For drug companies, Covid-19 brought financial gains that were unevenly distributed, with Pfizer making over $50 billion from pandemic-related products last year even as other pharma companies saw more modest sales boosts.
By contrast, the pandemic wealth was more evenly spread for “picks-and-shovels” businesses that supply big pharma companies with products needed to manufacture drugs and vaccines.
Companies like Danaher DHR -1.71%decrease; red down pointing triangle, Thermo Fisher TMO -1.46%decrease; red down pointing triangle, Sartorius SRT -0.36%decrease; red down pointing triangle and Repligen RGEN 0.85%increase; green up pointing triangle all reported outsize growth as their customers grew desperate for components like filters and gels. Danaher and Thermo Fisher also capitalized on Covid through their diagnostics businesses.
Now, the group is experiencing a slowdown to the red-hot growth, with no clear signs that a turnaround is near.
Drug companies, broadly speaking, make two kinds of drugs: the pills you get at the pharmacy inside those orange bottles, known as small molecules, and the more complex biological treatments which typically must be injected or infused. To manufacture the latter, which are made from living microorganisms, an array of products is required. The business of making those products is called bioprocessing.
Due to the growth of biologic drugs like Humira and Stelara for autoimmune diseases, the bioprocessing business has been booming for a while. But during the pandemic, it went berserk, partly due to the surge in demand for Covid products like vaccines and monoclonal antibodies. Take Repligen, a bioprocessing pure-play: in 2021, revenue skyrocketed 83% to $671 million. The following year it grew another 20%.
It wasn’t just because Covid-19 products drove higher demand. The chaotic supply chain crisis that accompanied the pandemic spooked pharma companies, leading many—we now know in retrospect—to double order so that they wouldn’t run out of parts needed to make their drugs. As pharma companies work through their inventory stocks, growth rates for the picks-and-shovels business looks a lot less hot. Repligen said last week it was expecting revenue growth of 4% to 8% in 2023, compared with a previous guidance of 11% to 15%.
“Pharma bought a lot of extra materials that inflated the revenue growth for these companies,” says Dan Brennan, an analyst at TD Cowen.
Some pharma companies are also cutting back on research and development, which hits bioprocessors as well, since they make money on clinical trials as well as wide distribution of drugs. Novartis and Biogen both announced in their most recent earnings calls plans to pare back some R&D projects, and smaller biotech companies are aggressively cutting as well to stay afloat.
With the notable exception of Thermo Fisher, which despite some investor skepticism is sticking with its guidance, others have cut their 2023 forecasts. Danaher took down its revenue growth guidance this year to mid-single digits from high-single digits. Bank of America analyst Michael Ryskin, who recently downgraded Danaher’s stock to Neutral, thinks it will take at least several quarters for Danaher to work through the inventory challenges it is facing. “There’s heightened uncertainty and a lot less confidence in the numbers,” said Mr. Ryskin.
For shareholders, the guidance cuts are a change of pace. While the group beat the broader market’s return during the first two years of the pandemic, more recently they have been laggards. Over the past three months, Thermo Fisher is down 5%, Danaher is down 6%, and Repligen and Sartorius are down 16% and 19% respectively. The S&P 500 is up around 1% over that period.
Each of these companies has a different exposure to the bioprocessing business, which helps explain the difference in their performances. Repligen gets basically all of its revenue from that business, Sartorius gets about 90%, Danaher is at 25% and Thermo Fisher at less than 10%, according to Will Sevush, a healthcare equity strategist at Jefferies.
The biggest unknown for the bioprocessing business seems to be how much pain is left for the biotech industry, with capital markets basically out of reach or too expensive for many smaller biotech companies. During Danaher’s earnings call, management attributed negative headwinds in the first quarter to a decline in biotech spending.
“We’re seeing these accounts looking to conserve cash by prioritizing projects,” Danaher Chief Executive Officer Rainer Blair said. “We see that with lower OpEx and CapEx expenditures, also see a number of layoffs happening in that particular segment.”
The picks-and-shovels business has been a great bet for investors looking to cash in on drug development without betting on pharma companies themselves. Long term, there is no reason for that to change.
First, though, realistic expectations on demand need to set in.
Abstract by ChatGPT : 바이오 제약 회사들이 코로나19 대응 제품 판매로 큰 이익을 보았다면, 바이오프로세싱 분야를 공급하는 회사들은 큰 수혜를 봤다. 필터와 젤 같은 부품을 필요로 하는 바이오제약 회사들은 Covid-19 대응으로 수요가 급증하면서 Danaher, Thermo Fisher, Sartorius, Repligen 등 회사들이 대규모 성장을 이룩했다. 그러나 적극적인 재고 주문으로 수익이 부풀어 오르고 있어서 2023년까지 수익성이 저하될 전망이다. Novartis, Biogen 등 대형 제약사들의 연구개발 지출 감축과 소규모 바이오 기업들의 생존을 위한 비용 절감으로 인해 바이오프로세싱 분야는 미래에 대한 불확실성이 높아졌다. 이로 인해 바이오프로세싱 제조업체들의 성장률 전망이 하락하고 있다.
