The Biomedical Investment and Financing Zhitong Finance App learned that Shouchuang Securities published a research report saying that the apparent performance of CXO and upstream life science companies in the first three quarters was affected to varying degrees by the high COVID-19 order base in 2022 and the decline in industry sentiment, but most companies' regular business revenue side still maintained a steady growth trend, and there is still growth in the medium to long term. Biomedical investment and financing is a leading indicator of CXO and upstream life science performance. From a global perspective, after 2 years of adjustment starting in 2021, there are signs of a steady recovery. Currently, the country is still at its bottom and is still waiting to recover. It is recommended to focus on: 1) CXO/CDMO leaders with full-process integration; 2) Leaders in the upstream life science segment that is actively expanding overseas business.

The main views of Capital Securities are as follows:

The apparent performance of CXO and upstream life science companies in the first three quarters of 2023 was affected to varying degrees by the high COVID-19 order base in 2022 and the decline in industry sentiment, but most companies' regular business revenue side still maintained a steady growth trend, with growth potential in the medium to long term.

Biomedical investment and financing is a leading indicator of CXO and upstream life science performance. From a global perspective, after 2 years of adjustment starting in 2021, there are signs of a steady recovery. Currently, the country is still at its bottom and is still waiting to recover.

Judging from CXO's performance in the 3rd quarter of 2023:1) overseas demand was better than domestic; 2) CDMO and clinical CRO companies had better overall performance than pre-clinical CRO; 3) the generic drug CXO business maintained a high level of prosperity; 4) the number of employees in 2023H1 in some companies declined by a certain margin compared to the end of 2022, which is also reflected in the fact that after the industry entered a downward boom cycle, the company was more cautious about business expansion. At the same time, the bank also sees that emerging businesses and potentially innovative drug products are expected to open up the second growth curve for CXO. In recent years, with the gradual maturity of life science technologies such as CGT, ADC, multiple antibodies, and peptides, and the emergence of major single products such as GLP-1, the leading CXO companies are expected to benefit from this.

Judging from the performance of life science companies in the first three quarters of 2023:1) The growth rate of overseas business of international companies is still impressive; 2) Domestic research demand is stronger than the industrial side. Looking ahead, as the investment and financing situation in the life science sector gradually picks up from the bottom up, the activity of enterprise R&D activities is expected to increase, driving an increase in orders/performance of upstream life science-related companies. At the same time, there is still plenty of room for improvement in the market share of domestic enterprises in overseas markets. Looking at global aging trends and people's continuous pursuit of health in the long run, it will continue to drive an increase in R&D and production demand in the life science industry.

Investment advice: The bank believes that with the resumption of investment and financing in the primary market of the global biomedical industry, especially overseas markets, some companies' performance is expected to reach an inflection point in 2024. It suggests paying attention to:

1) CXO/CDMO leader with full-process integration. The CDMO business is highly correlated with the commercial sales situation of innovative drugs, is less affected by the decline in investment and financing, and new demand for downstream peptides and ADC drugs is expected to provide new performance growth points. Related companies: Pharmaceutical Kangde (603259.SH), Kanglong Chemical (300759.SZ) and Kailaiying (002821.SZ);

2) A leader in the upstream life science segment that is actively expanding overseas business. Related companies: Bypsyth (301080.SZ) and Bide Pharmaceutical (688073.SH).

Risk warning: risk of declining industry prosperity; risk of increased industry competition; overseas business expansion falling short of expectations; new product development falling short of expectations; international trade friction or changes in industry policy exceeding expectations.