CXOs who are hurting while growing: success is also global, and difficulties are also global

The Biden bill, which plunged China's CXO stock price, finally has further news

On September 14, the White House hosted the National Biotechnology and Biomanufacturing Program Summit, announcing more than $2 billion in funding to advance President Biden's executive order

It should be noted that more than $2 billion is not a big number

It is not that a large number is not only for medicine, but scattered in multiple fields such as fuel, fertilizer, food and materials, obviously does not change the fundamental pattern

The next day, the CXO pharmaceutical companies related to outsourced production in the secondary market fell sharply, and the larger and more global CXO pharmaceutical companies, the greater the

The secondary market's response has always been sensitive but not sharp enough, "more like an emotional market, only looking at the heat

The secondary market's response has always been sensitive but not sharp enough, "more like an emotional market, only looking at the heat

It cannot hinder the development of CXO or even innovative drugs in China

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How did Chinese CROs go from "unpopular" to "overheated"?

How did Chinese CROs go from "unpopular" to "overheated"?

Ten years ago, whether it was foreign investors or domestic investors, no one thought CXO was a good track

Since then, in the Chinese market, WuXi AppTec has raised more funds because of its listing, so it has more resources to take orders from foreign pharmaceutical companies, and CXO has begun to heat up from the secondary market to the primary market

At the same time, before 2018, with the return of pharmaceutical R&D personnel studying abroad, the rise of CXO in China has an inevitable talent reserve

"Around 2014 and 2015, we saw that Chinese manufacturers of Apple's mobile phone OEM made money, and we knew that CXO would become a good track

However, in essence, CXO is a contract R&D outsourcing agency, which is subject to the intellectual property rights of Party A, and is not the R&D department

After 2015, the development of China's innovative drugs has entered the fast lane, in terms of investment logic, the investment of innovative pharmaceutical companies is like smashing golden eggs, nine deaths, there are infinite possibilities, so the imagination is endless, and it is often easy to have a sky-high valuation

The added value of CXO can be calculated using the model, "no matter how CXO is valued, the essence is foundry

Valuations are relatively stable and conservative, and there will be no particularly high added value

In addition, those returnees who returned to China to do CRO in previous years, their value is not only high education, but more importantly, they have moved the research and development standards of Europe and the United States to China, helping China's pharmaceutical industry to carry out an upgrade of industrialization, research and development and planning

Therefore, in China, the foundry nature of CRO is constantly being diluted, and its pharmaceutical research and development value is constantly being strengthened
.
So much so that the entire market has slowly ignored its "OEM" essence
.

So much so that the entire market has slowly ignored its "OEM" essence
.

Unlike the "rational" fire that creates real value, WuXi AppTec, which returned to China, is listed
in Hong Kong.
WuXi Biologics was spun off and listed, and the fire in the capital market made the entire CRO track overheated
.

The fire in the capital market has made the entire CRO track overheat

So that later, especially in the past two years, a lot of CXO concept speculation in China's secondary market is actually based on short-term profits
.
So many strange phenomena have arisen: many pharmaceutical companies can't move to hang up a CRO name or some innovative drug companies wear a CRO skin to raise funds
.
In fact, in the long run, there must be a process of clearing, "In short, the valuation of CRO should return to the valuation of a foundry industry, and cooling down is not a bad thing
.
" The investor said
.

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CRO Ups and Downs: Globalization or the Result of Anti-Globalization?

CRO Ups and Downs: Globalization or the Result of Anti-Globalization?

"This bill is even worse
.
" CXO pharmaceutical companies have been "falling and falling" for a year, and each big fall is basically related to geopolitics, perhaps it is already a little tired, and a CRO industry insider has not commented
on this topic.

The last big drop was on February 8, 2022, when the U.
S.
Department of Commerce released the "Unverified List" (UVL) list, adding 33 new Chinese institutions, and WuXi Biologics was involved, with the highest decline reaching 31.
76%, suspending trading
during the session.
At present, WuXi AppTec is also implicated, and it fell to a halt
at the opening.
On that day, CXO concept stocks also dived across the board
.

An earlier "CXO full-line dive" was in December 2021, when it was rumored that the U.
S.
Department of Commerce would include a number of Chinese companies, including biotechnology manufacturing, in the "entity list", and the news came out, WuXi AppTec also fell to a halt, and WuXi Biologics and Kanglong Chemical Industry also plummeted
.

Originally, the purpose of globalization was to achieve the lowest cost and the highest rate of return, and the rise of CXO in China was also based on this cause and effect
.
In the 1980s, U.
S.
pharmaceutical companies were buffeted by payment method reforms and outsourced
R&D and production to save money.
Most CXO companies in the United States were born at this node and are in full swing
.

Originally, the purpose of globalization was to achieve the lowest cost and the highest rate of return, and the rise of CXO in China was also based on this cause and effect
.

Later, CXOs in the United States gradually began to outsource, moving
to places with more abundant and cheaper labor.
At the beginning of the 21st century, China's CXO was born
in this context.

China's CXO was born
in this context.

More than a decade later, with the take-off of China's innovative drugs, China's CXO has also risen
.
Even in last year's wave of innovative pharmaceutical companies to de-bubble, CRO pharmaceutical companies still maintained high growth
.
According to the 2021 annual report, WuXi AppTec increased profits and increased revenue, with revenue up 38.
5% year-on-year and net profit up 72.
19% year-on-year; Kanglong Chemical Increased by 45% year-on-year, and net profit increased by 67.
46%
year-on-year.

However, the performance of CXOs this year may not be as glamorous
as before.
On July 18, this year's interim performance forecast was released, and the year-on-year increase in net profit is expected to be only 0% - 8% (the net profit in the mid-report increased by 3.
54% year-on-year), leading the CRO sector
the next day.
This is also the only time in nearly a year that CXO stocks have plunged
in their entirety because of their own performance rather than geopolitics.

The only time CXO stocks have plunged out of the water
because of their own performance rather than geopolitics.

When investors in the secondary market were stunned, the heavy investment institutions in the primary market began to withdraw
last year.
In the third quarter of 2021, hillhouse and central Huijin both withdrew from tigermed's top ten circulating shareholders, and during the same period, Hillhouse also withdrew from the top ten circulating shareholders
of Gloria Ingen.
After a year, the bearishness gradually appeared
.

In fact, CXOs are not without action
in the face of external pressure.
In the past two years, WuXi AppTec and Kanglong Huacheng have been laying out overseas strategies
.
In January this year alone, Kanglong Chemical Acquisition acquired Aesica Pharmaceuticals Limited, an API production base, and in May, Kanglong Chemical Acquisition acquired an API production base
of Ankai Yibo and Noramco in the United States.
In July, WuXi AppTec announced the establishment of an R&D and manufacturing facility in Singapore and expects to invest S$2 billion over the next decade
.

Although it is different from the Chinese Biotechs who seek to go to sea, for WuXi AppTec, this is also a way
to go to sea to save themselves.
If the cXO's dilemma is caused by anti-globalization, the antidote to the anti-globalization dilemma must be found
in globalization.
And if this is only a small shock in the development of the global industry in China, the future development of China's CXO will also follow the market rules and shift
to a more suitable place.

If the cXO's dilemma is caused by anti-globalization, the antidote to the anti-globalization dilemma must be found in globalization

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The Future of China's CXO: Forcing Domestic Industrial Upgrading?

The Future of China's CXO: Forcing Domestic Industrial Upgrading?

The stock price plunged in the past two days, mainly reflecting the panic in the
market.

It mainly reflects the panic of the
market.

The person who digs the mine can't dig up the gold, and the person who sells the shovel will not sell the shovel
.
Most of the small and medium-sized CROs receive domestic orders, but because the innovative pharmaceutical companies themselves are experiencing a cold winter, these CROOs downstream are naturally very difficult
.
"A lot of small and medium-sized CROs are out of
breath.
" After a short period of panic, a key question that needs to be analyzed is, how likely is it that the Sino-US biomedical industry chain will be fully decoupled?

What is the likelihood of a comprehensive decoupling of the biomedical industry chain between China and the United States?

Some pharmaceutical practitioners pointed out that the upstream raw materials and many intermediates in the US pharmaceutical industry originate from Chinese factories, and it is difficult to decouple
the overall drug supply chain due to the troublesome, high investment and small returns of changing suppliers.

In addition, more than one practitioner stressed that the more important correlation between the Biopharmaceutical industry in China and the United States is the exchange
of funds, people and data compared with the physical object.

The direct goal of the United States to introduce this bill is the transfer
of manufacturing.
However, the biomanufacturing industry has a large investment amount, a long investment cycle, and a large number of high-quality talents, and the transfer is not easy
.

At the same time, the cost advantage is one
of the reasons for the rapid development of China's CXO industry over the years.
The United States has recently begun to control health care costs and limit drug prices in order to smooth high inflation, so this advantage of China's CXO is even more important
.

However, one CRO practitioner also has concerns
.
In terms of cost, he argues, China is becoming "gradually losing its obvious advantage.
"

In terms of cost, China is becoming "gradually losing its obvious advantage.
"

He cited clinical trials as an example: "Due to the dominance of hospital institutions in clinical trials and huge policy uncertainties, the cost of doing experiments in China is getting higher and higher
.
”

He believes that the advantages that CXO In China still have are that labor costs are still relatively low, and under the huge population base, some rare diseases are not so rare
in China.

A biopharmaceutical developer believes that after the enactment of this bill, large-scale high-end equipment, media and consumables needed to import industries from the United States may encounter more trouble in terms of procedures and time, and some may even restrict the sale
of China.
In the short term, it has caused certain difficulties
to China's biopharmaceutical industry.

However, he also believes that in the long run, it will be more difficult to obtain technology transfer from abroad, which will force domestic industrial upgrading
.
For example, Chinese media and consumable suppliers will gain more market share
.
"You can survive
anyway.
If the high-end is not good, slowly save
from the low-end.
He said
.

The aforementioned CRO practitioners believe that there is indeed room for the domestic industry to improve, "the component of the force is the part that both parties need, we rely on their things, but this part actually has little impact.
"

He is more inclined to believe that the bill may mainly stay at the symbolic level, introduced because "Biden wants to elect", but the trend of segmentation of related industries in China and the United States is obvious
.

The CRO practitioner pointed out that in the next step, the CXO industry will continue to "squeeze the bubble madly", and the only ones who survive may be the head of the industry and those who
specialize in a certain vertical field.

From executive orders to specific policies, there are still many unknowns
in the Biden bill.
At the same time, China has issued the "14th Five-Year Plan for the Development of the Bio-economy" this year, which has made a top-level design
for the construction of a modern bio-industry system.
In the next step, will there be policies to promote the development of the industry? We're waiting
.
(Tan Also contributed to this article)