Pharmaceutical equipment industry: across the cyclical, to meet the new momentum

According to Frost & Sullivan's analysis, the global drug market will reach $144.5 billion in 2021, and China's drug market will account for about 20%. With the growth of economic and medical demand, the growth rate of the Chinese market is higher than the global average, and it is expected that by 2023, the proportion of China's drug market will reach 24%. Assuming that the size of China's pharmaceutical equipment market in 2021 is 20% of the global market size (the same as the drug market), the global pharmaceutical equipment market size is about 400 billion yuan that year. Biologics will account for about 24% of the global pharmaceutical market in 2021 and is expected to reach 37% by 2030. We believe that in the future global pharmaceutical equipment market, the growth rate of biological drug equipment demand will be faster than chemical drugs. (Report source: Future Think Tank)

2. The pharmaceutical equipment industry has long-term growth, and its periodicity is expected to gradually weaken

From a long-term point of view, the pharmaceutical equipment industry has good growth, and does not reflect the obvious cyclical. From 2006 to 2021, the revenue of the "pharmaceutical professional equipment manufacturing" industry increased from 3.496 billion yuan to 27.69 billion yuan, with a compound annual growth rate of 14.79%. In the same period, the revenue of pharmaceutical manufacturing industry increased from 473.7 billion yuan to 2,928.9 billion yuan, with a compound annual growth rate of 12.91%, which basically kept pace with the growth of the pharmaceutical industry.

However, from a specific time period, the pharmaceutical equipment industry is still cyclical, reflected in the decline in industry revenue growth and profitability fluctuations. The operation of the pharmaceutical equipment industry is closely related to the growth rate of fixed asset investment in the pharmaceutical manufacturing industry. Since 2004, the pharmaceutical equipment industry has experienced three stages of development.

1.2004-2013: Rapid growth stage

Pharmaceutical manufacturing industry in 2004-2013 in general in the rapid growth stage, the industry income compound annual growth rate of up to 24%, the strong demand for drugs led pharmaceutical companies to increase fixed asset investment, pharmaceutical manufacturing fixed asset investment completion growth rate has always remained at a high level, thereby bringing pharmaceutical equipment demand increase. In 1999, China began to implement mandatory GMP certification in the pharmaceutical industry, which put forward mandatory requirements for the production equipment and production environment of pharmaceutical enterprises, making the demand for pharmaceutical equipment industry increase significantly, and enterprises need to re-certify every 5 years. In order to meet the requirements of GMP certification, pharmaceutical companies need to increase investment, new purchase, update or replace the original pharmaceutical equipment, GMP certification brings periodic incremental demand for pharmaceutical equipment. Fixed asset investment in the pharmaceutical manufacturing industry showed a cyclical acceleration trend (2004-2005, 2009-2011 can be regarded as equipment replacement nodes). The State Food and Drug Administration began to implement the new GMP certification standards in March 2011, and requires drug manufacturers to produce sterile drugs such as blood products, vaccines, injections, and so on, to meet the requirements of the new GMP before December 31, 2013. The production of other categories of drugs should meet the requirements of the new GMP by December 31, 2015. Compared with the 1998 version of the old standard, the new version of the GMP certification standard has more stringent requirements for aseptic production of pharmaceutical enterprises, and the demand for pharmaceutical equipment has exploded in the short term.

2. 2013-2018: Industry demand shrank and profitability declined

After 2013, the revenue growth of pharmaceutical manufacturing industry declined, and the growth rate of fixed asset investment slowed down. Influenced by factors such as the gradual coming to an end of the new GMP certification, the demand for pharmaceutical equipment has continued to fall, and the growth rate of industry revenue has declined significantly. On the other hand, due to weakening demand, competition within the industry has intensified, and corporate profitability has declined. From the annual reports of Dongfulong and Chutian Technology, the industry leaders, it can be seen that the industry is facing greater difficulties.

3. From 2018 to now: The pharmaceutical manufacturing industry has entered a new round of fixed asset investment cycle, and new demands are emerging in an endless stream

Since 2018, due to the recovery of fixed asset investment growth in the pharmaceutical manufacturing industry, the pharmaceutical equipment industry has gradually come out of the bottom, revenue growth has resumed, and profitability has been significantly improved. The new production capacity will further increase the demand for integrated, automated and intelligent high-end pharmaceutical equipment. In addition, there is a 5-10 year renewal cycle of pharmaceutical equipment, on the one hand, from the natural replacement of the original equipment after the expiration of the service life, on the other hand, it also comes from the upgrading of pharmaceutical companies. Enterprises are increasingly inclined to configure production lines with higher automation level, better accuracy and better product quality consistency. Meet the needs of automation, integration and intelligent production. Due to the rapid release of demand in the pharmaceutical equipment industry after the implementation of the new GMP certification in 2011, these equipment have entered the update and upgrade cycle in accordance with the service life, so this part of the demand is also one of the reasons for promoting the current round of the pharmaceutical equipment industry boom cycle.