On August 26, the United States Government revised its previous tender for the procurement of the National Strategic Reserve to update the procurement requirements for heparin and enoxaparin. As the largest heparin API manufacturer in the world, its wholly-owned subsidiary SPL has obvious advantages in the long-term layout of heparin API production in the United States.
The United States government is stockpiling raw materials (API) for the production of essential medicines. APIs can be used to add a layer of protection to the US pharmaceutical supply chain in the event of a future pandemic or national emergency. The United States stockpile, which was previously limited to medicines and medical supplies that medical institutions need to respond to outbreaks such as hurricanes, pandemics or anthrax, is now expanding to include a variety of key API supplies. In emergencies where critical API is not produced in the United States and cannot be imported, reserve API can be supplied to domestic pharmaceutical companies in the United States to support drug production and be able to cope with longer-term national emergencies such as the COVID-19 epidemic.
The United States government expects a large stockpile of heparin APIs. Heparin APIs are listed as a separate category in the tender. The July version of the tender lists its basic supply requirements as 45.6 trillion basic units. In the new tender on August 26, the basic supply requirements for heparin APIs were changed to 225 billion basic units, requiring supply by 31 December 2020; the potential supply within five years was 4.275 trillion basic units.
The national strategic reserve procurement puts forward strict requirements on the source of raw material drug supply. This tender requires suppliers to comply with the requirements of the Federal Procurement regulations (Federal Acquisition regulation, FAR). Among them, this tender has carried on the strict request to the production place of the product. The tender applies to the Federal Act 52.225-5Trade Agreements Act, which designates certain countries or territories that enjoy special trade treatment (TAAdesignated country). This tender stipulates that APIs from the United States or designated countries will be given priority. It is worth noting that Chinese mainland is not included in the list of countries designated by TAA.
Most Chinese heparin companies are expected to find it difficult to participate in this tender. China is the largest supplier of heparin APIs in the world. Although the invitation for bid allows API from non-TAA designated countries to participate in the tender, as the tender gives priority to the United States and TAA designated countries, the main production process of APIs by Chinese enterprises is mainly in Chinese mainland, which will be at a relative disadvantage in this bidding. In the aftermath of Sino-US trade friction and extremely unstable relations between the two countries, the possibility of Chinese mainland enterprises winning this procurement contract has further declined.
Relying on the overseas subsidiary SPL, Hypri has a clear advantage in this bid. Hepri is the world's largest heparin raw material drug company, heparin raw material medicine has been exported to Europe and the United States for a long time, and its quality has been recognized by the world. In April 2014, Hypree acquired a 100 per cent stake in SPL, formerly the world's second-largest heparin API company. This merger establishes Hypri's absolute leading position in the global heparin API market. After the acquisition by Hypree, SPL's procurement of raw pig intestinal casings to the main production process remains in the United States, which is the only one of the existing large suppliers. In this tender, SPL has a greater home advantage. As the parent company of SPL, if this bid is successful, Hypri is expected to usher in further growth in performance.
Risk factors: failure of bidding, lower-than-expected price of enoxaparin sodium preparation, risk of failure in innovative drug research and development.
Investment suggestion: the company is the leading enterprise of heparin raw material drugs and preparations in China, and has been actively distributed in the field of CDMO and innovative drugs in recent years. We maintain that the company's homing net profit forecast from 2020 to 2022 is 1.073 billion yuan, 1.303 billion yuan and 1.738 billion yuan respectively, the corresponding EPS forecast is 0.73,0.89 yuan and 1.18 yuan respectively, and the corresponding stock price PE is 34, 28 and 21 times respectively. Continue to focus on recommendations and maintain a "buy" rating.
