Events:

The company announced that on August 27, 2020, the company received the "Randomized, double-blind, placebo-controlled study to observe the efficacy and safety of Tangning Tongluo capsule in the treatment of newly diagnosed type 2 diabetic patients" from the General Hospital of the Chinese people's Liberation Army.

Main points:

The hypoglycemic effect of Tangning Tongluo capsule is similar to that of first-line alternative hypoglycemic drugs, and has a certain effect on the recovery of islet β-cell function. On March 12, 2018, the company signed a randomized, double-blind, placebo-controlled study with the General Hospital of the people's Liberation Army to observe the efficacy and safety of Tangning Tongluo capsule in the treatment of newly diagnosed type 2 diabetes. clinical trial of Tangning Tongluo capsule The purpose of the experiment was to observe the efficacy and safety of oral Tangning Tongluo capsule in patients with type 2 diabetes who were not treated with hypoglycemic drugs. The trial was carried out from September 2018 to April 2020, during which some subjects lost follow-up and fell off due to the impact of the 2019-nCoV epidemic. After being evaluated and judged by researchers and statistical experts, it is agreed that the validity result adopts the coincidence scheme data set (PPS), and the security result adopts the full analysis set (FAS) data set. The results showed that: 1) Tangning Tongluo capsule could effectively reduce the level of glycosylated hemoglobin (HbA1c) in patients with type 2 diabetes mellitus without hypoglycemic drugs for 12 weeks, and the glycosylated hemoglobin (HbA1c) decreased by 0.46% after removing placebo effect, which was similar to that of first-line hypoglycemic drugs in the 2017 China guidelines for the Prevention and treatment of Type 2 Diabetes Mellitus. 2) in the secondary end point, the area under the C-peptide curve increased after 12 weeks of treatment with Tangning Tongluo capsule, which suggested that it had a certain effect on the recovery of islet β-cell function; 3) it was safe and well tolerated, and there were no obvious adverse reactions related to drugs; 4) the data management was perfect and the results were credible.

We believe that the results of this clinical trial have two important meanings:

First, this clinical trial uses glycosylated hemoglobin, the "golden index" of diabetes treatment, as the main efficacy evaluation, which directly and effectively proves that Tangning Tongluo capsule has the hypoglycemic effect of first-line drugs in the market, and provides strong clinical support for natural drugs in the treatment of Ⅱ diabetes and complications.

Second, abnormal islet β-cell function and insulin resistance are important pathophysiological mechanisms of type 2 diabetes. Among them, islet β-cell dysfunction is an important factor in the occurrence and development of type 2 diabetes. 50% of newly diagnosed patients with type 2 diabetes have impaired islet β-cell function, which is characterized by the decrease of insulin and C-peptide secretion after glucose load. In this clinical trial, it was found that after 12 weeks of treatment with Tangning Tongluo capsule, the area under the C peptide curve in the glucose load test was significantly higher than that in the placebo group (P < 0.05). It is suggested that Tangning Tongluo capsule can improve the function of islet β cells. In recent years, studies on the pathogenesis of diabetes have shown that M-Ⅱ cells in adipose tissue are gradually transformed into pro-inflammatory M-Ⅰ cells, which accelerate the infiltration of inflammatory cells in adipose tissue and promote adipose tissue to release a series of factors that lead to insulin resistance. Previously, a study published by the University of Hong Kong in September 2017 found that Tangning Tongluo capsule could convert M1 pro-inflammatory macrophages in adipose tissue into M2 anti-inflammatory macrophages, that is, Tangning Tongluo capsule reversed pro-inflammatory M Ⅰ cells into M Ⅱ cells, thereby reducing adipose tissue inflammation and secondary infiltration of macrophages. The clinical trial results of the PLA General Hospital and the previous animal test results of the University of Hong Kong confirm that Tangning Tongluo capsule has a certain effect on the recovery of islet β-cell function. we believe that this is an important breakthrough in Tangning Tongluo treatment of diabetes.

Tangning Tongluo has obtained the "registration documents of preparations for medical institutions" in three provinces, and the clinical trial results of the PLA General Hospital are expected to greatly improve the market expansion speed of Tangning Tongluo. Tangning Tongluo is a Miao pharmaceutical preparation developed by the company on the basis of long-term protection, collection and collation of Guizhou Miao folk prescription and in accordance with the requirements of the measures for the Registration and Administration of Medical institutions of the State Food and Drug Administration. It has been reviewed and approved by the drug supervision and administration departments of Guizhou Province, Hunan Province and Inner Mongolia Autonomous region. The company also cooperates with Beijing Guanganmen Hospital, Guangdong Hospital of traditional Chinese Medicine, Yunnan Hospital of traditional Chinese Medicine, Ruikang Hospital affiliated to Guangxi University of traditional Chinese Medicine and other domestic well-known medical institutions to develop Tangning Tongluo project, all of which are in different stages of R & D and declaration. Since it was approved by medical institutions in 2014, Tangning Tongluo has been carrying out clinical application and research in Guizhou Bailing traditional Chinese Medicine Diabetes Hospital. through years of clinical observation, it has been found that it has a significant effect on diabetes and diabetic complications (such as sugar foot, sugar net, glucose kidney and neuropathy, etc.). After this clinical study, the company said that it will speed up the registration of Tangning Tongluo preparations in medical institutions in the military system, so that it can complete the registration and obtain the document number as soon as possible. We believe that the results of this clinical trial will help to speed up the registration of Tangning Tongluo capsule in local and military medical institutions, and is expected to greatly improve the market expansion speed of Tangning Tongluo.

The number of patients with diabetes is large and the growth rate is fast. The domestic market for diabetes drugs is more than 50 billion yuan. According to estimates by the International Diabetes Federation (IDF), there were 463 million people with diabetes worldwide in 2019, with an average of one in 11 adults. It is estimated that by 2030, there will be 578 million people with diabetes worldwide. In recent years, the prevalence rate of diabetes in China is gradually rising. According to the Diabetes Drug Market Research report of the Southern Institute of Pharmaceutical Economics, a National Diabetes Epidemiological Survey (2007-2008), led by the Endocrine and Metabolic Disease Center of China-Japan Friendship Hospital, shows that "among people over 20 years old in China, the prevalence rates of diabetes in men and women are 10.6% and 8.8% respectively, and the overall prevalence rate of diabetes is 9.7%. It is estimated that the total number of patients with diabetes in the country is about 92 million. " According to the data released by IDF, the number of diabetics in China was about 116 million in 2019, making China the country with the largest number of diabetics in the world. At the same time, the number of diabetics continues to grow rapidly.

IDF predicts that the number of people with diabetes in China will reach 151 million by 2040. In 2018, the terminal diabetes market of China's public medical institutions (urban public hospitals, county-level public hospitals, urban community centers and township health centers) reached 51.228 billion yuan, according to Mine.com.

Affected by the epidemic, the company's performance declined in the first half of the year and is expected to recover gradually in the second half of the year.

In the first half of this year, the company's operating income was 1.2804623 billion yuan, down 5.42% from the same period last year, and the net profit attributed to shareholders of listed companies was 108.5785 million yuan, down 49.11% from the same period last year. The main reasons for the decline in the company's performance during the reporting period are as follows: 1) due to the impact of the epidemic in the first half of 2020, the number of hospital visits decreased significantly. Grass-roots medical institutions (including community medical service centers, private clinics, village clinics, all kinds of private and specialist hospitals, etc.) are basically closed or semi-closed, and medical consumption has decreased significantly. At the same time, the sales of cold, cough, heat-clearing, detoxification and antipyretic products in the pharmaceutical market are strictly controlled, and the overall sales are greatly affected. The sales of the company's main products, such as Kesuting syrup and capsules, Jingan capsule, Xiaoer Chaigui antipyretic granule, Shuangyanghou Bitong granule, etc., were greatly affected (the sales of Xiaoer Chaigui antipyretic granule in the first half of 2020 decreased by 52.71% compared with the same period last year. Sales of Kesuting syrup and capsules in the first half of 2020 decreased by 37.40% compared with the same period last year, while sales of Shuangyanghou Bitong granule decreased by 39.13% in the first half of 2020 compared with the same period last year. 2) with the continuous expansion of the development scale of the company, the number of employees has increased, and the fixed expenses such as sales expenses, management expenses and financial expenses have maintained a steady growth (the total of the three expenses has increased by 16.51% over the same period last year). It has an impact on the decrease in the growth rate of the company's net profit. We believe that cold drugs affected by the epidemic were strictly controlled in the first half of this year, and in the second half of this year, as the epidemic situation improved, control gradually relaxed, sales of cold drugs gradually returned to normal, and the company's performance is expected to gradually recover.

Investment advice:

We estimate that the homing net profit of the company from 2020 to 2022 will be 295,000,332 million yuan, respectively, and the corresponding EPS will be 0.21, 0.24, 0.27 yuan, respectively, and the corresponding P, E, will be times that of 51-45-40. At present, the TTM of traditional Chinese medicine industry is 40 times, and its valuation is higher than the benchmark valuation of the industry. considering the large scale of diabetes drug market, the latest clinical trial results of Tangning Tongluo capsule show that its hypoglycemic effect is similar to that of first-line alternative hypoglycemic drugs, and it plays a certain role in the recovery of islet β-cell function, which is beneficial to accelerate its market expansion and can give a certain premium. We downgraded its investment rating from "buy" to "overweight".

Risk Tips:

Product price reduction; Tangning Tongluo capsule market promotion progress is slow; focus on the research product clinical trial results are lower than expected; accounts receivable bad debt risk; pledge equity unwinding risk.