Reduce holdings by 5.3 billion! What happened to the 240 billion pharmaceutical leaders?

On November 28, the share price of WuXi AppTec, a leading domestic CXO company, plunged 7.16%. The cause of the sharp decline was mainly due to the new round of shareholder reduction plan announced by WuXi AppTec on the evening of November 25.

According to the announcement, WuXi AppTec's actual controller and concerted actors will reduce their holdings by a total of no more than 65 million shares within half a year, that is, no more than 2.2% of the company's total share capital. The reduction will be implemented between December 1 this year and May 31, 2023.

If WuXi AppTec closes at 81.94 yuan per share on November 25, the reduction will cash out up to about 5.326 billion yuan.

In fact, this is WuXi AppTec's second large reduction this year, less than 2 months after the last reduction. Especially after the last announcement of large reductions, the secondary market responded with a drop limit. At present, WuXi AppTec's share price has fallen from last year's high of 171.97 yuan / share to 76.07 yuan / share today, and the market value has been reduced.

Holdings are constantly being reduced

It is worth mentioning that this reduction is only one of many reductions by WuXi AppTec shareholders in recent years.

According to Wind data, from August 13, 2019 to October 9, 2021, the company's significant shareholders reduced their holdings 81 times. Moreover, since last year, important shareholders, including actual controllers, have cashed out a total of 7.044 billion yuan. If you add this cash-out, the cumulative cash-out will reach 12 billion yuan.

From August 17 to 25 last year, in just eight days, a major shareholder Summer Bloom Investments Pte. Ltd. reduced its holdings through centralized auction trading and cashed out 1.945 billion yuan.

After entering 2022, the pace of WuXi AppTec's shareholders reducing their holdings has not stopped.

In May this year, Shanghai Yingyi Investment, a shareholder of WuXi AppTec, was subject to an administrative penalty issued by the China Securities Regulatory Commission (CSRC) and fined 200 million yuan for illegally reducing its holdings by 2.9 billion yuan.

In June this year, WuXi AppTec once again issued a shareholder reduction announcement, saying that due to its own capital needs, shareholders controlled by the company's actual controller intend to reduce their holdings of A-shares that do not exceed 3% of the company's total share capital. According to the stock price at that time, the amount of reduction was close to 10 billion. By the end of September, more than half of the time to reduce holdings, the relevant parties of the actual controller had cashed out more than 2.2 billion yuan.

And the reduction of holdings not only includes controlling shareholders, from the perspective of institutional holdings, Hillhouse Capital and Invesco Great Wall Emerging Growth Fund, which once had a heavy position in WuXi AppTec, have also withdrawn and "disappeared" in the list of the top 10 circulating shareholders disclosed in WuXi AppTec's 2021 interim report.

However, it is interesting to note that unlike the above-mentioned institutions and shareholders who have successively announced their exit, star fund manager Gülen has continued to be optimistic about WuXi AppTec in the near future, and the CEIBS Healthcare Fund managed by him has increased its position in the company for the past two quarters.

CXO concerns

In contrast to shareholders' holdings, WuXi AppTec's performance has continued to rise, in stark contrast to falling stock prices.

According to WuXi AppTec's third quarter report, in the first three quarters of this year, WuXi AppTec achieved revenue of 28.395 billion yuan, a year-on-year increase of 71.9%; The net profit attributable to the parent was 7.378 billion yuan, a year-on-year increase of 107.1%. In addition, WuXi AppTec adjusted its full-year revenue growth target for 2022 from 68%-72% to 70%-72%.

However, it must be noted that a large part of the high growth of performance in 2022 is the contribution of business related to the new crown pneumonia epidemic. Some research institutions estimate that if the new crown commercialization projects are excluded, the company's overall business revenue growth rate in the first half of the year is likely to drop to less than 30% year-on-year. In addition, WuXi AppTec's revenue from U.S. customers accounts for a large portion. The long-term sustainability of these results has been a key concern for the market.

In addition, if the company is divided by business distribution, the revenue of the domestic new drug R&D service department actually shows a trend of continuous negative growth, which also confirms to a certain extent the current situation of domestic biomedical R&D companies with financing difficulties, cautious business development and shrinking business pipelines.

Moreover, we should also see that there are currently a large number of CXO companies, and in the domestic market alone, WuXi AppTec's competitors include Ruizhi Chemical, Tigermed Pharmaceutical, Boji Pharmaceutical, Medici and so on. Coupled with more and more innovative pharmaceutical companies joining CXO across borders, such as Toyo Pharmaceutical, Innovent Biologics, and Harbour Pharmaceutical, now Henlius is also here, and the competition will become more and more fierce.

Some industry insiders predict that after 2023, the CXO industry will bear the growth pressure under a high base, and the industry will also face differentiation. Even for WuXi AppTec, a domestic CXO leader, there are also problems and external risks that need to be faced for long-term development, and hopes and hidden worries coexist.