Main points:
It started with mouse nerve growth factor and entered many fields of in vitro diagnosis, CRO and tumor. The company is a high-tech biopharmaceutical enterprise that takes the national first-class new drug Jinlujie-mouse nerve growth factor for injection as the leading product and aims to create the best innovative drug enterprise. the main business is the R & D, production and sales of biological products (freeze-dried powder injection of mouse nerve growth factor for injection, freeze-dried powder injection of anti-hepatitis B transfer factor for injection), thrombin and other chemicals. The company started with Jin Lujie, in order to reduce the significant dependence on a single product, through epitaxial development, into in vitro diagnosis, CRO, oncology fields.
Jin Lujie is subject to the adjustment of the national health insurance policy, and sales are under pressure. China is the first country in the world to approve the listing of mouse nerve growth factor for injection. At present, there are only four enterprises producing mouse nerve growth factor for injection in the market, showing an oligopoly competition pattern.
In the National Medical Insurance catalogue (2017 edition), the use of nerve growth factor for injection rats is limited to traumatic optic nerve injury or n-hexane poisoning. As a result, the sales revenue of nerve growth factor for injection rats in 2017 and 2018 decreased by 3.21% and 35.99%, respectively, and the sales revenue was 3.191 billion yuan and 2.043 billion yuan, respectively. In June 2019, the National Health and Family Planning Commission brought the nerve growth factor for injection into the monitoring catalogue of rational drug use, and the National Medical Insurance Catalog (2019 edition) was transferred in August 2019, which will further adversely affect the sales of nerve growth factor for injection rats. We expect the company's Jinlujie sales to continue to decline in 2020.
Acquisition of Haitai Biology, layout of in vitro diagnostic reagents. According to Allied MarketResearch market research and forecast, the global market for in vitro diagnostics will reach US $64.5 billion in 2017, with a compound annual growth rate of 4.8% from 2018 to 2025, and US $93.6 billion by 2025. According to the estimates of the Medical equipment Research Institute, the size of China's in vitro diagnosis market in 2018 is about 60.4 billion yuan, an increase of 18.43% over the same period last year. In April 2018, the company acquired 75% of Haitai Biological, and in the first half of 2019, acquired the remaining 25% of Haitai Biological, and entered the field of in vitro diagnostic (IVD) reagents. The acquisition of Haitai Biology can enrich the company's product structure, help to improve the company's comprehensive competitiveness, and speed up the pace of epitaxial development of the company.
Enter the CRO field and create a new profit growth point. 1) the demand for CRO has increased and the Chinese market has maintained rapid growth. According to the Frost&Sullivan report, pharmaceutical companies will be more willing to hire external CRO under the double squeeze of rising R & D costs and patent cliff in the future. According to the statistics of the Southern Institute of Pharmaceutical Economics, the size of China's CRO market reached 67.8 billion yuan in 2018. It is conservatively estimated that China's CRO industry market will grow by about 20% in the next two to three years, and by 2020, China's CRO market will be close to 100 billion yuan. From the perspective of industry competitive position, Hankang Pharmaceutical ranks 20th on the TOP20 list of Chinese CRO/CDMO enterprises in 2018. 2) acquire Hankang Pharmaceutical and enter the field of CRO. In October 2018, the company acquired 100% stake in Hankang Pharmaceutical for 450 million yuan. Hankang Pharmaceutical was founded in 1999, is a small molecular chemical drug research and development, production and sales of the whole industry chain CRO (contract Research Organization) company.
Hankang Pharmaceutical has GMP base, experienced R & D team and high industry conversion rate.
According to the acquisition agreement, the original shareholders promised that the net profit of Hankang Pharmaceutical in 2018,2019 and 2020 would not be less than 28 million yuan, 32.2 million yuan and 37.03 million yuan, respectively. Hankang Pharmaceutical achieved deduction of non-post-net profit of 30.1459 million yuan in 2018, fulfilling its performance commitment.
The market for multiple myeloma drugs has reached 10 billion US dollars, and the phase Ⅲ clinical trial of CPT, a participating company, is drawing to a close. According to the statistics of Pharmaceutical Economics, in 2017, the total global sales of major drugs approved by FDA for the treatment of multiple myeloma reached US $14.59 billion, and drugs for the treatment of multiple myeloma have become a new hot spot for pharmaceutical companies. In 2015, the company was involved in the research and development of multiple myeloma drugs through equity participation (39.605%) in Beijing Shadong Biology. The project of recombinant mutant human tumor necrosis factor-related apoptosis inducing ligand (CPT) for injection has been completed in July 2019, and the research and development process is coming to an end.
We will promote the construction of API production bases and improve the layout of the industrial chain. China is a big country in the production and export of APIs. According to the data of China Chemical Pharmaceutical Industry Association, in 2018, the main business income of enterprises mainly engaged in API production in China was 384.33 billion yuan, an increase of 10.4% over the same period last year. The delivered value of exports was 68.06 billion yuan, an increase of 9.8% over the same period last year. In recent years, due to the strong clearance of environmental protection policies, the new production capacity of chemical APIs declined for the first time in 2017, the production and marketing rate began to pick up in 2018. We believe that the tightening of environmental protection and quality standards will be a long-term trend, and high-quality API enterprises are expected to continue to benefit from the supply-side adjustment of the API industry, and their importance and bargaining power in the industrial chain will be enhanced accordingly.
Investment advice:
We expect the company's net profit from 2019 to 2021 to be 8740Comp6904 / 72.26 million yuan, EPS 0.85 / 0.67 Universe 0.70 yuan respectively, and the current share price corresponding to Pamp E is 35-44-42 times. At present, the median TTM of the biological products industry is 40 times. Considering the company's entry into the fields of in vitro diagnosis, CRO and oncology, the phase Ⅲ clinical trial of CPT is coming to an end and can enjoy a certain valuation premium. We give it an "overweight" investment rating for the first time.
Risk Tips:
Affected by the health insurance policy, Jin Lujie's sales declined more than expected; the performance of in vitro diagnosis and CRO business was lower than expected; and the progress of CPT project registration application was slow or not approved.
