Pharmaceuticals has always been an industry that I am more concerned about and optimistic about, this track can be said to be the long bulls come and go, I believe we all know that the best is the direction of CXO.
However, the recent frequent reductions in holdings and even the withdrawal of the stocks of this track by High Tier Capital seems to have cast a shadow on this segment, has the investment logic of CXO changed? My answer is no.
First of all, let's look at the demand side: the aging of the population superimposed on the policy factors to promote the rising demand for innovative drugs.
Population aging is a problem that needs to be faced in recent years, the United Nations calculates that the proportion of the global elderly population has increased from 8% in 2015 to 9% in 2020, and China's aging data in 2020 is 12%, the degree of aging is significantly higher than the global average.
The direct result of aging is a significant increase in the incidence of disease, which on the one hand greatly drives the demand for new drug development.
On the other hand, new medicines, while generating significant sales during the patent exclusivity period, can be significantly reduced after the patent period, as in the case of Lipitor, a $100 billion drug for the treatment of cardiovascular diseases.
The only way for drug companies to solve this dilemma is to constantly come up with new drugs to replace the large single product that will soon be over the patent period, considering the policy end, whether looking at the world or keeping an eye on the domestic, essentially encouraging the constant iteration of innovative medicines, while in recent years the domestic generics do not make money has been a clear card, which is also in a certain degree of forcing the pharmaceutical companies to continue to innovate.
The rise of Biotech is actually the guidance and encouragement of the policy, as well as the Guidelines for Clinical Development of Anti-tumor Drugs Based on Clinical Value issued by the CDE in July this year, which essentially advocates true innovation.
Looking at the cost side of the equation: Innovative drugs are difficult to develop, and the cost of development is increasing.
The average development time for a new drug is 10-15 years, and of the 5,000-10,000 preclinical candidate compounds, only 5 make it to the clinical trial stage, and ultimately only 1 drug can be approved for sale.
Secondly, due to a combination of factors such as tighter regulation and difficulty in recruiting patients, the development cycle of new drugs is constantly being lengthened, all of which greatly increases the development cost of new drugs.
Studies show that the average cost of new drug development has increased from $1.327 billion in 2013 to $2.442 billion in 2020.
The combination of the two seems to be a paradoxical thing: on the one hand, there is a high demand for innovation, and on the other hand, innovation is becoming less lucrative, so how do you solve this endogenous contradiction? The answer is to work with CXO companies.
Studies have shown that working with CXO companies can shorten the development time of new drugs by 1/4 to 1/3, and save 30% to 70% of the R&D costs.
CXO can modularize the pharmaceutical R&D process with its rich project experience, and work on multiple parts simultaneously to enhance synergies and improve efficiency;
In the clinical application and clinical stage, CXO can streamline the process and directly interface with the trial and review agencies to shorten the R&D time.
The Biotech companies mentioned above are mostly small in scale, with inadequate staff and equipment, and therefore need to utilize CXOs to provide professional services to collaborate in the incubation of new drugs.
In summary, it is easy to see that CXOs are the water sellers of the pharmaceutical industry, and as the most important part of the pharmaceutical industry, CXOs enjoy the highest degree of prosperity.
According to agency statistics, the global CXO industry market size of $62.6 billion in 2019 is expected to reach $96 billion in 2024, and CXO is expected to grow into a global market of $100 billion.
And China is expected to become the first choice of global famous pharmaceutical companies for cooperation in this industry due to the late start of development and the influence of many factors such as engineer dividend.
For example, Kelaiying announced on November 16, and a large U.S. pharmaceutical company signed an order of up to 481 million U.S. dollars, which is equivalent to the company's annual income level in 2020, which indirectly proves that the high level of capital to reduce the holdings of Kelaiying can not explain what the problem.
The organization expects the size of China's CXO industry to reach $22.2 billion in 2024, with a CAGR of 26.5% from 2019-2024, of which 26.0% is in the drug discovery field, 18.2% in the preclinical field, and 30.0% in the clinical field.
Finally, let's talk about the future development trend of the CXO industry:
In the past, the CXO industry has experienced a period of barbaric growth as well as a period of high-speed growth, and it can be said to be a chicken-and-egg business when the industry is having a good day.
But by reviewing the global CXO development trajectory, we can roughly judge the future development trend of the CXO industry is mainly towards two major directions.
① Integration: Integration includes vertical integration and business globalization.
First of all, vertical integration refers to the ability to provide one-stop services, CXO companies tend to extend the industry chain through mergers and acquisitions or self-built new business.
Domestic companies that have done a good job in this area include WuXi AppTec, whose business has covered the whole process of drug R&D, and Kanglong Huacheng, which is actively laying out its clinical trial-related business to expand the scope of its services.
Then we will talk about the globalization of business, for example, in terms of revenue in 2020, overseas revenue accounted for more than 70% of the leading companies are WuXi AppTec (75.3%), Kaleiden (88.3%), Kanglong Huacheng (86.3%), and Boten (84.4%).
②Differentiation: Includes superior service areas and cooperation model innovation.
First of all, the advantage of the service area, the future development trend of the pharmaceutical industry is more to go to the challenge of multi-disciplinary complexity of the attack on the disease as well as constantly updated and iterative technological means, can provide advantageous services of the CXO company is more likely to stand out.
For example, WuXi Biologics, with its world-class core technology and production process, is likely to be the company that can go farther in the CXO industry in the future.
Then again, the cooperation model innovation, CXO companies can cooperate with pharmaceutical companies from the one-time project outsourcing development into a strategic partnership, and then to achieve the interests of the depth of the binding, such as in recent years, WuXi AppTec is constantly foreign investment.
To say that the CXO industry boom has peaked, obviously there is no such thing, the CXO industry is still the fund manager configuration of the preferred, such as the ICBC Frontier Zhao Bei, the top ten positions basically include the market to go the best CXO company.
And then there's the previously mentioned Glenn at CEE Healthcare, where the leading CXO companies have always been close to her heart.
Of course, these companies are all growth companies, so look at the valuation are not too low, suitable to take a fixed investment approach to slowly save chips.
Well, that's it for today!
Risk Tip: This article is only a personal opinion interpretation, does not constitute any investment advice!
The full article was first published in the public number "DouDou Investment Research Circle", welcome to pay attention to!