140,000 for a monkey! Monkeys are needed for brain-computer interfaces. Is it good to use experimental animals?

Author/Braised cooking under the stars

Editor/Spinach’s Starry Sky

Typesetting/Carrots under the Starry Sky

Brain-Computer Interface has become popular recently. One day, our Starry Sky friends were discussing in the office, but the topic turned to "monkeys". Neuralink, a brain-computer interface company founded by Mr. Muskma in 2021, created a monkey that seems to play table tennis "all with thoughts". The key point is how many monkeys are used to conduct experiments behind this magical monkey?

In 2022, Mr. Ma’s company, which engages in brain-computer interfaces, was accused. The experimental project involved a total of 23 experimental monkeys, 15 of which have died. So if brain-computer interfaces are developed on a large scale, will the value of monkeys rise significantly? Today we are going to talk about these monkeys used in experiments, which are technically called Experimental Animals.

The advancement of human medical technology is inseparable from the contributions of experimental animals. Such a monument stands in front of the Institute of Cytology and Genetics in Novosibirsk, Russia, to commemorate the huge sacrifice made by experimental animals for mankind.

A bespectacled mouse is weaving a double-stranded DNA. Source: Internet

Focusing on the domestic capital market, the concept of experimental animals has been turbulent in the past two years. Manufacturers such as Nanmo Biologics (688265), Yaokang Biologics (688046) and Biocytogen (02315) will intensively land in A/H shares in 2021-2022, and with relatively stable financial performance, they have become a line in the biopharmaceutical sector that cannot be ignored. emerging circuits.

With a listed company, hot news is inevitable. Last year, the news that the price of experimental monkeys skyrocketed from 15,000 per monkey in 2019 to 180,000 per monkey in 2022 has occupied the market's attention for a long time. However, in just a few years, the increase has been as high as more than ten times, which is indeed incredible. The price of monkeys with high fever has cooled down this year. An internal source from the head CRO revealed that the latest monkey price has dropped to 140,000 per monkey.

Monkey prices are fluctuating, and the performance of related companies in 2022 and 2023Q1 has also seen a relatively obvious differentiation. Yaokang Biologics achieved revenue of 517 million yuan (31.17%) in 2022, deducting net profit not attributable to the parent company of 102 million yuan (32.16%). In 2023Q1, it achieved revenue of 140 million yuan (20.82%), deducting net profit not attributable to the parent company of 22 million yuan ( 2.35%), and the volume has continued to grow rapidly. Although Nanmo Biotech recorded revenue of 304 million yuan in 2022 and achieved a growth of 10.30%, its profits turned from profit to loss, with a net loss of 60 million yuan, and the profit situation in 2023Q1 still did not improve, and it continued to lose 14 million yuan.

Manufacturers are as good as ice and fire, so what are the fundamentals of this domestic industry?

1. Model animals have become mainstream

As experimental animals began to be widely used in scientific experiments and other purposes in the 20th century, many problems were gradually exposed. For example, relatively wild non-standard creatures themselves have some sporadic characteristics. Diseases or biological characteristics that may interfere with research. In this context, standard, controllable experimental animals that can imitate human diseases and help scientific researchers obtain information about diseases and their prevention, diagnosis and treatment have become an indispensable part of biological research. The so-called "modeanimal" was born from this.

In fact, it is simply a standardized experimental animal.

There are actually many types of model animals. In addition to the familiar rodents (rats and mice) and non-human primates (cynomolgus monkeys, etc.), there are also dogs, nematodes and zebras. Animals like fish also play important roles in different situations.

Some common scientific research involving model animals Source: Ping An Securities Research Institute

People often say that the 21st century is the century of biology, even if this statement is a bit exaggerated. However, pharmaceutical research and development has indeed become increasingly prosperous since the beginning of this century. As the upstream model animal industry, it has naturally benefited a lot. According to Frost & Sullivan statistics, the global model animal market size reached US$14.6 billion in 2019. Moreover, this industry is still in the expansion stage with rapid growth. It is expected that the global market will increase to US$21 billion in 2023, and the CAGR from 2015 to 2024 will be approximately 8.55%.

2. The domestic market will be in a state of rapid development for a long time

The Chinese model animal market is still relatively in the early stages of development, and the domestic product and related service markets are still in a high-speed growth range. Take the market situation of rodent experimental animal products and services disclosed by Yaokang Biologics in its prospectus as an example. It has continued to maintain high double-digit growth in the past 7-8 years. And this trend is expected to be maintained until at least 2030, achieving a total scale of 27.2 billion yuan and a compound annual growth rate of 18.5%.

Market size of rodent experimental animal products and services in China (billion yuan) Source: Jicui Yaokang Prospectus, HTI

This growth rate may seem a little exaggerated, but in fact it is also supported by a certain logic, which is the high prosperity of the downstream. Customers in the model animal industry are mainly for scientific research and industrial needs. Scientific research customers mainly include scientific research institutions and tertiary hospitals, and industrial customers mainly include innovative pharmaceutical companies and CRO R&D companies. At this glance, it is clear that the activity level of drug research and development is an important indicator for determining the future trend of the model animal industry.

It seems that the gratifying scene of China’s CXO market no longer needs the author’s detailed elaboration. The global CRO market size will have a CAGR of 8.9% from 2019 to 2024, and China can reach 26.5%, which is much higher than the global average growth rate, represented by WuXi AppTec (603259) and Pharmaron Chemicals (300759) The performance scale of many domestic CXO manufacturers is constantly expanding.

Previously we were in "CDMO丨The "money" scene is great! Can market demand keep up with capacity expansion? 》 mentioned in the article that the industry-wide expansion of production capacity may be a risk for CXO companies. However, the model animal industry is located upstream of CXO and plays a role similar to a "water seller". The impact of downstream expansion should be that the pros outweigh the cons. Global and Chinese drug R&D expenditures (100 million U.S. dollars) Source: Yaokang Biologics Semi-annual Report, West China Securities Research Institute

3. Gene modification is an important driving factor

In addition to the expected long-term strong downstream demand, the model animal industry itself is also undergoing a major change that affects the relationship between volume and price. The breakthrough of gene editing technology in 2012 is this major change. important milestone.

We know that a large amount of current academic research and drug development are focused on target, so genetically modified animal models with specific DNA fragments are very much needed in the clinical trial stage. Since the widespread application of Crispr/Cas9 technology has greatly reduced the cost of gene editing, genetically modified animals have finally become feasible for large-scale industrial production. Currently, the market size of this segment has accounted for the majority of the model animal market. ##.

Experimental animals, model animals and genetically modified model animals are included in a layer-by-layer relationship. Source: Leopard Research Institute Unlike the traditional field of experimental animals, which has lagged behind for decades since its inception, Crispr/Cas9 technology has greatly narrowed the

technical gap

between domestic and foreign companies. Domestic model animal companies have invested a lot of energy and resources in the field of gene editing, and the results at this stage are quite remarkable.

For example, the number of mouse models achieved by Yaokang Biotech through the field of gene editing far exceeds that of other peers. Model quantity is a basic resource for basic research in life sciences and new drug development. The richer the model quantity resource, the stronger the ability to meet scientists' special purpose research. Perhaps it is a bit difficult to convince the public to judge a company's technical level simply by the number of models, but domestic manufacturers have indeed surpassed international giants in this indicator, which can at least be used as a footnote to gradually close the technical gap.

Comparison of the number of mouse model strains with comparable companies in the same industry Source: Yaokang Biological Prospectus, Ping An Securities

4. Trend

Of course, going overseas is always a litmus test to verify the quality of domestic manufacturers

. In fact, domestic companies still have certain advantages in this regard. In addition to relatively low costs, the complete range of products and customized service capabilities are also relatively guaranteed.

These domestic manufacturers have indeed made certain gains in going overseas in recent years. Yaokang Biologics will achieve overseas revenue of 66 million yuan in 2022, a year-on-year increase of 116.24%. The doubling performance also allowed overseas revenue to further account for 12.86% of Yaokang Biologics’ revenue. Although Nanmo Biotech's overall performance is not ideal, its overseas revenue will still increase significantly by 68.19% in 2022, accounting for a similar proportion to Yaokang Biotech.

Domestic and overseas revenue ratio of Yaokang Biotech Source: wind, West China Securities Research Institute

However, there are certain particularities in going overseas in this industry. Experimental animals are living animals and are prone to illness, death, damage and other special situations in the transportation environment, especially rodents. Therefore, the transportation radius from the production center to the customer is limited. There are basically two models for going overseas. One is to establish overseas production bases; the other is to cooperate with overseas companies and take the path of patent licensing. This requires pre-planning. Therefore, if you want to see the future overseas potential of model animal companies, you can look for some clues from these two points.

It can be roughly seen from the discussion here that the scale effect of the model animal business is still relatively strong. First of all, technical barriers are still quite high. It belongs to an industry with a high degree of integration of multi-disciplinary technologies, and R&D capabilities and production technology must keep up. Secondly, there is a certain brand threshold. Drug clinical applications usually require clear disclosure of the source information of experimental animals. Brand is definitely linked to quality, which helps to enhance the trust and assurance of test results.

But judging from the current market structure of the domestic industry, the overall situation is still very scattered. The top three listed companies and the international giant CRL's subsidiary Vitong Lever in China are tied together at about 20 points. . Moreover, due to the transportation radius, each manufacturer is basically a regional leader and is organized around the main R&D and production bases.

The competitive landscape of the domestic model animal market is fragmented Source: Frost & Sullivan, Yaokang Biological Prospectus

The deviation between the current competitive landscape and the ideal state of the industry may indicate the direction of industry

integration

in the next stage. With the continuous strong demand for downstream scientific research and industry, and the continuous expansion of the frontier of drug research and development, the model animal industry will definitely develop in the direction of modeling and high-end. Under this general trend,

leading

companies with expansion potential should achieve good performance above the market average. Note: This article does not constitute any investment advice. The stock market is risky, so be cautious when entering the market. There is no harm without buying and selling.

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