a bad 2023? Biotech are breaking their arms to survive.
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winter has come exceptionally late this year, the cold winds of the epidemic seem to be intensifying, and we have seen people fleeing their desired cities, as well as stock markets plummeting, factory shutdowns, increased unemployment, and economic downturns. Some economists predict that as central banks raise interest rates to deal with inflation, 2023 will be a very bad year, and global economic growth will reach the lowest level since 2009.
, although China, as an emerging market with a resilient economy, is much more optimistic than the European market, it will still be hit by the global economic recession, which in turn affects all walks of life. even the biomedical industry, which is still thriving in the past year, has begun to shrink this year.
recession is inevitable, how long can Biotech last?
According to Anxin Securities' statistics on listed companies in different sectors, the overall revenue of the 2022Q1-Q3 pharmaceutical sector increased by 9% year-on-year; the net profit attributable to the parent increased by 6% year-on-year, of which the overall revenue of the biological products sector (excluding sub-new shares and ST shares) increased by 14% year-on-year, and the non-net profit decreased by 20% year-on-year. The increase in revenue was mainly due to the rapid release of heavy vaccines represented by HPV vaccine and 13-valent pneumonia vaccine and the steady growth of growth hormone, blood products and other categories. However, the decline in profit side was mainly due to the obvious decline in sales of the new crown vaccine, and in terms of cost and expense, the increase in cost caused the gross profit margin to drop by 4%.
is not only negative net profit growth, corporate profitability is declining. Cash flow is also very tight for many companies, with cash flow as a percentage of net profit declining significantly compared to 2020 and 2021. On the other hand, corporate finance is also more difficult in the current environment. As a result, the total cash flow of the enterprise was so tight that it had to suspend pipelines, lay off workers on a large scale, and even sell factories to cut costs.
Table 1.22Q3 Biological products represent the main financial indicators of enterprises.
Data source: Anxin Securities
in the financing winter, cash reserves directly affect the healthy development of enterprises and even survival. We focus on some 18A biotech companies can see that from the cash reserves, Baiji Shenzhou is the richest, with 27.2 billion yuan of RMB deposits and equivalents on the account. However, the largest reserves do not mean that the longer it will be able to support operations. 27.2 billion yuan's cash reserves are only enough for Baiji Shenzhou to burn for 3 years. For small, slow-expanding, and low-spending companies, cash reserve requirements are correspondingly lower. According to the simple calculation of the ratio of cash flow and R & D expenses, some enterprises have experienced a shortage of cash flow, which makes it difficult to support longer-term operation. Nearly half of the enterprises can only support less than 2 years.
Table 2. Book cash flow and research and development expenses of key biotech companies.
Data source: Snowball Network, Nuocheng, Baiji, Rongchang, Junshi cash flow data for the third quarter of 22 years, some of the data published only in U.S. dollars at the exchange rate of 7.2.
stop pipelines, sell assets, start "survival breakout war"
last year, the biopharmaceutical market seemed to be thriving, and investment and financing reached a new high. In just one year, industry investment plummeted, the market environment became colder, and a number of biotech companies "suspended projects" and "contracted pipelines".
Following the recent announcement of the shutdown of the Suzhou industrialization base by Cornerstone Pharmaceuticals, it recently announced with Platinum Pharmaceuticals that it would sell the production plant and equipment of its biomacromolecule R & D and innovation center project to Pharmaceuticals at a discount, once again stirring up a thousand waves. In fact, this is not the first time that a Biotech has announced a reduction in investment in the production process. In September this year, the Suzhou process development and medium-trial production facilities of Kewang Pharmaceutical were also absorbed by the domestic biopharmaceutical CDMO giant Pharmaceutical Mingsheng.
table 3. Biotech stop pipeline and sell factory broken arm to survive
saw him rise from a tall building and feast for guests. biotech company has experienced the "prosperity and noise" of large-scale factory construction in the past few years. In the past year, the number of cases of self-built factories turning into CDMO, suspending or even selling factories has increased. nowadays, most of the biotech companies in china have not yet grown into big pharma companies or bio-pharma. however, in the changing industry pattern and the cooling market environment, they have to live frugally to resist the cold winter, cut down pipelines and sell factories continuously, and there are more discussions on whether to build or outsource.
Biotech companies generally adjusted their R & D pipelines, some R & D pipelines were suspended or license out, and signs of depression were transmitted to upstream life science service companies. For upstream life science service companies, product types closely bound to R & D pipelines were greatly affected, resulting in a slowdown in the growth rate of 22Q3 performance of some companies. We also saw a significant slowdown in the growth rate of domestic orders of many foreign companies in the industry. Companies with weaker product and R & D pipeline ties, or companies with a higher proportion of overseas business, are less affected.
Figure 1. Revenue of major life science listed companies (billion yuan)
Data source: company annual report
both "mining" and "selling water", Biotech the transformation of CXO
in order to keep the company running and retain enough cash flow, in addition to cutting costs, another way is to open source, so in addition to selling assets to get cash flow directly, Biotech companies are also looking for business transformation to get operating cash flow, rather than waiting for the product to be realized after the commercial listing.
even the first batch of biotech companies already have products on the market, or because the follow-up pipeline product approval failed to keep up, or the volume is not as expected and had to consider entering the CDMO sector biotech companies are not a few.
According to incomplete statistics, Anteng Ruilin, a subsidiary of Fuhong Hanlin, which was established in January this year, is mainly engaged in CDMO business. Cinda Biology followed suit to launch Sherpa Biology, a platform that independently undertakes CDMO services. Sansheng Guojian has taken the initiative to set up Shengguo Medicine, a platform responsible for CDMO, from passively accepting some scattered orders from CDMO. In August, Beida Pharmaceutical and Tianguangshi Biology increased their capital to participate in CDMO business through equity investment, the customer projects undertaken by Fu Cheng Bio-platform have already started to be measured.
Table 4. Biotech Transformation CXO
Biotech companies to switch to CXO business. On the one hand, innovative drug research and development are completely different from CXO. CXO requires a large amount of personnel and resource investment in the early stage, which is more stressful for Biotech that are already short of money. On the other hand, compared with companies specializing in CXO, the Biotech of becoming a monk in the middle may involve issues such as intellectual property patent information risks, while for drug research and development companies, CXO's protection of intellectual property rights is a very important ability when selecting service providers. Biotech companies also do CXO how to balance their own product development and customer products to provide CXO services between the interests of the relationship is they need to consider the problem.
on the whole, the Biotech has gone out of various development paths: either it still focuses on R & D and innovation, returns to the real Biotech to solve the unmet clinical needs, or focuses on core products and technologies, expands the scale of self-built factories to develop into Biopharma, or sells pipelines, is acquired by Big Pharma at home and abroad, or transforms into a "Biotech + CRO" mode. Whether it is selling pipelines for survival or transforming CXO, no matter how Biotech go in the future, we need to choose a suitable road under the cold and survive better. After all, only when we survive can we have hope and cross the bull and bear.
