. 2021h1 company has designed more than 130000 compounds and added more than 500 popular blocks in the first half of the year, basically covering all popular targets. The company's product quality and R & D capability are recognized by a large number of overseas customers, including global well-known multinational pharmaceutical enterprises such as Lilly, Novartis, Merck and Alberta. ② Technology iteration to grasp the demand of mass production. The real source of mass production demand is the scarcity of innovative design capability. At the same time, innovation gene also promotes the company's continuous technology iteration. With the improvement of the company's technical capacity, the cost of the two core products decreased by more than 20% from 2018 to 2021. Since 2018, we have focused on the development of continuous flow chemical technology, successfully used photocatalytic reaction to significantly shorten the reaction time of a quaternary ring intermediate, and increased the yield to 75-80%, so as to solve the problem that it is difficult to scale up production. ③ Innovation and upgrading: from new drug service to new drug R & D: the innovation foundation determines the changeable mode. The company develops new drug R & D business based on the compound library constructed by molecular blocks and improves the ceiling. Continue to strengthen the novelty and differentiation of the three technology platforms. In 2020, it completed the screening of more than 50 new targets, successfully transferred the ownership of 5 seedling compounds and signed a pilot compound transfer agreement. Acquired anakang in 2018 to promote the parallel of "service" + "product". ④ Yaojie Ankang: the innovation gene disclosed by the joint-stock company.
Mode switching: platform expansion, entering a more stable growth stage
Since 2019, Pharmablock Sciences (Nanjing) Inc(300725) has achieved a cumulative return of 362.63%, outperforming CITIC pharmaceutical index 262pct. We believe that the inflection point of the company's share price comes from the fixed increase in 2020, which is the market's recognition of the long-term development strategy of "medicine stone R & D" + "medicine stone manufacturing" mentioned therein, and the investors' confidence in the future service capacity after the company entered the successful transformation of large-scale production in 2018.
1. Mode switching: the mode switching from block product diversion to service funnel diversion. Based on the analysis of the company's capital expenditure and technical capability expansion, we believe that the company is undergoing a new business model switching, which is mainly based on the grasp of the core pain points of cdmo supply and demand. ① the pattern of the industry has changed and biotech's power is gradually rising, resulting in the increasing demand of customers for integration. ② The molecular block cost may account for 45% of the outsourcing cost, and cdmo company has strong self-research willingness. ③ Expand to the service-oriented cdmo mode and open a broader ceiling. ④ Industrial chain extension helps to strengthen the company's ability to control medium and short-term performance.
2. Tracking indicators during mode switching transition period: technology, BD and management. ① Transformation of technical capability requirements. The switching of quality standards from non GMP to GMP involves more rigorous deviation investigation. It puts forward higher requirements for technical personnel experience, good equipment maintenance, process control and risk management, and the transformation of business model to the construction of sales capacity. ② Change in demand for sales capacity. The focus of sales service has shifted from products to customers. In the transformation of the company's new business model, the establishment of new BD and sales team is an important link to open the market. ③ The transformation of management ability. The proportion of doctors in the company and the background of innovative drug R & D and pharmaceutical chemistry of the management are significantly different from traditional cdmo. The experience in process research, development and production of large-scale production at GMP level and management talents need to be supplemented.
3. Capacity release lays the foundation for steady growth, and focus on capacity-building during the transition period. From the perspective of performance, short-term capacity release is not directly proportional to performance growth. It is suggested that the tracking point should be from the supply relationship to the construction of technology, sales and management capabilities of cdmo. From the perspective of balance sheet, when entering a new business segment or in the project accumulation period, the importance of revenue is higher than that of profit. We are optimistic about the two-way drive between apicdmo and molecular blocks after long-term transformation.
We are ready to go
1. Make preparations: production capacity, personnel and technical reserve
① Technical capability: Zhejiang Huishi, the key production capacity, has d-end and m-end capabilities, has passed the FDA audit without defects, and has rich customer resources. ② Capacity reserve: flexible configuration of multi specification reactors, doubling the capacity in 2022. ③ Overseas acquisition: American Yaoshi acquired Lulu pharmaceutical chiral technology company to improve the development and production capacity of clinical API. ④ Accelerate the construction of talent team, improve the management system and transform to a service-oriented company.
2. Ready to go: the order is full and the funnel is gradually formed. ① The proportion of cdmo revenue is gradually increasing. The long-term cooperation with Yasheng pharmaceutical and Shouyao holdings shows the company's strong customer base and service ability recognized by customers. ② Zhejiang Huishi has an order of 111 million yuan on hand, which may cash in revenue within 1-2 quarters, with strong short-term certainty. ③ The company's 2020 annual report and 2021 interim report show that the company's funnel-shaped order structure is gradually established. More than 5 million large customers are increasing, and the customer structure has gradually changed from the decentralized form of early product sales to the idea of following the development of customer pipelines and providing one-stop services.
Profit forecast and valuation
We believe that from the perspective of balance sheet, single quarter performance fluctuation and the company's customer structure, the company is in the transformation stage of apicdmo from 2020 to 2023, and is ready in terms of technical reserve, management personnel construction, capacity release, etc. It is difficult to control the rhythm of large orders in the short term or in the face, and the performance cannot be linearly related to capacity release. However, in view of the company's innovative gene, iterative ability and good customer base, we believe that the company can start cdmo business with molecular blocks and provide customers with integrated services of molecular blocks, intermediates, APIs and preparations.
We expect the net profit of 510 million, 464 million and 656 million from 2021 to 2023. The closing price of PE on November 24, 2021 is 55, 60 and 43 times respectively. Excluding the non operating profits brought by the fluctuation of fair value of Zhejiang Huishi, the PE in 2021-2023 was 97, 60 and 43 times respectively, and the profit side cagr45%. Compared with the average valuation level of comparable companies, it maintained the "buy" rating.
Risk statement
Downstream product R & D and cdmo capacity building fail to meet expectations, sales fail to meet expectations, raw material prices rise, exchange rate fluctuations, safety production and environmental protection, new business development fail to meet expectations, loss of core technicians, lifting the ban risk, and dependence risk of key customers.
