"Leading The Decline" In Cro Gold Rush Track

The so-called cro is a contract research organization that provides professional services in the whole process of clinical trials for new drug research and development.

Cro industry, known as the "water seller" of innovative drug research and development“ Why do water sellers make so much money "is an enduring topic in the industry.

Taige pharmaceutical, which was listed on A-share in August 2012 and Hong Kong stock in August 2020, has become the third cro company with "a + H" dual capital platform after Yao Ming Kant and KANGLONG Huacheng. In just two years, the total market value of the company has increased from 40 billion yuan to 150 billion yuan.

This is one aspect of the capital boom.

The capital response of the "water seller" is obviously related to the popularity of innovative drugs.

The core logic of hot spots is always transient.

On July 2, the drug evaluation center (CDE) of the State Drug Administration issued the notice on public soliciting opinions on the guiding principles of clinical value oriented clinical research and development of anti-tumor drugs.

The guiding principles put forward higher requirements for the enterprises engaged in the R & D of me too and me better drugs. As its downstream R & D outsourcing service provider, cro industry may face the situation of decreasing the number of orders.

On the same day, the shares of yaomingkant (603259. SH), Carling (002821. SZ), Medici (688202. SH), KANGLONG Huacheng (300759. SZ) and boten (300363. SZ) all fell to varying degrees, while tiger Pharmaceutical (300347. SZ) fell by 6.13%.

Another voice also came out quickly, "there is an over interpretation of the market, in the long run, it will avoid the homogenization competition brought by repeated R & D of innovative pharmaceutical enterprises, the logic of downstream cro industry will remain unchanged for a long time, and the penetration rate is even expected to increase."

Interestingly, after the short-term adjustment, the stock prices of Wuxi Kant and kaleyin all recovered. After the fall on July 2, TEG pharmaceutical fell by more than 10% on July 6 and 8, falling from 200 yuan / share to 150 yuan / share.

What's wrong with tiger's cro track?

On the day when the National Drug Administration's drug Audit Center (CDE) issued the guiding principles, the stock price of tiger pharmaceutical fell by 6.13%. Photo by Gan Jun

Market share ranked ninth in the world

According to the frost Sullivan report, the top 10 cro companies in the world account for 64.9% of the total global cro market according to the frost Sullivan report. In China, the top five cro enterprises account for 31.0% of the total market value in 2019, showing that the strong ones are getting stronger and stronger.

From the perspective of market structure, Yaoming Kant, which is in the first echelon, has a market share of as high as 15%, and continues to be the absolute leader in the domestic cro industry. In the subdivided fields, kailain, tiger medicine, wisdom medicine, Zhaoyan new drug, Yaoshi technology and so on have their own advantages.

Focusing on the domestic clinical cro market in the subdivided fields, there are about 400 main participants, mainly distributed in Beijing, Shanghai, Zhejiang, Jiangsu and Guangdong, which are rich in clinical resources and gathering innovation resources, mainly including the domestic branches of multinational cro companies (Kuntai, Covance, PPD, etc.) and local clinical cro companies (TEG, yaomingkant, Boji medicine, etc.) KANGLONG Huacheng, etc.

Among them, tiger pharmaceutical is undoubtedly the leading clinical cro in China. According to the income in 2019 and the number of clinical trials in progress by the end of 2019, tiger pharmaceutical is the largest clinical contract research institution in China, with a market share of 8.4% in 2019. In addition, tiger pharmaceutical ranked ninth in the global cro market share of 0.8%.

On July 7, a medical and health industry practitioner in Zhejiang told the 21st century economic report that "compared with the whole industry chain layout of yaomingkant, TEG pharmaceutical pays more attention to providing cro for clinical trials for new drug research and development. In addition, there are enterprises mainly engaged in cdmo mode, spanning different stages from new drug research and development to finished products, each focusing on different stages."

Compared with the performance and the total market value, taking A-share cro leader as an example, in 2020, the revenue scale of yaomingkant, TEG pharmaceutical and KANGLONG Huacheng will be 16.5 billion yuan, 5.1 billion yuan and 3.2 billion yuan respectively; The net profit after deducting non profit was 2.39 billion yuan, 708 million yuan and 801 million yuan respectively; The total market value is 450 billion yuan, 150 billion yuan and 150 billion yuan respectively.

From the perspective of sales gross profit margin, wind data shows that from 2018 to 2020, the gross profit margin of tiger pharmaceutical was 43%, 46% and 47%, respectively, which were higher than that of yaomingkant and KANGLONG Huacheng.

In terms of regions, TEG's domestic revenue accounted for nearly 60%. In 2020, TEG's overseas revenue was 1.286 billion yuan, accounting for 40.27%; domestic revenue was 1.907 billion yuan, accounting for 59.73%; in the same period of last year, overseas revenue accounted for 42.92%, and domestic revenue accounted for 57.08%, The proportion of domestic revenue increased mainly due to the rapid development of domestic innovative drug clinical trial business.

In contrast, in 2020, the domestic revenue of yaomingkant was 4.123 billion yuan, accounting for only 24.85%, while the overseas revenue was 12.390 billion yuan, accounting for 75.09%.

However, in 2020, the proportion of domestic business revenue of KANGLONG Huacheng is only 13.64%, and that of foreign business is as high as 86.36%.

Although the domestic revenue accounts for nearly 60%, on July 13, the 21st century economic reporter learned from the Taige pharmaceutical securities department that "in order to comply with the internationalization strategy, the company is also actively exploring overseas markets, and the current development focus is on expanding overseas MRCT business (International multi center clinical trial)"

Outstanding "non recurring profit and loss"

From the perspective of revenue structure, TEG medicine is mainly divided into two categories, "clinical trial technical services" and "clinical trial related services and laboratory services".

Among them, "clinical trial technical service" mainly provides clinical trial operation services for innovative drugs, generic drugs and medical devices, as well as supporting services directly related to clinical trials, including medical writing, translation, registration services and pharmacovigilance services.

In 2020, the revenue of "clinical trial technical services" of TEG pharmaceutical was 1.519 billion yuan, with a year-on-year increase of 12.81%, mainly due to the continuous growth of the company's clinical, medical registration, medical translation, pharmacovigilance and other businesses.

The other "clinical trial related services and laboratory services" mainly provides other important services in the drug development process, including data management and statistical analysis, clinical trial site management and subject recruitment, medical imaging and laboratory services provided by Fangda holdings, a subsidiary of tiger pharmaceutical.

In 2020, the revenue of "clinical trial related services and laboratory services" of TEG pharmaceutical was 1.657 billion yuan, with a year-on-year increase of 14.56%. This was mainly due to the growth of the company's laboratory services, clinical trial site management and patient recruitment services.

However, investors who have been paying close attention to tiger pharmaceutical may be confused about its profit source, because there is a big gap between the net profit deducted from TEG and the net profit returned to the parent company.

From 2017 to 2020, the net profit attributable to the parent of tiger pharmaceutical was 301 million yuan, 472 million yuan, 841 million yuan and 1.75 billion yuan respectively, and the corresponding deduction non net profit was 240 million yuan, 357 million yuan, 558 million yuan and 708 million yuan, respectively, achieving year-on-year growth.

In this process, from 2017 to 2020, the "non recurring profit and loss" of tiger pharmaceutical were 61 million yuan, 115 million yuan, 284 million yuan and 1 042 million yuan, respectively, showing an increasing trend.

In particular, in 2020, more than half of tiger pharmaceutical's performance is supported by "non recurring profit and loss": in 2020, the non recurring profit and loss of tiger pharmaceutical is 1.042 billion yuan, of which, "investment income and fair value change of other non current financial assets" is as high as 1.254 billion yuan, "investment income of new consolidated subsidiaries" is 68 million yuan, and government subsidy is 20 million yuan, "The profit and loss of entrusting others to invest or manage assets" is RMB 03.7 million.

Investing in 57 healthcare companies

The non recurring profit and loss of tiger pharmaceutical mainly comes from the income from changes in fair value of non current assets.

Data shows that, in 2020, Taige pharmaceutical's profit and loss of fair value changes is 1.138 billion yuan, accounting for 51.29% of the total profit.

This part of the fair value changes, mainly from the equity investment business of tiger pharmaceutical, and has a significant impact on its performance.

On July 13, tiger pharmaceutical announced a sensational news that its investment platform Hangzhou tiger equity investment partnership (limited partnership), together with Hangzhou Industrial Investment Co., Ltd. and Hangzhou hi tech Venture Capital Co., Ltd., jointly established Hangzhou Taikun equity investment fund partnership (limited partnership) (hereinafter referred to as "Taikun fund").

The total scale of Taikun fund is as high as 20 billion yuan. It mainly invests in direct investment projects and sub fund projects in the form of "equity investment". It will focus on innovative medical devices, biomedicine, medical services, medical informatization, digital therapy, intelligent manufacturing, nutrition and health, etc.

Among them, in addition to Hangzhou tiger equity as a limited partner, Hangzhou Tailong venture capital partnership (limited partnership), which plans to make a capital contribution of 200 million yuan, is also related to tiger pharmaceutical. Hangzhou tiger equity investment partnership (limited partnership) holds 99% of its share.

This means that the total investment of tiger pharmaceutical in the fund will be close to 10 billion yuan.

Tiger pharmaceutical stressed that the capital source of this investment is its own funds, and the first quarter report in 2021 shows that the monetary capital of TEG pharmaceutical is 9.712 billion yuan, almost equivalent.

In this regard, on July 13, a person from the Securities Affairs Department of tiger pharmaceutical explained to the reporter of 21st century economic news that "the above investment is not a one-off investment, but will be invested according to the progress of the project. At the same time, the establishment of the fund this time needs to be submitted to the general meeting of shareholders of the company for deliberation."

The above "big health" fund layout is just a microcosm.

When tiger Pharma was listed in Hong Kong, its prospectus said, "we have also established a diversified portfolio to selectively invest in biopharmaceutical and medical device start-ups and other industry participants... As of the last practical date (March 31, 2020), we are strategic investors in 57 innovative companies and other companies in the healthcare industry. We are also working with leading investment funds to incubate potential biotechnology and medical device companies as limited partners of these investment funds... "

According to the prospectus, as of March 31, 2020, Taige pharmaceutical's equity proportion in the investee ranged from 0.55% to 51.39%.

There are market opinions that it is necessary to reconsider the company's valuation, and some market opinions think that it is reasonable for cro enterprises to participate in the investment.

On July 8, a cro industry personage told the 21st century economic report that "it is natural for cro enterprises to make investment. They need to establish close cooperative relations with many biomedical enterprises. Some of the invested targets may use the company's services in the future. There are also some biomedical technology enterprises, whose technology is more forward-looking, so they will also invest. "

The industry further pointed out that "cro enterprises like tiger pharmaceutical have two main forms of foreign investment: one is direct investment, which participates in the equity investment of many unlisted biomedical enterprises; the other is to establish funds through cooperation, and participate in the investment business of unlisted funds as limited partners."

The data shows that by the end of 2020, the fair value of equity investment of non listed companies held by Tiger pharmaceutical reached 2.076 billion yuan; The fair value of non listed funds held reached 2.75 billion yuan.

In addition, several projects invested by Tiger pharmaceutical are expected to achieve IPO this year.

Recently, the Shanghai Stock Exchange has accepted the IPO of Yahong pharmaceutical science and technology innovation board, an innovative pharmaceutical enterprise invested by Tiger pharmaceutical. Coincidentally, Haichuang pharmaceutical, which is invested by Tiger pharmaceutical, also submitted a prospectus to the Shanghai Stock Exchange and applied for landing on the science and technology innovation board; Another investment company, Paige bio, also launched the preparation work for the listing of the science and technology innovation board.

Floating profit or floating loss

From 2020 to 2021, tiger pharmaceutical has participated in the investment of 13 funds, including qimingrong new fund, Yunfeng chaocui fund, AstraZeneca Zhongjin medical fund and Shanghai Lingang life Blue Bay fund.

According to rough calculation, the total scale of these funds is about 12.45 billion yuan (the target total subscribed capital contribution is subject to the lower one); As a limited partner, Taige Pharmaceutical Co., Ltd. has a total capital contribution of about 1.492 billion yuan, which is equivalent to twice of its deduction of non net profit (RMB 708 million) in 2020.

It can even be said that, in addition to the cro business of tiger pharmaceutical, the image of an equity investment company focusing on the medical and health field is ready to emerge.

According to media reports, at the recent shareholders' meeting, tiger pharmaceutical's chairman Ye Xiaoping and general manager Cao Xiaochun also expressed their views on the investment business.

According to the reply of Ye Xiaoping and Cao Xiaochun, TEG will also expand its investment team by 20-30 people this year to invest in some new technologies. In the past, the single investment scale of tiger pharmaceutical was controlled below 20 million yuan. With the improvement of cash flow and the improvement of investment return, it will also invest 30 million to 50 million yuan of projects in the future. In the past, the target return multiple of investment was 5-10 times. However, with the increasing investment amount and the later stage, projects with 2-3 times of investment will also be visited.

"As for whether these investments can bring benefits to listed companies, it depends on the value-added situation of the invested enterprises. At present, the profits and losses of changes in fair value of companies are floating profits or losses on the books." According to the cro industry.

In view of the investment business of tiger pharmaceutical in the 2019 annual report, the Shenzhen Stock Exchange issued an inquiry letter, asking it to explain the specific details of pharmaceutical funds, equity investment of non listed companies, the company's shareholding ratio, business management mode, decision-making mechanism, income distribution, loss sharing, business model and contract cash flow characteristics, and explain the specific accounting treatment and its basis, And the confirmation method, basis and specific measurement process of fair value are disclosed.

In this regard, tiger medicine replied, "for the equity investment of unlisted companies, there are mainly 1. Dividend income: profit distribution according to the proportion of shareholders' contribution; 2. Exit income: the income is obtained according to the actual withdrawal of the investment project. For medical funds, there are mainly 1. Income distribution has simple and complex distribution of two cases. 2. Loss sharing: in the invested medical fund, the company is a limited partner, and shall bear limited liability for the debts of the partnership to the extent of the subscribed capital contribution. "

In addition, tiger pharmaceutical also mentioned that "the company employs an independent third-party professional evaluation agency to carry out valuation analysis on part of shareholders' equity of equity investment projects of non listed companies, and provide their fair value on the valuation base date; The financial data provided by the company, the net fund value of each fund project and other information are calculated and analyzed to obtain the value of the pharmaceutical fund