Core Insights - The dialogue at the CPHI China exhibition highlighted the green transformation of the CDMO industry in China, emphasizing the shift from "manufacturing" to "intelligent manufacturing" through technological innovation and cost efficiency [1][3]. Group 1: Technological Innovations - Dr. Yang Minmin discussed the challenges of safety and environmental risks in the organic chemistry industry, leading to the exploration of new technologies like continuous flow and micro-packed bed [3]. - Drug Stone Technology has applied micro-packed bed technology in hydrogenation reactions for over a decade, enhancing selectivity and addressing the complexity of traditional process approvals [3]. - The company has accumulated experience in over 50 continuous flow technology projects, with more than 30% of R&D projects utilizing this technology, resulting in improved production efficiency and cost reduction [3]. Group 2: Cost and Efficiency Dynamics - Dr. Chen Zhihong highlighted that the continuous flow technology reduced the production cycle of drug intermediates from 40 days to 10 days, decreasing the footprint by 95% and solvent usage by over 50% [4]. - Over 60% of Drug Stone's Building Block business and 30%-40% of its CDMO business leverage new technologies, creating a positive cycle through standardized reactions that lower equipment costs [4]. - The Chinese pharmaceutical industry is projected to have an API export value of nearly $50 billion in 2024, facing pressures from domestic competition and carbon tariffs from Europe and the U.S. [4]. Group 3: Global Competitiveness and Challenges - Dr. Zhang Yantao noted that the focus of the industry has shifted from hardware construction to process management, reflecting improvements in green manufacturing capabilities [5]. - Drug Stone's overseas strategy involves a "local R&D + global delivery" model based on continuous flow technology, significantly reducing labor requirements and overcoming cost and environmental challenges in Europe and the U.S. [5]. - The total value of innovative drug license outs in China is expected to reach approximately $50 billion in 2024, urging Chinese CDMOs to accelerate their global expansion [5]. Group 4: Industry Insights and Future Vision - Dr. Yang Minmin envisioned transforming fine chemical plants into intelligent office environments, indicating a shift in industry paradigms [6]. - Dr. Zhang Yantao emphasized that advanced manufacturing technologies will inevitably take root in the largest manufacturing countries [6]. - The dialogue underscored the importance of embedding sustainability throughout the product development lifecycle to enhance business communication and competitiveness in the global pharmaceutical landscape [6].

Industry Overview - The CDMO industry in China has a compound annual growth rate (CAGR) of 39.9% from 2018 to 2023, growing from 16 billion RMB to 85.9 billion RMB[6] - By 2028, the market is expected to reach 208.4 billion RMB, and by 2033, it is projected to reach 536.9 billion RMB[6] Competitive Advantages - China has over 220 million talent resources, providing a strong competitive edge for the CDMO industry[1] - The industry is entering a new phase characterized by technological deepening, global expansion, and ecological integration, despite facing challenges such as geopolitical tensions and overcapacity[7] Investment Trends - From 2020 to 2024, 63.2% of investment events in the CDMO sector were in early-stage projects, indicating a trend towards supporting emerging enterprises[7] - Active mergers and acquisitions from 2020 to 2025 show companies are enhancing their market competitiveness through vertical integration across the supply chain[7] Market Performance - In the week of June 9-13, 2025, the medical device sector led with a gain of 1.67%, while traditional Chinese medicine followed with a 1.52% increase[8] - The highest valuation levels were observed in chemical pharmaceuticals (78.81 times) and biological products (61.33 times) during the same period[8] Risks - Key risks include potential underperformance in technology development, changes in macro demand, and geopolitical impacts[22]

Summary of Conference Call on China's CDMO Industry and WuXi Companies Industry Overview - The Chinese Contract Development and Manufacturing Organization (CDMO) segment has seen increased investor interest since early 2025, driven by favorable fundamentals despite geopolitical tensions [1] - Concerns about overcapacity in the CDMO industry are being evaluated, with current capacity utilization reported at approximately 80%, indicating a healthy demand-supply balance [2] Key Insights on WuXi Companies WuXi Biologics - The company faces significant geopolitical risks, particularly from U.S. trade initiatives aimed at reshoring drug manufacturing and price cuts on prescription drugs [2] - Approximately 60% of WuXi Biologics' revenue is derived from U.S. customers, leading to stock trading within a forward P/E range of 20x to 45x based on these geopolitical developments [2] WuXi XDC - WuXi XDC is projected to have capital expenditures exceeding RMB 1.4 billion in 2025, with a cash balance of RMB 3.5 billion at the end of 2024 and a net profit of RMB 1.1 billion in 2024 [3] - The company indicated a preference for raising funds through debt rather than equity if necessary [3] WuXi AppTec - WuXi AppTec is significantly involved in the rapidly growing GLP-1 market, with contracts for peptides and oligonucleotides contributing 23% of its revenue in Q1 2025 [4] - The company expects its backlog and capacity to double in 2025, with segment revenue anticipated to increase by over 60% [4] - WuXi AppTec holds a market share of approximately 20% in CDMO contracts and has over 20 ongoing projects in the GLP-1 market [4] Additional Considerations - The complexity of drug modalities is leading to increased outsourcing from biopharma companies, with outsourcing rates ranging from 30% to 80% of R&D spending [2] - The demand for bioconjugates and peptides is outpacing supply, which is beneficial for WuXi XDC and WuXi AppTec [2] - The overall industry view remains attractive, with potential for growth driven by increasing orders and successful product launches [7] Risks and Opportunities - Risks include geopolitical tensions, potential funding deceleration in biotech, and competition in the global market [15][17] - Opportunities may arise from favorable government policies, margin expansion, and increased outsourcing of R&D globally [15][16] This summary encapsulates the key points discussed in the conference call regarding the Chinese CDMO industry and the performance and outlook of WuXi companies.

更多资料加入知识星球：水木调研纪要 关注公众号：水木Alpha June 4, 2025 09:55 AM GMT China Healthcare | Asia Pacific Chart of the Week – CDMO Valuation Trends Key Takeaways See our Asia Insight: China's CDMOs – What Are the Leading Indicators Telling Us? for a comprehensive analysis of the drivers and a survey of each region's competitive positioning (US, EU, China, Korea, Japan, India, Taiwan). WuXi Biologics, WuXi XDC, and WuXi AppTec A/H are up 44%, 37%, and 23%/28% year-to-date (vs. HSI +21%). Based on our recent investor convers ...

Investment Rating - The report assigns an "Attractive" investment rating to the China Healthcare sector, specifically highlighting the CDMO industry as a key area of interest [6]. Core Insights - The report emphasizes the strong recovery and growth potential of leading Chinese CDMOs, particularly WuXi XDC, which is identified as the top pick due to its favorable risk-reward profile and high earnings visibility [4][9][44]. - Key indicators such as capital expenditure, R&D spending, and backlog are trending positively, exceeding pre-Covid levels, indicating robust demand for CDMO services [4][23][46]. - The report notes that while the propensity to outsource by US biopharmas remains strong, there is a significant trend towards on-shoring, which is reshaping the competitive landscape [5][10][27]. Summary by Sections Capital Expenditure and Manufacturing Capacity - Significant investments in capacity are being made by global and Chinese CDMOs, with utilization levels remaining high at approximately 80% [4][23]. - After a period of reduced investment in 2023 and much of 2024, companies are again increasing capital expenditures, indicating a recovery in demand [4][46]. R&D Spending - R&D spending has surpassed pre-Covid levels, with high outsourcing rates, particularly for complex drug modalities like ADCs [4][24]. - Major biopharmaceutical companies are increasingly relying on outsourcing as they navigate the complexities of drug development [4][24]. Backlog - There has been a substantial year-over-year increase in backlog for leading CDMOs, driven by late-stage and commercial manufacturing contracts, particularly for WuXi Biologics and WuXi AppTec [4][26]. - The report highlights that the backlog accumulation supports revenue growth guidance of over 30% CAGR for WuXi XDC from 2024 to 2028 [4]. Geopolitics and Outsourcing Trends - The report discusses the geopolitical landscape affecting the CDMO industry, noting that while on-shoring is a reality, the demand for outsourcing remains strong among US biopharmas [5][10][27]. - WuXi companies are strategically investing in regions like Singapore and the US to mitigate tariff impacts and enhance their competitive positioning [5][10]. Competitive Positioning - WuXi Biologics, WuXi AppTec, and WuXi XDC are positioned as leaders in the global CDMO market, with significant market share in both small and large molecule segments [16][20]. - The report indicates that the WuXi companies have established a strong track record and quality reputation, which are critical factors for biopharma clients when making outsourcing decisions [29][42].

Summary of Key Points from the Conference Call on China Healthcare Equities Industry Overview - The conference focused on the **China Healthcare sector**, particularly the impact of US tariffs on the pharmaceutical supply chain and related industries [2][21]. Core Insights - **Tariff Impact Ranking**: The impact of tariffs is expected to be highest on medical consumables, followed by devices and drugs [2]. - **Timeline for Tariffs**: Tariffs on US pharmaceutical imports may commence within one to two months due to ongoing investigations [2]. - **Impact on Exporters**: Small and medium-sized exporters of low-end medical consumables are anticipated to be most affected, with major CDMOs like Wuxi AppTec, Pharmaron, and Genscript facing 30-50% revenue exposure to the US [2][21]. - **Risk Management**: Large companies are managing risks through planned production capacity shifts to ASEAN/Europe and maintaining high inventory levels (two to three years) [2]. - **API Exporters**: The risk for API exporters is considered manageable in the short term due to China's established supply chain role, despite having double-digit US revenue exposure [2]. Financial Projections - **Revenue and Profit Margin Erosion**: Scenario analysis indicates potential revenue and net profit margin erosion of approximately 5% and 1 percentage point across sub-sectors due to tariffs [3]. - **CDMO Impact**: CDMOs could see up to a 6% revenue impact and a 5-10% decrease in net profit margins [3]. - **Cost Inflation**: Import-dependent segments, such as IVD reagents, may experience around 1% cost inflation, slightly squeezing margins [3]. Market Dynamics - **Global Supply Chain Shifts**: The global supply chain is shifting, but short-term offsets are expected due to stockpiling [2]. - **Domestic Substitution**: There is an expectation of accelerating domestic substitution in the MedTech sector due to import weaknesses caused by tariffs [9]. - **Market Concentration**: A higher level of market concentration is anticipated in the MedTech subsector [9]. Company-Specific Insights - **Limited US Exposure**: Chinese innovative drugs are forecasted to have almost no sales exposure to the US, with limited impact from R&D cost increases due to higher export prices [7]. - **CDMO Resilience**: CDMOs are expected to manage tariff impacts effectively, with 80% of tariff expenses potentially passed through to US clients [8]. - **MedTech Companies**: Companies like Mindray and United Imaging are expected to face low single-digit cost impacts due to their low US exposure [9]. Export Data - **China Healthcare Exports**: Total exports from the China Healthcare sector reached **USD 107.99 billion** in 2024, marking a **5.8% year-on-year increase** [15]. - **Export Composition**: APIs accounted for approximately **40%** of total exports, while IVDs made up **21%** [15][18]. Conclusion - The China Healthcare sector is navigating potential tariff impacts with strategic adjustments and risk management practices. While certain sub-sectors may face challenges, the overall resilience of the industry, particularly in API production and innovative drug development, is expected to mitigate significant adverse effects.

Group 1 - The company, King’s Ray Biotechnology, announced a share transfer agreement to acquire 300 million shares of Probio Cayman Class A preferred shares for approximately $225 million (around HKD 1.7 billion) [1] - Following the transaction, the company's direct and indirect ownership in Probio Cayman will increase from 71.72% to 85.09% [1] - Probio Cayman will continue to be an indirect non-wholly owned subsidiary of the company after the completion of the transaction [1] Group 2 - Probio Cayman and its subsidiaries provide comprehensive Contract Development and Manufacturing Organization (CDMO) services in the biotechnology and pharmaceutical sectors, including antibody drug discovery and clinical development [2] - The company has established Probio Cayman as a leading CDMO service provider, empowering innovators in antibody development, protein therapy, cell therapy, and gene therapy [2] - Probio Cayman is expected to generate cash inflows from a licensing agreement with Lixin Pharmaceutical Technology Co., Ltd. regarding the PD-1 VHH antibody, which will further enhance its future development prospects [2]

Group 1: Financial Performance - In 2024, the company achieved a revenue of 497.01 million yuan and a net profit of 38.61 million yuan, both showing a significant decline year-on-year [6][7] - In Q1 2025, the company reported a revenue of 176.34 million yuan and a net profit of 47.42 million yuan, indicating a substantial recovery due to prior adjustments and concentrated order deliveries [7] Group 2: Strategic Adjustments - The company has made strategic adjustments in response to adverse international trade policies, enhancing service capabilities and increasing R&D investments [2][3] - To mitigate risks from U.S. tariff policies, the company plans to upgrade its production base in Wisconsin, USA, by expanding capacity and improving service capabilities [3][10] Group 3: Environmental Commitment - In 2024, the company invested 41.50 million yuan in environmental protection, purchasing 14,925,000 kWh of green electricity, resulting in a reduction of CO2 emissions by 13,013,107.50 kg [4][5] Group 4: Market Outlook and Risks - The company acknowledges uncertainties in overseas business due to tariff policies, which may affect order acquisition and delivery cycles [5][8] - The global pharmaceutical market is expected to continue growing, with increasing demand for CDMO services, presenting potential growth opportunities for the company [8][13] Group 5: Shareholder Relations - The company emphasizes its commitment to protecting shareholder interests and will disclose any significant shareholding changes in accordance with regulations [8][13] - A cash dividend of 4 yuan per 10 shares is proposed for 2024, amounting to 48.18 million yuan, which exceeds the net profit for that year [13]

Investment Rating - The industry investment rating is maintained at "Outperform the Market" [3][41]. Core Insights - The pharmaceutical fund allocation structure remains balanced, with the overall allocation ratio at a historically low level. As of Q1 2025, the active pharmaceutical fund size reached 188.5 billion yuan, an increase of 12.6 billion yuan from Q4 2024. The passive pharmaceutical fund size reached a historical high of 140.4 billion yuan [4][10]. - The top three sectors for active pharmaceutical theme funds in Q1 2025 are innovative drugs (34%), traditional pharmaceuticals (26%), and CDMO (17%). Notable holdings include BeiGene, Zai Lab, Innovent Biologics, and others, which have seen significant increases in their positions [4][19]. - The pharmaceutical sector's heavy holdings in all funds account for 9.5% (+0.5 percentage points), while the heavy holdings excluding pharmaceutical funds stand at 4.6% (+0.5 percentage points), indicating an increase but still at a relatively low level [5]. Summary by Sections Fund Size and Share - As of Q1 2025, the active pharmaceutical fund size is 188.5 billion yuan, up 12.6 billion yuan from Q4 2024. The passive pharmaceutical fund size is 140.4 billion yuan, marking a historical peak [4][7]. - The active pharmaceutical fund share is 124.6 billion shares, down 15.2 billion shares from Q4 2024, primarily due to stock price increases. The passive pharmaceutical fund share is 266.2 billion shares, up 41.2 billion shares, also reaching a historical high [10][10]. Sector Allocation - As of Q1 2025, there is an over-allocation in innovative drugs, CDMO, traditional pharmaceuticals, and CRO, while sectors like commercial circulation and traditional Chinese medicine are under-allocated [16][18]. - The top holdings in the innovative drug sector include Zai Lab, BeiGene, and others, with significant increases in their market values from Q4 2024 to Q1 2025 [19]. Heavy Holdings - The pharmaceutical sector's heavy holdings in all funds account for 9.5%, with a slight increase, while the ratio excluding pharmaceutical funds is 4.6% [5][5]. - The report highlights the top ten pharmaceutical heavy holdings in both active and passive funds, indicating a trend towards innovative drug companies [21][24].

Investment Rating - The investment rating for the company is "Buy" (maintained) [4] Core Views - The company achieved a revenue of 1.541 billion yuan in Q1 2025, representing a year-over-year growth of 10.10%, and a net profit attributable to shareholders of 327 million yuan, with a year-over-year increase of 15.83%. The non-recurring net profit was 305 million yuan, reflecting a year-over-year growth of 20.14% [1] - The emerging business segment saw revenue growth exceeding 80% year-over-year, driven by increased market expansion efforts and enhanced competitiveness, particularly in peptide, oligonucleotide, and ADC businesses. The outlook for the emerging business remains positive [1][2] - The gross margin for Q1 2025 was 42.54%, with the emerging business gross margin significantly improving to 33.05%, a year-over-year increase of 15.75%. This improvement is attributed to higher capacity utilization from sustained order deliveries [2] - The company forecasts EPS for 2025-2027 to be 2.90, 3.45, and 4.19 yuan, respectively, with a PE ratio of 23 times based on the closing price on April 23, 2025. The company is expected to maintain strong growth potential, particularly in the emerging business segment [2] Financial Summary - For 2025E, the company expects revenue of 6.629 billion yuan, a year-over-year increase of 14.21%, and a net profit of 1.045 billion yuan, reflecting a growth of 10.16% [7] - The gross margin is projected to be 42.43% in 2025E, with a net margin of 15.72% [8] - The company’s total assets are expected to reach 21.751 billion yuan by 2025E, with total liabilities of 2.771 billion yuan [8]