According to Zhitong Finance APP, Tianfeng Securities released a research report stating that the performance disclosure of active pharmaceutical ingredients (APIs) for the first quarter of 2025 is nearing completion, and the overall performance of the API sector has initially shown a trend of marginal stabilization and recovery. From the perspective of incremental commonality, there are three main characteristics: 1. Marginal stabilization of API prices. 2. Rapid advancement of formulation integration. 3. New business transformations gradually entering the harvest period.

Recommendations to pay attention to:

(1) Marginal stabilization of API prices: TIANYU PHARM (300702.SZ) and others;

(2) Rapid advancement of formulation integration: Menovo (603538.SH) and others;

(3) New business transformations gradually entering the harvest period: huahaipharm (600521.SH) and others.

The main viewpoints of Tianfeng Securities are as follows:

Event:

The performance disclosure of APIs for the first quarter of 2025 is nearing completion, and the overall performance of the API sector has initially shown a trend of marginal stabilization and recovery. From the perspective of incremental commonality, there are three main characteristics:

1. Marginal stabilization of API prices:

After experiencing a year of continuous price decline in 2024, some API prices in Q1 2025 have shown marginal stabilization, characterized by a year-on-year decline in prices, but a month-on-month stabilization, with some prices even beginning to rise month-on-month (according to Wind data). In addition, some listed companies have indicated that products that experienced significant price declines in 2024 have remained stable or increased in price in 2025.

The overall theme of the API sector in 2024 was to exchange price for volume, and 2025 is expected to enter a phase of stable prices and increased volume. Therefore, under the assumption that API prices remain stable throughout 2025 and shipment volumes continue to increase, the overall API sector is expected to welcome a recovery.

2. Rapid advancement of formulation integration:

Some companies, such as TIANYU PHARM, have seen performance growth in the first quarter, with part of the growth coming from the increase in formulation products. The main path for this increase is the expansion of the formulation product matrix and the renewal of national procurement contracts. Considering that the progress of formulation integration varies among different companies, for those with annual revenues below a certain threshold in the formulation sector (e.g., below 500 million yuan), companies in the early stages of formulation integration may see significant contributions to profits from rapid increases in formulation business over a 2-3 year time frame.

3. New business transformations gradually entering the harvest period:

Due to factors such as intense competition, the gross profit margin of traditional API businesses has continued to shrink. In addition to ongoing technological upgrades, cost reduction, efficiency improvement, and formulation integration, the expansion of new businesses is an essential path for API companies to transform. The expansion of innovative businesses requires companies to plan ahead, which is more challenging and has a longer time cycle.

At the beginning of 2025, API companies are gradually entering the harvest period, for example: (1) Innovative drugs: huahaipharm's HB0017 (IL-17 monoclonal antibody), HB0025 (PD-L1/VEGF dual antibody), HB0056 (TSLP/IL-11 dual antibody), etc.; (2) Complex formulations: Xianju Pharmaceutical's soft mist technology platform; (3) New molecular types: Aorite's small nucleic acid technology platform Risk Warning: Deterioration of the global geopolitical landscape, intensified competition in global raw material pharmaceuticals, global raw material pharmaceutical demand lower than expected, and procurement price reductions exceeding expectations