On October 10th, CXO (Contract Research and Manufacturing Organization) company in the peptide race, Sheng Nuo Bio (688117.SH), announced its performance forecast for the first three quarters of 2024, expecting the company to achieve a net profit attributable to the mother company of 50.0717 million yuan to 61.1987 million yuan, a year-on-year increase of 43.90% to 75.88%.

On October 8th, another CXO company in the peptide race, Nuo Tai Bio (688076.SH), also announced its performance forecast for the third quarter, expecting the company to achieve a net profit attributable to the mother company of 100 million yuan to 140 million yuan in the third quarter of 2024, a year-on-year increase of 100.56% to 180.78%.

The announcements show that the reasons for the growth of the two companies' performance are similar: "The company's sales revenue from peptide raw materials and other products increased significantly year-on-year, enabling the company's performance to achieve significant growth year-on-year."

In fact, 2024 is a hot year for peptide drugs. Semaglutide, liraglutide, tirzepatide and other blockbuster glucagon-like peptide-1 (hereinafter referred to as "GLP-1") drugs have become the world's highly concerned "weight loss miracle drugs", and have driven a huge raw material market with their own strength.

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On October 11th, Zhang Xinyuan, an expert from the Shanghai Technology Exchange Think Tank, told the Economic Observer Network reporter that the increase in market demand for peptide "weight loss" products such as semaglutide and the improvement of people's cognition of preventive medical care are the fundamental reasons for the performance growth of the aforementioned companies.

Peptide raw materials "rise with the tide"

GLP-1 belongs to endocrine disease drugs in the medical category and was used in the field of diabetes treatment. Now, it has become the focus of the global pharmaceutical industry again with the help of the "weight loss miracle drug".

"GLP-1 drugs can be used to treat obesity, depression, cardiovascular and kidney protection, Parkinson's disease, Alzheimer's disease and other diseases." Zhang Xinyuan said that the application field of peptide raw materials is very wide, it can be applied to the pharmaceutical industry, anti-aging skincare products, food additives and some functional foods and nutritional enhancers.

The reporter noticed that Sheng Nuo Bio's performance in the third quarter has exceeded the performance in the first half of the year. The financial report shows that in the first half of this year, the company achieved a revenue of 199 million yuan, a year-on-year increase of 14.44%; the net profit attributable to the mother company was 21.7876 million yuan, a year-on-year increase of 8.14%. Combined with the above expected net profit data for the first three quarters, Sheng Nuo Bio's net profit attributable to the mother company in the third quarter of 2024 is expected to be at least 28.2841 million yuan, up to 39.4111 million yuan.

In fact, since the fourth quarter of 2023, Sheng Nuo Bio's performance has significantly accelerated. The 2023 annual report shows that during the reporting period, Sheng Nuo Bio's annual operating income was 435 million yuan, and the net profit attributable to the mother company was 70.34 million yuan. Among them, the company's operating income in the fourth quarter was 144 million yuan, and the net profit attributable to the mother company reached 35.54 million yuan.Sunovio Biotech stated in its report that as of December 31, 2023, the company has filed with the U.S. FDA for the semaglutide API it has been involved in developing and initiating development, and the linaclotide API has completed the U.S. FDA filing. Additionally, the main construction of the company's IPO investment project, "Annual Production of 395 Kilograms of Peptide API Production Line Project," has been completed within the reporting period.

At the same time, Sunovio Biotech's overseas business in API also shows significant development potential. In the first half of 2024, Sunovio Biotech's operating income was 199 million yuan, a year-on-year increase of 14.44%; the net profit attributable to the parent company was 21.79 million yuan, a year-on-year increase of 8.41%. Sunovio Biotech stated in its announcement that the company's overseas sales of APIs increased by 97.51% compared to the same period last year, becoming one of the main drivers of its profit growth.

It is worth mentioning that on September 18, Sunovio Biotech disclosed to the outside world that its wholly-owned subsidiary, Sunovio Pharmaceuticals, has signed a "Product Purchase Contract" with a certain customer, supplying GLP-1 peptide APIs to the other party, with the contract amount up to 350 million yuan. Additionally, on September 7, Sunovio Biotech announced that it had signed an overseas "Investment Cooperation Agreement," with the company planning to invest 30 million yuan to subscribe for 22.78% of the shares of Tanzania's Africa Bio Chem Co.Ltd, further expanding the overseas market scale of Sunovio Biotech's peptide products, covering obstetrics, gynecology, immune system, cardiovascular, diabetes, obesity, and other fields.

Zhang Xinyuan believes that compared to Sunovio Biotech's focus on specific technical fields such as peptide synthesis and purification, Notai Biotech is more inclined to have advantages in new drug research and development, production processes, etc.

On October 12, the staff of Notai Biotech's Secretary's Office told the Economic Observer Network reporter that Notai Biotech's self-selected product business is essentially generic drugs, mainly peptide drugs supplemented by small molecule chemical drugs; the company's customized product and technical service (CDMO) business provides customized R&D and production services to downstream customers, mainly based on the needs of downstream customers.

Unlike general CXO companies, Notai Biotech's self-selected product business has a high technological barrier. Its 2023 annual report information shows that the company's independent R&D products have built a rich product pipeline, covering well-known varieties such as semaglutide, liraglutide, teriparatide, lanreotide acetate, oseltamivir phosphate, thymosin alpha-1, and eptifibatide.

The reporter noticed that before 2022, Notai Biotech's performance growth mainly depended on CDMO business income. However, starting from 2023, Notai Biotech's self-selected business income has increased significantly, and the income contribution has surpassed the CDMO business for the first time.

The relevant financial reports show that in 2023, Notai Biotech achieved a business income of 1.034 billion yuan, a year-on-year increase of 58.69%; among them, the self-selected product achieved a business income of 629 million yuan, a year-on-year increase of 145.48%; the CDMO business achieved a business income of 404 million yuan, a year-on-year increase of 3.07%.

In the first half of 2024, the company achieved a business income of 831 million yuan, a year-on-year increase of 107.47%; among them, the self-selected product achieved a business income of 545 million yuan, a year-on-year increase of 119.76%; the CDMO business achieved a business income of 286 million yuan, a year-on-year increase of 88.16%.

Breaking through in the CXO company segment.It is worth mentioning that for a long time, overseas markets have been the main source of revenue for Chinese CXO companies. However, in the past few years, the domestic CXO track has gradually shifted from a "race" to a "breakthrough" competition.

Looking at the performance data for the first half of the year, the performance of leading CXO companies, WuXi AppTec (603259.SH) and JiuZhou Pharmaceutical (603456.SH), faces significant pressure. In contrast, the operating performance of CXO companies in niche fields, such as Sunno Bio and Notai Bio, has been able to grow against the trend.

Data shows that in the first half of 2024, Notai Bio's sales gross margin was 67.32%, far higher than the average gross margin level of the CXO industry. During the reporting period, WuXi AppTec's sales gross margin was 39.37%, and JiuZhou Pharmaceutical's sales gross margin was 35.21%.

In response, a staff member from Notai Bio's Secretary's Office told reporters that the company's sales gross margin is higher than the industry average because both its independently selected products and CDMO business have relatively high gross margins.

Relevant financial reports show that the sales gross margin of Notai Bio's independently selected product business increased from 50.63% in 2021 to 64.43% in 2023; the CDMO business gross margin is relatively stable, slightly declining from 57.13% in 2021 to 55.58% in 2023.

"CXO companies in niche tracks such as Notai Bio and Sunno Bio can deliver better-than-expected performance, thanks to the rapid expansion of upstream API demand," said Zhang Xinyuan. The main source of revenue for domestic listed peptide pharmaceutical companies is the API business, and they have a certain influence in the global supply chain of APIs.

In addition, the number of registered peptide APIs in China is also growing rapidly. As of the end of 2023, the National Medical Products Administration has approved a total of 80 peptide drugs for marketing, accounting for 43% of the global number of approved peptide drugs.

Notai Bio stated in its 2023 annual report that for independently selected APIs, the target customers are mainly overseas market formulation manufacturers in the United States, Europe, India, and other regions. However, Notai Bio also admitted in its 2024 semi-annual report that due to the company's customers being mainly overseas multinational pharmaceutical companies, there is uncertainty in the changes in the political and economic environment, legal environment, trade industry policies, and the overall international trade environment faced by the company's overseas market business.

At the same time, the competition for GLP-1 in the domestic market is becoming increasingly fierce. The unexpected growth of GLP-1 drugs has also triggered a war for upstream API and CDMO production capacity. According to the statistics of the PharmCloud database, in the first half of 2024, there were nearly 280 GLP-1 drugs under research and development worldwide, of which 115 were from Chinese pharmaceutical companies.

In the 2024 semi-annual report, Sunno Bio stated that the company has 19 self-developed peptide API varieties. In the domestic market, the company has obtained production permits or activated filings for 14 varieties of peptide APIs, including Enfuvirtide and Carbetocin, which are the first generic varieties in China; in the foreign market, the company has obtained US DMF filings (Drug Master Files) for 10 varieties, including Bivalirudin, Eptifibatide, and Liraglutide.NuoTai Bio also stated in its financial report that the company's peptide APIs have been sold to overseas markets such as the United States, Europe, India, and Canada. In the first half of 2024, the company's APIs for cetrorelix acetate, epalrestat, and agomelatine were granted marketing approval in China. The single-batch production of several long-chain modified peptide drugs, such as semaglutide, has exceeded 10 kilograms, with yield and quality at an advanced industry level.

Zhang Xinyuan believes that peptide drugs require companies to have strong R&D capabilities. Companies specializing in CXO, such as ShengNuo Bio and NuoTai Bio, need to continuously invest in R&D resources to develop a more diverse range of peptide drugs in order to "break through the encirclement" in the fierce competition for APIs.

The financial report shows that in the first half of 2024, ShengNuo Bio's total R&D investment was 24.39 million yuan, a year-on-year increase of 56.39%. During the same period, NuoTai Bio's total R&D investment was 149 million yuan, a year-on-year increase of 166.91%.