Southwest Securities: CXO industry revenue is picking up quarterly, pre-clinical demand still needs to be repaired

The Zhitong Finance App learned that Southwest Securities released a research report saying that 2024Q1-3 CXO industry revenue has rebounded quarterly, but overall profits are still under pressure. On a quarterly basis, the 24Q3 revenue of the 20 selected CXO companies was 22.61 billion yuan (down 1.8% year on year; up 7.6% month on month); net profit to mother was 3.59 billion yuan (-28.8%); net profit growth rate after deducting non-return to mother was -31.6%. In the short term, commercial orders continue to be digested, and the apparent performance of CDMO is under pressure; mature overseas CXO clinical pipelines are progressing steadily, and pre-clinical demand still needs to be repaired. From a long-term perspective, AI technology is widely used in various stages of drug development and in multi-disease fields; emerging businesses such as CGT are still in the early stages of development, and order acquisition+R side construction determines core competitiveness.

The main views of Southwest Securities are as follows:

Macroscopic dimension: The geographical game has been implemented, and pessimistic sector expectations are about to be repaired

With the Federal Reserve cutting interest rates twice this year, the biomedical first-level investment and financing environment may improve. Market liquidity is expected to recover, and the innovative drug industry chain will have opportunities for valuation repair; leading CXO COVID-19 commercial orders have been completely digested, and the geographical game has yet to be implemented; sector valuations have fallen back to the bottom of history, and individual stock valuations are still divided.

Industry dimension: Global pharmaceutical R&D investment is growing steadily, and the CXO industry's prosperity is still fluctuating

Southwest Securities predicts that from 2021 to 2028, global pharmaceutical research and development will continue to grow steadily at a growth rate of 2.6%; from 2022, the capital market will calm down. Overseas: Looking at the primary market, the total amount of investment and financing in 2024Q3 was 148.37 billion yuan (-7.3%), and the total number of financing incidents was 614 (-19.3%). From July to September 2024, the total amount of investment and financing was 48.68 billion yuan (-16.2%), 29.95 billion yuan (-29.5%), and 69.74 billion yuan (+17.1%), respectively. The total number of financing incidents was 224 (-7.8%), 177 (-21%), and 213 (+20.3%), respectively.

Domestic: The intensity of healthcare investment and financing activities in the domestic primary market is still fluctuating. The total amount of investment and financing in 2024Q3 was 7.67 billion yuan (-74.4%), and the total number of financing incidents was 97 (-65.8%). From July to September 2024, the total amount of investment and financing was 3.52 billion yuan (-74.9%), 2.06 billion yuan (-75.5%), and 2.08 billion yuan (-72.2%), respectively. The total number of financing incidents was 40 (-63%), 30 (-69.4%), and 27 (-65.4%), respectively.

The boom in innovative drug development is yet to be repaired. In 2023, the number of innovative drugs added in China was 1,561 (+26.6%), the number of NDAs was added by 257 (+61.6%), and the number of approvals increased rapidly; in 2024H1, the number of innovative drugs in China added 691 (-10.7%) and 113 new NDAs (-4.2%), which fluctuated slightly from the previous year.

Enterprise dimension: CXO industry revenue is picking up quarter by quarter, but overall profits are still under pressure

A total of 20 companies were selected for the CXO segment. The 20 CXOs represented Q1-Q3 revenue of 62.8 billion yuan (-8%), and the growth rate was still slowing down under the high base of 2023; net profit to mother was 10.683 billion yuan (-33.9%); total net profit after deducting non-net profit was about 9.98 billion yuan (-32.1%). Revenue rebounded quarterly in 2024Q1-3, but overall profit was still under pressure. On a quarterly basis, the 24Q3 revenue of the 20 CXO companies was 22.61 billion yuan (down 1.8% year on year; up 7.6% from month to month); net profit to mother was 3.59 billion yuan (-28.8%); net profit growth rate after deducting non-return to mother was -31.6%. Various performance indicators in 24Q3 were slightly repaired, and gross margin gradually rebounded. 2024Q1, Q2 and Q3 gross margins were 36.8%, 38.8%, and 39.6%, respectively.

Investment advice

In the short term, commercial orders continue to be digested, and the apparent performance of CDMO is under pressure; mature overseas CXO clinical pipelines are progressing steadily, and pre-clinical demand still needs to be repaired. Looking at the medium term, the commercialization of polypeptide drugs is imminent, and the GLP-1 industry chain is taking off; domestic companies have a more mature small-molecule CDMO business, and biopharmaceutical CDMO is still growing. From a long-term perspective, AI technology is widely used in various stages of drug development and in multi-disease fields; emerging businesses such as CGT are still in the early stages of development, and order acquisition+R side construction determines core competitiveness.

Related targets

Platform-based CXO enterprise with integrated industrial chain layout, 1) leading CRDMO/CTDMO integrated pharmaceutical company (02359), PharmacomingBiologics (02269), Pharmacology (02268); 2) Clinical CRO Tiger Pharmaceuticals (03347), Kanglong Chemical (300759.SZ), etc. with flexible performance; 3) peptides and small molecules with high valuation value CDMO Nootech (688076.SH), Kailaiying (002821.SZ), Shengnuo Biotech (688117.SH) (Jiuzhou Pharmaceutical) 603456.SH), Boteng Co., Ltd. (300363.SZ), etc.; 4) generic drugs CRO Baicheng Pharmaceutical (301096.SZ) and Sunshine Nuohe (688621.SH), etc., which have continued to operate steadily; 5) Pharmaceutical Stone Technology (300725.SZ) and Haoyuan Pharmaceutical (688131.SH), etc., which are expected to usher in an inflection point in business.

Risk Alerts

The transfer of production capacity in the CXO industry falls short of expectations; orders from CXO companies fall short of expectations; risk of exchange rate fluctuations; progress in clinical trials of innovative drugs falls short of expectations; progress in the marketing and commercialization of innovative drugs falls short of expectations; other pharmaceutical industry policy risks, etc.