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Author: Big Brother, Editor: Xiaoshimei

The A-share pharmaceutical sector has been falling for four consecutive years and shows no signs of stopping.

This year, the CSI Biopharmaceutical Index has fallen 20.5%, and is still one of the worst performing industry indexes. Among the 495 A-share pharmaceutical and biological companies, only 45 have risen. Even the various pharmaceutical stocks that were once highly sought after seem to have lost their upward momentum.

But there are also some companies that will catch your eye.

Benefiting from the emergence of GLP-1 peptide drugs and weight loss drugs, Novate Biopharma, listed on the Science and Technology Innovation Board, has bucked the trend and surged 56.3% this year, becoming the company with the highest increase among pharmaceutical stocks in Shanghai and Shenzhen.

The old forces retreat and the new forces come on the scene.

[Upstream]

Novate Bio is a typical "small but beautiful" enterprise.

The company is one of the few domestic biopharmaceutical companies focusing on peptide drugs and small molecule drugs. Its business forms include independent product selection business and customized products and technical services. The former is mainly peptide raw materials, and the latter is mainly CDMO (drug contract manufacturing).

For a long time, the market for peptide drugs was not large, and the performance and stock price of Novo Nordisk were not impressive. Until the last two years, several peptide drugs from Novo Nordisk and Eli Lilly came out, and the company's performance began to grow explosively, driving the stock price to take off.

On June 20, Nova Biotech disclosed the first semi-annual performance forecast in the biopharmaceutical industry.It is estimated that the net profit attributable to shareholders of the parent company in the first half of 2024 will reach 180 million yuan to 250 million yuan, a year-on-year increase of 330% to 497%. Among them, the net profit in the second quarter was 149 million yuan, a month-on-month increase of 125%, and a year-on-year surge of more than 7 times. It can be said that it is the company with the most obvious marginal improvement in performance in the polypeptide supply chain.

Not only are revenue and profits growing rapidly, but the company's market voice and bargaining power as a leader in the sub-segment industry have also increased significantly. From the second quarter of 2022 to the first quarter of this year, Notai Bio's gross profit margin increased from 52.6% to 67.26%.

▲Source: Tonghuashun

If we compare Notech with the entire pharmaceutical industry, we can better see the value of the company's performance.

Against the backdrop of medical insurance cost control, population decline, and intensified competition, the pharmaceutical industry's performance and stock prices have undergone profound adjustments in recent years, and the core assets in each sub-sector have begun to experience growth difficulties and profitability problems.

Vaccine company Mao Zhifei Bio's net profit has been declining for two consecutive quarters since the fourth quarter of last year. As of the first quarter of this year, the company's accounts receivable and inventory totaled 42.6 billion yuan, more than 10 times the end of 2018, and its gross profit margin has been halved compared to its historical high.

Dental Moutonce Medical's revenue has fallen into single-digit growth, and its net profit has fallen for two consecutive years. In the fourth quarter of last year, it suffered its first quarterly loss in nearly a decade. The market outside Zhejiang Province has always been an important strategic focus for Tongce, but from 2018 to 2023, the expansion outside the province did not achieve the expected results, and performance gradually encountered growth bottlenecks.

Pian Zai Huang, the most authentic Moutai-like asset, seems to be unable to run away.

Since its launch in 2003, the retail price of Pian Zai Huang tablets has increased almost every year, and the market acceptance has always been good. However, the 17th price increase in 2023 suddenly failed. The company's profit in the fourth quarter of last year fell 9.7% year-on-year and 56.1% month-on-month.

【Times Beat】

Every era has its own enterprises. The sudden rise of Nova Biotech represents a new development direction and growth rhythm for the pharmaceutical industry.

In the past two years, the fastest growing and most watched category in the global pharmaceutical industry has been GLP-1 peptide drugs. Initially used to treat diabetes, these drugs were later found to slow gastric emptying and suppress appetite, and subsequently became a popular weight loss drug around the world.

As a representative product of GLP-1, Novo Nordisk's semaglutide sales in 2023 will reach US$21.201 billion, a year-on-year increase of 88.78%, less than US$4 billion away from Merck's K drug, the king of medicine. Among them, the revenue from obesity indications is US$4.557 billion, a year-on-year increase of 407%. With the approval of the Chinese market this year and its use for obesity indications, semaglutide is likely to have reserved the title of "global king of medicine" in 2024.

The huge market demand has sparked a huge enthusiasm for research and development among global pharmaceutical companies. According to statistics from Debon Securities, there are currently more than 200 GLP-1 projects under development worldwide, with hundreds of companies conducting research and development in China alone.

However, drug research and development is fraught with difficulties, and homogeneous competition after missing out on the first-mover advantage is full of risks. The internal circulation of PD-1 is a lesson learned, and it is not easy for latecomer companies to enjoy the industry dividends.

Since the beginning of this year, the share prices of Novo Nordisk and Eli Lilly have continued to soar, but the A-share weight loss drug concept index has plummeted by 23.98%. The market does not seem to buy into the enthusiasm of domestic pharmaceutical companies to blindly develop weight loss drugs.

In contrast, upstream API companies of GLP-1 are undoubtedly the segments with stronger certainty and the first to benefit in the industry chain. As the world's most competitive API power, Chinese companies also have a better chance of making breakthroughs in the peptide API segment, where demand is growing rapidly.

The technical standards for peptide APIs are not low, and there are not many companies in China that meet the requirements. At the same time, there are only two companies in the domestic market that have passed the review of two blockbuster peptide drugs, liraglutide and semaglutide APIs: Novate Biopharma and Tianma Pharmaceuticals.

In 2023, Novate Bio signed several large orders for peptide APIs, with clients including Merck, Teva, Vertex Pharmaceuticals, Frontier Biopharmaceuticals, etc. Just one order signed with a large European pharmaceutical company in May last year matched the company's full-year revenue in 2022, and the company's stock price has continued to explode since last year.

In fact, the development rhythm and stock market feedback of peptide weight loss drugs are exactly the same as those of the artificial intelligence industry, which has also been very popular in China in the past two years.

After ChatGPT became popular around the world last year, China also set off a development boom in AI big models. However, in the past two years, there are not many particularly competitive AI big models in China. The performance and stock price of the few A-share listed companies that make big models are not particularly ideal.

At this stage, the industries that are truly enjoying the dividends of the times are actually the upstream artificial intelligence resource industries such as optical modules and AI servers. In particular, companies such as Zhongji Xuchuan that have entered Nvidia's industrial chain have already made a lot of money, and their stock prices have also followed the rhythm of the US stock market, showing a sustained upward momentum.

【The Chosen One】

Diet pills have the dual attributes of medicines and consumer goods. The use of GLP-1 diet pills has gradually become a consumption habit for many middle-class people. The duration of their popularity and the wide coverage in the future may be beyond our imagination.

Reports from JPMorgan Chase and Pfizer and other companies show that driven by the "duopoly" of Nordisk and Eli Lilly, sales of GLP-1 receptor agonist-related drugs will exceed US$100 billion in 2030, which still has about three times the current growth space. Among them, the market size of weight loss drug indications will reach US$50 billion to US$55 billion, with nearly 10 times the growth space.

The rapid development of GLP-1 will obviously bring huge demand for upstream APIs. According to Frost & Sullivan data, from 2021 to 2026, the scale of my country's peptide API market will grow from 7.6 billion yuan to 30 billion yuan, with a compound annual growth rate of 31.6%.

As one of the earliest companies in China to develop and focus on peptide APIs, Notai has first-mover advantages in production capacity, technology and cost.

As of the end of 2023, Novate Bio's peptide API production capacity has exceeded tons, making it one of the pharmaceutical companies with the largest production capacity in the world. The new production capacity is expected to be put into production by the end of 2025, when the production capacity will exceed 10 tons, and the production capacity advantage will be further expanded.

Before the birth of the miracle drug for weight loss, Noti was the exclusive API supplier for Abovirtadine and Lanreotide 505b2, two of the world's five most in-demand peptide products. The company's overseas revenue accounted for nearly 50%, far exceeding industry rivals such as Hanyu Pharmaceuticals. The early layout of overseas markets laid the foundation for Noti's advantage in the production capacity of its multi-tide APIs.

The long-chain polypeptide APIs used in GLP-1 drugs require dozens of steps to synthesize, are difficult to synthesize, have low yields (the ratio of theoretical yield to actual yield), and have extremely high technical barriers to large-scale production.

Among the five semaglutide and four liraglutide API companies registered in China, Notai Bio is the only one with a packaging specification of 1kg/bag (or 1000g/bag), and the largest packaging specification of the other companies does not exceed 300g.Single batch production of kilograms not only means higher production technology and process level, but also considering the packaging and processing costs, Notai's unit cost should be the lowest.

In addition to APIs, the peptide drug manufacturing (CDMO) business, which has been developed in recent years, is also an important layout for Notech to expand its territory in the upstream of the industrial chain.

According to forecasts from Sullivan and other institutions, the global peptide CDMO market size is expected to grow from US$3.1 billion in 2023 to US$18.8 billion in 2032, with a compound annual growth rate of 22.0%; the domestic peptide CDMO market size will grow from RMB 3.8 billion in 2023 to RMB 30.7 billion in 2032, with a compound annual growth rate of 25.9%.

At present, domestic peptide production mainly adopts chemical synthesis, with liquid phase synthesis and solid phase synthesis as the main methods. Novatech has developed a solid-liquid phase fusion peptide large-scale production technology platform, which is a more optimized production process and has the production capacity of several kilograms of side chain modified peptides and long chain modified peptides. With the first-mover advantage of APIs and technological progress, Novatech's peptide CDMO has the potential to catch up.

The tide of the times is rolling in. Don’t underestimate the power of GLP-1 to reshape the world, and don’t underestimate the growth space of hidden champions in the industrial chain.The miracles created by the domestic Apple industrial chain, Tesla industrial chain, and Nvidia industrial chain may also be reproduced in the industrial chain of weight loss drugs such as Novate Bio.

Disclaimer

The content of this article related to listed companies is the author’s personal analysis and judgment based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to interim announcements, regular reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.