On the evening of February 27, 2025, Medicilon (688202.SH), a CRO company on the Science and Technology Innovation Board, disclosed the "2024 Annual Performance Express". According to the report, the company's total operating income in 2024 will be 1.042 billion yuan, and the net profit attributable to shareholders of the parent company will be -316 million yuan. The main reasons are: 1. In 2024, the impact of the slowdown in investment and financing in the pharmaceutical industry, the market demand has changed greatly, the competition in the domestic industry has intensified, and the company's operating income has not met expectations; 2. Although the company strictly controls costs, it is difficult to adjust with the decline in revenue in the short term, and at the same time, the company has made a large amount of impairment losses or estimated liabilities in accordance with the accounting standards for business enterprises, which has a greater impact on profits.

Supporting policies for innovative drugs have been intensively introduced, and the performance of CRO companies can be expected to reverse

As early as 2015, China's CRO industry achieved rapid development driven by favorable policies. Relevant data show that its market size has continued to grow from 38.8 billion yuan in 2018 to 80.2 billion yuan in 2022, with a compound growth rate of 19.9%. However, since 2021, the CRO industry has gradually entered a downward cycle due to factors such as stricter policy supervision, price wars, and gross profit margin compression.

Recently, a number of data and relevant policies have shown that the CRO industry is expected to shift from a "trough period" to steady growth. According to Arterial Network data, the total amount of investment and financing in the global medical and health field in January 2025 will reach about 8.004 billion US dollars, and a total of 194 financing events will occur, which is a significant increase from 3.962 billion US dollars in December 2024. In terms of domestic data, the scale of pharmaceutical investment and financing in the Chinese market increased by 93% quarter-on-quarter in the fourth quarter of 2024, and since January 2025, many domestic pharmaceutical companies have obtained financing, and state-owned assets have frequently participated, showing confidence in the pharmaceutical industry. Guotai Junan Research Report pointed out that the CXO industry is close to the bottom of the cycle. With the improvement of liquidity brought about by the start of the global interest rate cut cycle, and the growth of outsourcing demand driven by new technology paradigms such as ADC and CGT, the industry is expected to enter a stage of steady growth in 2025.

Since February 2025, the General Office of the Zhejiang Provincial People's Government has issued the "Several Measures for Supporting the High-quality Development of Innovative Drugs and Devices in the Whole Chain of Zhejiang Province", which mentions that practical measures such as "improving the quality and efficiency of clinical research of new drugs" and further "supporting the clinical trials of new drugs" will be implemented; At the same time, the Tianjin Municipal Medical Insurance Bureau also stated that "it will implement support measures in three aspects: medical insurance access of innovative products, support for innovative product manufacturers, and support for the clinical application of innovative products, so as to promote the application of innovative pharmaceutical products". Recently, the "Opinions on Improving the Drug Price Formation Mechanism (Draft for Comments)" and "Several Measures on Medical Insurance to Support the High-quality Development of Innovative Drugs" (Second Round of Draft for Comments) have been circulated in the industry, and the authenticity has been affirmed by many industry experts. The two draft drafts further improve the support policies for innovative drugs, aiming to create a more favorable development environment for innovative drug companies.

A series of policy support measures for innovative drugs have given a positive signal for the recovery of the CRO industry, which has a complementary and symbiotic relationship with innovative drugs. It is foreseeable that CRO companies, including Medicilon, will usher in a new round of positive performance in the future, and the possibility of performance reversal in the future is worth looking forward to.

"AI+CRO" may help Medicilon get out of the "trough".

At present, the recovery of the industry and technological change are superimposed, and the east wind of artificial intelligence will blow important development opportunities for the CRO industry. One of the key drivers of the industry's growth in recent days has been the application of artificial intelligence (AI) technology in drug discovery. SDIC Securities said that with the improvement of the success rate of AI-led drug R&D projects and the continuous progress of related R&D pipelines, the further commercial application of AI pharmaceutical technology is worth looking forward to. Traditional CXO companies follow the development trend of the industry and improve the R&D efficiency of existing businesses by deploying AI technology platforms, so as to better empower the drug R&D of their own customers.

According to public information, Medicilon has previously relied on the one-stop biomedical preclinical comprehensive R&D service platform it has built to help AI drugs such as Insilico Medicine's ISM3412 drugs and Derrick Medicine's MDR-001 to be approved for clinical trials and have been recognized by relevant professional fields. It has played an exemplary role for CRO companies to deeply integrate AI technology into the new drug R&D process, and also proved the effectiveness and potential of their continuous exploration in the field of AI+CRO.

In addition, Medicilon has also achieved a series of remarkable results in the empowerment of new molecular drug R&D service platforms. In 2024, Medicilon will focus on building a one-stop preclinical service platform covering a variety of new molecular drugs such as PROTACs, ADCs, nucleic acid drugs, bispecific antibodies, peptides, vaccines, and cell and gene therapy. According to statistics, as of the end of 2024, Medicilon has helped 28 ADC drugs, 5 PROTAC drugs, 34 antibody drugs, and 11 GLP-1 hypoglycemic drugs to be approved for clinical trials.

Medicilon's overseas revenue is 50%, and it is driven by technology platform + international infrastructure

Through the multi-dimensional advantages of "technology + cost + service", Chinese CRO companies may occupy a more core position in the global pharmaceutical R&D industry chain.

Overseas, pharmaceutical companies generally tend to outsource difficult technologies and links, so the demand for the research and development of new molecular drugs with high difficulties and high barriers represented by ADC, PROTAC, gene therapy, etc. continues to surge. With its profound technology accumulation and rich R&D experience, Medicilon is expected to win a considerable market share in this market.

Oncotelic Therapeutics (OTCQB: OTLC), a leading global RNA therapeutics pharmaceutical company, and its joint venture company, Sapu Bioscience, LLC (45% owned by Oncotelic), a wholly-owned subsidiary of GMP Biotechnology Co., Ltd., have signed a five-year strategic cooperation agreement with Medicilon. The acceleration of 20 New Drug Investigational (IND) projects of Oncotelic and SAPU marks the international recognition of Medicilon's technology R&D and services.

Overall, in the first three quarters of 2024, Medicilon's overseas revenue accounted for 36%, and it plans to increase its overseas business to 40%-50%; At the same time, the R&D base in Boston, the United States, was put into use, and the European and Asia-Pacific markets were expanded simultaneously. 

Dr. Chen Chunlin, Founder, Chairman & CEO of Medicilon, said that the policy has brought structural opportunities to the CRO industry, and the company will continue to improve the technical service platforms such as ADC, PROTAC, and nucleic acid drugs, accelerate the expansion of the international market, and connect capital and innovative pharmaceutical companies through the "Medi-Great-Fund" investment and financing platform. The two-way force of policies and enterprises may inject new momentum into the industry.