Biopharmaceutical upstream supply chain mainly includes raw materials (reagents, consumables), scientific research instruments/equipment, biotechnology support and related supporting services, which is the core basic link of r&d and production of biopharmaceutical enterprises.

In recent years, the biopharmaceutical industry has been booming, and new technologies in the biopharmaceutical field have emerged in an endless stream. The demand for upstream supply chain market has increased significantly, and relevant upstream supply chain enterprises have ushered in development opportunities.

Technological progress drives upstream supply chain transformation

According to Meticulous Research, the global market for biopharmaceutical process equipment and consumables is growing rapidly, reaching $11.2 billion in 2018 and projected to grow to $22.3 billion by 2023. With the progress of downstream biomedical treatment technology, the upstream pharmaceutical process equipment and consumables market continues to develop. The development of the downstream pharmaceutical industry not only drives the technological innovation and standard improvement of the upstream industry, but also provides a new development opportunity for the upstream industry.

The development of biological drugs, also known as macromolecular drugs, has spawned the application of various new technologies. Biologic drugs can be divided into monoclonal antibodies, dual antibodies, ADC drugs, cell therapy, gene therapy and other products according to the differences of technology platforms. According to Evaluate Pharma, the share of biopharmaceuticals in the global pharmaceutical market increased from 38% in 2012 to 52% in 2020 and is expected to grow to 57% in 2026. Among the top 100 drugs by sales, the number of biological drugs increased from 32 in 2012 to 44 in 2020, and is expected to reach 51 in 2026. In the global pharmaceutical end market, the overall proportion of biological drugs is steadily increasing.

At the same time, the number of biologics approved at home and abroad has increased significantly in the past decade. According to Pharmaprojects, there were 84 new drug active ingredients (NAS, excluding vaccines) launched globally in 2021, up from 74 in 2020. The five-year average of NAS approvals (excluding vaccines) was 63.0 in 2017-2021, an increase of more than 20 from 41.6 in 2012-2016. According to Pharmapr OJ ECT S, the number of global R&D pipelines (both preclinical and clinical) reached 20,109 in 2022, exceeding 20,000 for the first time in history. Among them, the number of biological drug pipelines accounted for 44.7% of the total number of pipelines.

According to Informa Pharma Intelligence, the overall share of complex biologic products in the global drug clinical trial pipeline has steadily increased from 25% to 40% between 2011 and 2020, while showing a higher success rate to market (LOA) compared to traditional drugs. As a representative of biological drugs, the LOA of monoclonal antibodies was 12.1%, which was higher than that of small molecule drugs (7.5%), polypeptide drugs (8.0%), protein drugs (9.4%). Gene therapy products (10.0%) and ADC drugs (10.8%) also showed higher LOA than small molecule drugs. Recent breakthroughs in CAR-T products (17.3%) and siRNA/RNAi drugs (13.5%) were the leading LOA products in the biopharma sector.

According to data from the US Food and Drug Administration (FDA) on annual new drug approvals, the US has maintained a level of at least 10 biologics approval applications per year after 2017. Since 2019, the development of biological drugs in China has been rapid, and the number of large molecule drug registration applications accepted by the National Drug regulatory authorities has basically maintained an annual growth rate of nearly double.

Compared with the rapid development of the downstream pharmaceutical industry, the localization degree of the upstream supply chain of biological drugs in China is low, and there is a large replacement space for middle and high-end products. The author estimated that the domestic production rate of the general equipment needed in the development and production stage of biological drug process, such as the filling system, ultrafiltration system and other hardware, is high, about 30%; The localization rate of consumables such as media and chromatography media and software products is about 10% ~ 20%. High-end equipment and consumables with late domestic technology development, such as filtration membranes, are less than 5% domestically produced.

Higher proportion of R&D pipeline, more approved products, wider market demand, biological drugs, biological therapy technology has huge commercialization potential, is expected to produce a huge demand for upstream pharmaceutical equipment, consumables, etc. The research, development and production modes of biological drugs (especially cellular gene therapy) are very different from traditional chemosynthetic drugs, which will drive the transformation of the whole upstream industry of biopharmaceutical.

A good pharmaceutical equipment consumable enterprise has three characteristics

According to Nature, the modern pharmaceutical industry has so far experienced four revolutionary waves of "identified drug active ingredients, unknown molecular targets", "one drug at a time", "recombinant protein biologics", and "multi-specific drugs + cellular gene therapy". At present, it is in the fourth revolutionary wave stage of the development of "multi-specific drugs + cellular gene therapy". Compared with chemical synthesis drugs represented by small molecule drugs, the complexity of development and production process of complex biological drugs such as multi-specific drugs increases significantly with the increase of relative molecular weight of drugs, and the demand for products and services of upstream (engineering/equipment/consumables) suppliers also changes dramatically. The transformation of industrial chain demand model also brings new growth opportunities for upstream companies.

Take Sartorius, the world's leading biopharmaceutical total solution provider, for example. The growth of the company is inseparable from the third revolutionary wave of the pharmaceutical industry (recombinant protein biopharmaceutical). Sartorius, founded in 1870 and headquartered in Germany, is an international life science equipment and solutions provider dedicated to "accelerating medical discovery and simplifying manufacturing processes", covering more than 110 countries and regions around the world. In 2011, Sartorius proposed the strategy of "Sar Tor IUS 2020" based on the good expectation of the biomedicine industry, and began to divage the industrial mechatronics business, which was formally completed in 2013. According to the company's announcement, in 2021, its operating revenue reached 3.684 billion US dollars, and the compound growth rate of operating revenue reached 19.06% from 2014 to 2021; In 2021, the net profit of the company reached 456 million US dollars, and the compound growth rate of net profit from 2014 to 2021 reached 33.92%, showing a significant acceleration compared with before the strategic transformation. This growth trend is also highly consistent with the rising market penetration of recombinant protein biologic drugs represented by monoclonal antibodies. During this period, Sartorius has continued to optimize its product portfolio through targeted acquisitions and restructuring, and its key areas of biopharmaceutical biorefinders, filtration and liquid transportation and storage are clearly competitive. The company had a market capitalization of about $14.2 billion as of the end of May 2022.

For the standard Sartorius, the author believes that a good pharmaceutical equipment/consumables enterprise needs to have the following three characteristics: first, forward-looking layout of high-growth business areas/emerging areas, grasp the industry opportunities, quickly cater to market demand; Second, technology-driven business diversification, continuous investment in RESEARCH and development, rich product pipeline; Third, it has strong ability of merger and integration. It can acquire scarce business quickly through merger and acquisition and improve one-stop service ability.

Representatives of some biopharmaceutical equipment and consumables (life sciences) companies (Cymerphy, Sartorius, Ripligin), CXO companies (IQVIA, Charles River, Cantalon), multinational pharmaceutical companies (Roche, Novartis, Pfizer) and XBI index were selected as representatives of global biotech companies. Analysis of 2010-2021 stock price performance shows that CXO and pharmaceutical equipment and consumables companies significantly outperformed biotech and multinational pharmaceutical companies. From a comprehensive analysis, the author believes that there are three main reasons for outperformance: first, emerging fields represented by biotechnology have a faster growth rate of downstream applications than traditional drugs; Second, the cost of r&d/production equipment and materials in emerging fields has significantly increased in proportion to the sales revenue of downstream pharmaceutical enterprises/biotechnology companies, and the target market space of upstream pharmaceutical equipment and consumables enterprises has significantly increased; Third, the integration trend of downstream customers' demands, coupled with the product-oriented output form of upstream pharmaceutical equipment and consumables, the scale economies and competitive advantages of CXO leading enterprises are more obvious, and the industry concentration is higher.

Production equipment and technology present a new trend of development

The production technology and process of recombinant protein, antibody and cell gene therapy products are complex, involving a wide variety of equipment and consumables (such as media, disposable reaction bags, purification fillers, etc.), and the product has high reuse value. Among them, the quality standards of core equipment related to multi-specific biological drugs and cell gene therapy products are higher, and the demand side shows an obvious trend of one-off, integration and scale.

Take cell gene therapy (CGT) as an example. In recent years, breakthroughs have been made in this field with great potential for development. In vitro operations of cell therapy include but are not limited to isolation, purification, culture, amplification, activation, cell (line) establishment, cryopreservation and resuscitation, etc. Gene therapy is a therapy that modifies the expression of individual genes or repairs abnormal genes by means of gene addition, modification and silencing, so as to cure diseases. However, there is a large unmet capacity demand in the global CGT sector. According to the BioPlan report, the shortage rate of CGT-related capacity in 2020 is 500% (i.e., if facilities at 5 times existing capacity exist, they will be fully utilized), and this gap is expected to increase further in the next 5 years.

Disposable, integrated and large-scale production equipment and technology are the development trend of cell gene therapy.

One-off production of virus vectors In CGT drug preparation, different viral vectors need different quantities, and production lines need to maintain their flexibility and lightweight, so one-off production equipment is particularly important. Disposable virus vector production equipment can flexibly change the production scale and virus type, reduce the risk of contamination and cleaning requirements.

Integrated cell preparation decentralized production requires large-scale aseptic production workshop with high cost, while integrated cell preparation equipment can basically cover all steps with one device, which can effectively reduce the preparation cost. CliniMACS Prodigy, a CAR T cell preparation device developed by Miltenyi Biotec in Germany, integrates all functions including T cell separation, transduction, activation and enrichment to realize the integration of cell preparation.

Large-scale production With the gradual increase in the demand for CGT drugs, the demand for the production of viral vectors increased significantly. Viral vector is the bottleneck of CGT drug production, but it can achieve large-scale production. Because of this, more than half of gene therapy companies have developed the production method of virus vector from traditional adherent culture to suspension culture.

The international competitiveness of local enterprises is expected to improve

In recent years, China's emerging biotechnology continues to break through. The annual Analysis of Pharmaceutical R&D Trends in 2022 released by Informa, a global pharmaceutical think tank information platform, shows that for the first time in 2022, there are two China-based companies in the world's top 25 pharmaceutical companies in terms of number of R&D pipelines. Among them, Hengrui ranked 16th with 89 pipelines, up 21 places compared with last year; Fosun Pharmaceutical ranked 23rd with 68 pipelines, up 43 places compared with last year. Baekje Was ranked 26th. Regionally, the number of China-based biomedical R&D enterprises in the global biomedical R&D enterprises has significantly increased, from 6% in 2018 to 12% in 2022. With the rapid improvement of China's innovation and research capacity and the increasing demand for global access to drugs, Chinese pharmaceutical equipment and consumables enterprises may usher in historic opportunities.

The increasing demand for global access to medicines is driving pharmaceutical companies to seek more efficient and cheaper manufacturing solutions. Medicines in talks with national health care policies in our country, the drug prices dropped dramatically, while greatly increase drug accessibility, traditional drug firms and emerging biotechnology companies in quality conforms to the GMP (drug production quality management standard) standard under the premise of seeking efficiency higher costs lower production solutions provider.

From the perspective of the global market, Chinese biomedical companies pay more attention to r&d efficiency and speed, and focus more on proven targets to develop new molecules with differentiated effects/safety/indications. Take PD-1 mab as an example. After medical insurance negotiation, the domestic price of PD-1 mab developed and produced by local enterprises is only about 25% of the price of the same target product in the United States. At the same time, domestic pharmaceutical companies have attracted more and more r&d strategic cooperation and overseas authorization, which may provide a new category of bio-innovative drugs with the same target at the same price level as bioanalogues to the global pharmaceutical market in the future. With the global export of innovative drug r&d and manufacturing capacity, the global competitiveness and market share of China's local pharmaceutical equipment/consumables enterprises are also expected to significantly improve.