CRO rising against the trend: half is sea water, half is flame

In the past few days, the three quarterly reports of various companies have been released.
The picture presented is probably: pharmaceutical companies are struggling to survive; consumer medical services are returning to mediocrity from high growth; (new crown) vaccine companies are stepping down from the altar; only CRO The industry continues to play music, continue to dance.
.
.

Only the CRO industry continues to play music and dance.
.
.

First, the third-quarter financial report of the domestic clinical CRO "boss" Tiger disclosed: its operating income was 1.
339 billion yuan, a year-on-year increase of 57.
77%; net profit was 526 million yuan, a year-on-year increase of 64.
80%
.

Yesterday (October 26), Kailaiying also announced its own report card: the company's third-quarter main operating income was 1.

In the first half of this year, the growth of CROs was even more impressive: for example, WuXi Biologics' net profit was 1.
842 billion, a year-on-year increase of 150.
25%; Medicilon's net profit was 113 million, a year-on-year increase of 142.
29%
.

As a "water seller" in the pharmaceutical industry, the high valuation of CRO close to one hundred times is the norm
.

As of the end of August this year, the four leading A-share CROs-WuXi AppTec, Kanglong Chemical, Tigermed Pharmaceuticals, and Kailai Ying, have an average dynamic valuation of about 90 times, even if they are lower than the static P/E ratio, they are still at a high level

But even with such a leaps and bounds, Hillhouse Capital, a former heavyweight, is rapidly retreating
.

Hillhouse and Central Huijin both withdrew from Tiger Medicine’s top ten tradable shareholders list in the third quarter; at the same time, the top ten tradable shareholders who withdrew also included Kailai Ying.
In fact, it reduced its holdings of Kailai Ying in the second quarter.
Nearly half of the shares
.

Recalling the landing of fixed growth in 2020, Zhang Lei once said that Hillhouse will serve as a long-term supporter of Calais to promote in-depth strategic cooperation in new business areas such as small molecules, nucleic acids, biological drugs CDMO, and innovative drug clinical research services
.

In the short and fast era, this so-called "long-term" was only one year old
.

In the short and fast era, this so-called "long-term" was only one year old
.

Like Tigermed, the number of holding institutions behind Calais has also been "declining"
.

At the end of last year, a total of 585 institutions held shares in Gloria, but as of June 30 this year, only 158 institutions held shares

There are not too many traces of the head funds, but the level of excitement also reflects that the industry is indeed still in a period of rapid growth
.

In the context of policies such as the medical reform, enterprises' investment in research and development of innovative drugs has continued to increase
.

While start-up pharmaceutical companies will rely more on CRO services, CRO demand and business penetration will increase rapidly in the future, and it is expected to increase to 40.

In addition, since the drug review reform in 2015, the efficiency of drug registration review has improved, and the number of domestic drug registration applications has grown rapidly.
From 2016 to 2020, the drug review center's new drug registration applications have a compound annual growth rate of 28.
30%
.

Behind this is also benefited from the help of CRO, with the help of CRO to control costs and improve research and development efficiency

However, it cannot be denied that the "bad" shadow of the CRO industry is still lingering
.

This is inseparable from the "Clinical Value-Oriented Anti-tumor Drug Clinical Research and Development Guidelines" (hereinafter referred to as the "Principles") promulgated by the CDE (Drug Evaluation Center of the State Food and Drug Administration) in July this year.
The "Principles" emphasize Clinical value-oriented research and development of new drugs is against low-level repetitive construction
.

At that time, a number of CRO-related stock prices fell in response, and there was a general view circulating in the market: this principle has made the development of anti-tumor drugs more difficult, so that many companies have to retreat, and then transmitted to CRO companies
.

This principle has increased the difficulty in the development of anti-tumor drugs, allowing many companies to retreat from the difficulties, and then spread to CRO companies
.

The strong Hengqiang, although Hillhouse has withdrawn from the list of the top ten tradable shareholders of the two major CRO leaders, all the major medical themed funds have increased their positions
.

To a certain extent, they all point out one thing like a weather vane-this golden track has entered the second half

- 01 - Chinese characteristics "thoroughfare"

- 01 - Chinese characteristics "thoroughfare"

If you summarize the CRO industry in one sentence, it can basically be boiled down to: catching up with the shadow of the United States
.

Catch up with the shadow of the United States
.

Whether it was Wuxi Li Ge who moved the drug discovery business from Boston back to Wuxi in 2000, or Tiger Ye Xiaoping who came out of Roche to save a drug-registered tripartite company, the background of the birth of this group of leading CXO companies in China Basically, in the process of serving foreign pharmaceutical companies, they discovered some opportunities in the Chinese market, seized them, completed the original accumulation, and then expanded rapidly
.

CRO was born on a large scale during the boom of biomedicine in the early 1990s in the United States.
After the bubble burst, the industry began to extend to third world countries with lower labor costs and a wider market.
Instead, it was in the United States, leaving only some Mature, high-end, but slow-growing business
.

But at that time, the so-called CRO transfer to China was just that the R&D migrant workers who were shaking the bottle for MNC pharmaceutical companies were changed from Americans to Chinese
.

There were not many essential changes in what everyone did, the upstream and downstream patterns, and the ecology of the entire industry .

A few years later, this group of Chinese scientists who "shake the bottle" did learn their skills and went out to do it alone
.
On the other hand, the domestic pharmaceutical industry has also begun to show some improvement under the unclear toss of the top level.
Of course, the financial crisis that broke out in 2008 has also contributed to the wave
.
Therefore, laboratory services in China have also begun to be born sporadically, and China's CRO American re-enactment road has officially begun
.

But China has its own national conditions, and one thing that Chinese people are still very good at is: Qing is out of blue
.

But China has its own national conditions, and one thing that Chinese people are still very good at is: Qing is out of blue
.

In 2012, WuXi Biologics became independent from Condoleezza and devoted itself to the macromolecule business, building a large number of biological cell reaction factories
.

In the CRO industry, the two most important indicators are capacity, and capacity utilization
.
The former determines the scale of making money, and the latter determines the efficiency of making money
.
However, at that time, biological medicines with "high investment and unknown return" had not yet become popular in China, and WuXi Biologics' factories could not be transferred at all
.
The bread processing factory could not receive the processing order, so WuXi bought the flour and made it by itself
.

Therefore, WuXi has made a lot of candidate molecules in the past few years, and put them in its showcase waiting for customers to choose
.
At least let your own production capacity not be idle
.

Around this time, the top-level design of China's pharmaceutical industry also changed.
Bi Jingquan assumed the post of director of the State Food and Drug Administration
.
China's innovative pharmaceutical companies, such as BeiGene, which are now well-known, have gradually grown up in the second decade of the 21st century
.

At the same time, after the “722 Data Verification” in 2015, some CROs with falsified data cannot protect themselves.
Local CROs with overseas genes and overseas standardized procedures have come to the local business space
.
Industry concentration has been qualitatively improved
.

Innovative drugs are raging, and traditional pharmaceutical companies are transforming one after another, all rushing to Wuxi’s warehouse to pull goods; on the other hand, whether it is a dual-enterprise enterprise or a traditional pharmaceutical company that pulls goods, it has to rely on drug research and development and clinical trials.
At the CRO company
.
WuXi sells both molecules and CRO services, which cannot be learned from American gameplay
.

Although this approach may involve patent issues, it is not unstoppable
.
The reason is simple: because there is demand, there is a market
.
This group of domestic pharmaceutical companies, whether they are transforming traditional pharmaceutical companies or advanced small start-up companies, each hope that their pipeline can be pulled out to stack a whole sheet of A4 paper, and everyone is not bad for money
.

This is a game of willingness to play one after another
.

This is a game of willingness to play one after another
.

Since then, CRO companies with money have also embarked on the ultimate destination of capitalism: investment
.

However, in addition to obtaining a good financial return, CRO companies want to invest in CRO companies only through the equity relationship to obtain some CRO orders, not to "control the entire Chinese pharmaceutical industry
.
" There are not so many so-called "big chess" in this world
.

There are not so many so-called "big chess" in this world
.

From working for foreigners to serving local companies, from creators to investment, the CRO industry has changed from 1.
0 to 3.
0.
It is just that the domestic CRO has just started, and there are still a lot of window opportunities; and at the same time, it has started since 2015.
The high-growth dividend of innovative drugs launched since
.

The fate of a person (industry).
.
.

- 02 - tickets for the next era of access

- 02 - tickets for the next era of access

Of course, not everyone has easy admission tickets
.

Among the more than 100 CRO companies, 11 have been successfully listed.
In addition to the seven CXO gentlemen such as WuXi Taige, they have also emerged from representative emerging companies such as Medicilon, Prolog, and Proton
.

Larger CRO companies have started to establish source cooperation with pharmaceutical companies from the drug discovery stage to provide integrated services
.
However, relatively small companies can only build their core competitiveness through characteristic technology platforms or services, and achieve differentiated breakthroughs in various subdivisions
.

WuXi AppTec, which occupies the largest domestic market share, is mainly engaged in small molecule drug preclinical CRO (main business), but it also has both clinical CRO and small molecule drug CDMO.
Among many CRO companies, the industrial chain is the most complete; Gloria's small molecule chemical pharmaceutical CDMO ranks second in the domestic chemical pharmaceutical CMO, and large-molecule biopharmaceuticals are initially involved and also started operations
.

Pre-clinical CRO began to be established; Tigermed, Kanglong Chemical, and Boji Pharmaceutical involved clinical CRO and pre-clinical CRO
.

Zhaoyan New Medicine focuses on drug toxicology research and safety evaluation, with a small business scope, but has an absolute say in the field of safety evaluation
.

Behind the different situations is the further increase in the scale of the CRO industry and the intensification of integration
.
More customers and a wider industrial chain are involved, which means that there are more trading opportunities in the process of 2.
0 and 3.
0
.

Every CRO company has a dream of becoming bigger and stronger.
"Buy, buy, buy" is undoubtedly the fastest way
.
At this point, the big manufacturers did not choose to stop and wait for subsequent players
.

In August 2014, WuXi AppTec acquired American Micronol; in 2015, WuXi AppTec acquired NextCODE, and jointly acquired American Ambrx with Fosun Pharma; in April 2016, WuXi AppTec acquired Europe’s leading drug discovery service provider Crelux, Germany; In 2017, WuXi AppTec announced the acquisition of Huiyuan Biotechnology, a preclinical drug development outsourcing company
.

As early as 2015, WuXi AppTec announced a strategic cooperation with Eli Lilly to develop small molecule drugs for cardiovascular diseases
.
In a sense, WuXi AppTec has successfully transformed into a comprehensive enterprise integrating preclinical CRO business, biologics CMO, new drugs, investment and other series of businesses
.

The merger of the two companies does not rely on capital accumulation to quickly fill the entire industrial chain
.
Sometimes, 1+1 is not always ≥2
.

Sometimes, 1+1 is not always ≥2
.

In 2010, Tiger acquired Hangzhou Simo
.
After the initial acquisition, it was merged into the business line of the parent company
.
But in fact, the CRC management system of Hangzhou Simo is very different from Tiger's original CRA management system
.
After that, the senior management insisted on splitting Simo as a separate system, and Simo became Tiger's supplier, and only then has today's mutual win result
.

When acquiring Fonda, Tiger hopes to use Fonda's first phase of experience in the United States to divert some customers to China and strengthen the BD business cooperation between China and the United States
.
When I first started, I didn't make money
.
Tiger plans to gradually shut down the laboratory in Suzhou, China, just in time for the 722 clinical verification + consistency evaluation, the domestic BE business has risen, and the BE research done by Fonda in China meets the requirements of the US FDA, and it has been able to eat the domestic consistency.
The main share of the evaluation business
.

Acquiring foreign companies and going international is the strategic deployment of some CRO companies
.
However, international acquisitions are still relatively cautious.
For example, Tiger still tends to establish its own team, mainly recruiting local Chinese as heads of international business
.

Based on its own advantageous projects in the industrial chain, gradually extending up and down the industrial chain is the direction of the efforts of various domestic CRO companies
.
Some steps were a little bigger, and some were broken
.

Under the "contending of a hundred schools of thought", to break through the fierce market competition, either to provide a full range of services for pharmaceutical companies, or to provide differentiated R&D services for pharmaceutical companies
.

And this crazy process of expansion also created the prosperity of the scene at the beginning of the article.

- 03 - the haze of heat behind

- 03 - the haze of heat behind

CRO is going crazy.
As the payer of this industry, pharmaceutical companies have begun to take some different actions
.

Around 2020, some large innovative drug companies with more pipelines, such as BeiGene, began to build their own clinical teams.
Previously, their clinical trial projects were all Chinese CROs such as Quintiles
.

Hengrui, a traditional pharmaceutical company transforming the research and development of innovative drugs, also embarked on the road of self-built CRO a few years ago.
Hengrui, who is accustomed to relying on its own strength, still needed CRO outsourcing services for key innovative drug projects
.

For pharmaceutical companies with many innovative drug pipelines, the first reason is cost
.

Clinical trials require manpower.
For these innovative pharmaceutical companies, Tiger and other traditional CROs that focus on clinical trials are labor-intensive companies
.
The cost of this piece cannot be reduced for the CRO company itself
.

"The price of a CRA, if you request it from the CRO, the cost of 8 hours a day is 15,000.
If you build your own clinical team and a pharmaceutical company hires a college student who has just graduated, the monthly salary is about 15,000.
Go to the hospital 5 or 6 times
.
"A person in charge of a clinical trial team in a pharmaceutical company said that the cost of building a clinical team by the company has actually been reduced
.

A pharmaceutical company invites a college student who has just graduated, and his monthly salary is about 15,000, and he can go to the hospital 5 or 6 times a month
.

The second is the quality factor
.
There are more and more CROs taking cases, and it feels "rough"
.

Live "rough"

In the past few years, pharmaceutical companies PD1 got together, and innovative pharmaceutical companies continued to BD through the Dongfeng investment.
CRO companies made a lot of money, and they also made acquisitions with each other
.
An innovative pharmaceutical company R&D staff talked about cooperating with a large acquired CRO company, and found that its quality had dropped from the original 80 points to the level of "only 40-60 points"
.
He clearly felt that CROs are paying more and more attention to money and efficiency, rather than to quality
.

CROs are paying more and more attention to money and efficiency, not to quality
.

A person who originally worked in a CRO company and later switched to the clinical department of a pharmaceutical company said: "When I was doing CRA in a CRO company, sometimes if I stayed in the hospital for another day, the results of the test would be perfect, but I couldn’t give it to Party A.
If you ask for an extra day, the pharmaceutical company will have to pay for one day, so if it reaches 80 points, it stops
.
"

Now, after he becomes a member of the clinical team of a pharmaceutical company, he can achieve a perfect test result regardless of his time in the hospital.
He believes that cost and quality factors are the main considerations for pharmaceutical companies that build their own CRO teams
.

Not only is it difficult for innovative pharmaceutical companies to see the future of traditional CROs; CRO companies’ own employees also worry about the future and feel that they are likely to be replaced at any time
.
Therefore, the rate of job hopping for junior employees of Tiger, Quintiles and other companies is very high, especially in the past two years when the company's business has grown rapidly and the workload is full
.

The above-mentioned employees who switched from CRO to a pharmaceutical company mentioned that the previous project team member of a CRO company generally completed a project and went through the whole process of clinical trials of an innovative drug.
The knowledge they learned was very comprehensive and could Qualified for the job of project manager soon
.

But in recent years, when the CRO has expanded rapidly, each person is only responsible for a certain part of a project, which has become a link in the assembly line and has no opportunity for growth
.

When there are internal and external difficulties, traditional CROs know that the prosperity scene they are in will not last long.
They all take advantage of this window to transform
.
Therefore, the third-quarter financial reports of each CRO company are full of content such as how many countries have established teams in the world and how many investments they have participated in
.

Many people in the industry are not optimistic about the traditional CRO "going abroad".
In their view, China is taking advantage of the low cost of local labor.
However, when going abroad, labor costs will rise sharply, and local CRO companies in China will lose their greatest advantage.

.
Many people in the industry said that traditional CRO companies are just a "concept" to talk about going overseas, and it is difficult to bring substantial profits
.
To go to sea, we still have to rely on technology that others don't have
.

To go to sea, we still have to rely on technology that others don't have
.

The competition between overseas CROs and overseas CRO companies is also difficult
.

In the United States, clinicians attach great importance to clinical trials of drugs, respect science, and CRO's inspectors.
Inspectors only need to accumulate professional scientific research experience.
They are not a youthful profession and can work until retirement
.

However, in China, some clinicians involved in drug clinical trials do not pay much attention to professional accumulation when dealing with CRA, and they will inevitably fall into certain gray areas
.
Although the overall clinical trial environment has become more and more standardized in recent years, it is still difficult to achieve a scientific research-oriented environment
.

How long the innovative drug track can last is the sword of Damocles hanging on the heads of CRO companies, innovative drug companies and capital
.

On July 2, the new CDE regulations were issued, requiring the development of anti-tumor drugs to be clinically value-oriented, directly referring to the threshold for the development of innovative drugs
.
"It requires a double-arm test instead of the previous single-arm test, and the cost per patient increases by about 500,000
.
" said a research and development staff member of an innovative pharmaceutical company
.

The IPO of innovative drug companies dominated by BD has been blocked, and the listings in Hong Kong and the Mainland have been broken.
These situations will hinder the entry of capital
.

And when the source dries up and costs rise, all prosperity will end.
At that time, CROs will bear the brunt of the accident
.