abstract
1. Thinking this week: is CXO logic broken in 2022?
Break the simple industrial chain thinking and see the investment essence of CXO on the supply side and demand side.
Diversification of supply capacity under Chinese market dividend
Poor expectation: the market is excessively worried about the demand side and ignores the upgrading of supply side capacity.
Concerns on the demand side: ① the innovation threshold of gradual upgrading under the new CDE deal; ② Continuous centralized purchase and medical insurance cost control; ③ Under the growth of investment and financing data
Upgrading of the supply side: companies under the dividend logic of the Chinese market, Hangzhou Tigermed Consulting Co.Ltd(300347) expand from single clinical business to diversified business; Joinn Laboratories (China) Co.Ltd(603127) expand from bed phase I and overseas market; Shanghai Medicilon Inc(688202) business from preclinical to drug screening, discovery and internationalization; Fangda holdings expands its integrated service capability from drug discovery to CMC based on strong ability, good overseas customer base and possible parent company customer diversion.
Investment suggestion: China’s demand driven cro company, the growth comes from volume and price. The market tends to worry too much about the decline of volume and ignore the improvement of price. Policy driven innovation and upgrading may lead to the concentration of sector leaders, and the company’s increasing integration ability is expected to bring performance growth and profitability improvement
Under the global market transfer, the participation brought by manufacturing upgrading has increased
Poor expectation: the market over interprets the epidemic catalysis in the landscape and ignores the logic of increasing global participation under manufacturing upgrading.
Concerns on the demand side: ① return of orders after the epidemic; ② The restrictions of Sino US international relations on the development of China’s cdmo; ③ Fading Engineer
Supply side upgrade: ① several CXOs undertake covid-19 small molecule orders at different stages (from RSM intermediate API preparation) shows that we have improved in the whole; ② the first and second tier companies have expanded to high value-added API, preparation and biological medicine sectors and technical capabilities, and continuously improved the global industrial chain. The continuous expansion of second tier companies in new sectors has achieved initial results. In the short term, large orders support cash flow, in the medium term, the business sector continues to upgrade and in the long term.
Investment suggestion: for CXO’s market, we suggest to emphasize the demand side logic of investment and financing and industrial transfer, weaken the long-term demand logic and focus on improvement. The ability breakthrough of second tier companies has been gradually proved, the certainty of sustainable growth is strong, and it is expected to contribute more elasticity than expected.
3. Industry boom tracking
China: November 2021 29-2021.12. 12. The pharmaceutical sector fell 0.51%, underperforming the CSI 300 index by 7.99pct; The pharmaceutical outsourcing sector fell 3.98%, outperforming the pharmaceutical sector by 3.47pct. Since the beginning of 2021, the pharmaceutical sector has fallen by 5.42%, underperforming the CSI 300 index by 2.42pct, and the pharmaceutical outsourcing sector has risen by 40.39%, outperforming the CSI 300 index by 43.39pct. In terms of individual stocks, in the past two weeks, H shares viabio and Fangda led the rise, with cumulative increases of 12.11% and 4.82% respectively, Shanghai Medicilon Inc(688202) , Zhejiang Tianyu Pharmaceutical Co.Ltd(300702) , Joinn Laboratories (China) Co.Ltd(603127) led the decline, with cumulative decreases of 16.30%, 14.03% and 11.36%, which may be related to the market’s concern about China’s CXO outlook and the reduction of Tianyu executives.
Overseas: November 2021 29-2021.12. 10. Overseas leading outsourcing companies fell by 1.51% in total, underperforming the MSCI health index of 5.65pct. In terms of individual stocks, Codexis and catalyst small molecule and vaccine cdmo led the decline in the last two weeks, with a cumulative decline of 13.24% and 5.61% respectively. As the main cdmo suppliers of Merck and Moderna, Codexis and catalyst’s share price fluctuated greatly due to the impact of new mutants in South Africa and Merck’s new clinical data. Lonza led the sector with the acquisition of codiak’s exosome manufacturing plant, reflecting the market’s continued attention to the cell and gene markets.
Industry dynamic follow-up: the integration process of local CXO is accelerated, and CGT is still a hot investment spot
4. China’s fortnightly resumption
The financing amount of the global medical and health industry has declined. In November, the global financing volume was US $9.7 billion, a month on month decrease of about 27% compared with October. However, from the perspective of the whole year, the financing of the global medical and health industry is still very active in 2021,. Since October this year, 637 financing events have occurred in the fourth quarter of the world, with a financing amount of US $23 billion, accounting for 80% of the total financing in the third quarter; Since the beginning of this year, the global annual financing amount has reached 117.1 billion, an increase of 42% over the whole year of 2020. There have been 3259 financing events, an increase of 18.25% over the whole year of last year.
The financing activity of China’s industry has increased significantly. Since November, the Chinese market has gradually recovered. In November, China’s financing amount reached about US $2.9 billion, a month on month increase of 36% and a year-on-year increase of 69%, with a total of 117 financing events. Among them, emerging digital therapy companies such as Zhengan health, listening intelligence and mobile vision technology all completed the first round of financing this month.
5. Investment advice
It is emphasized that the improvement of supply side capacity will lead to the simultaneous increase of volume and price of front-end cro and the enhancement of back-end cdmo’s global participation. We recommend focusing on: Hangzhou Tigermed Consulting Co.Ltd(300347) , Wuxi Apptec Co.Ltd(603259) , Joinn Laboratories (China) Co.Ltd(603127) , Asymchem Laboratories (Tianjin) Co.Ltd(002821) , Pharmaron Beijing Co.Ltd(300759) , Zhejiang Jiuzhou Pharmaceutical Co.Ltd(603456) , Porton Pharma Solutions Ltd(300363) , Fangda holdings, Pharmablock Sciences (Nanjing) Inc(300725) , Shanghai Medicilon Inc(688202) .
