Key points of investment:
PPI's leading position has stabilized performance growth, and listing has helped the company open up space for long-term development.
Osecon is a leading domestic proton pump inhibitor (PPI) company. It has 5 of the top 6 proton pump inhibitors in China. The overall market share is the highest among domestic brands, and the terminal market size is about 20 billion. Considering the outstanding efficacy of proton pump inhibitors in treating and preventing gastrointestinal ulcers, we expect the overall dosage to remain stable in the future. In the future, in the face of generic drug consistency evaluation, the company's five PPI injections that have already been marketed have completed quality consistency evaluations and submitted applications. Of these, 3 varieties are the first in China and 2 are second in China. The application ranking is at the top of the industry, and the overall market brand effect and position stability are leading in China. At the end of 2018, Osecon was listed through a backdoor restructuring of Dongfang Rising Star. On March 11, 2019, Osecon changed its name to Osecon and officially entered the A-share capital market.
More than 1 to 4 product lines have entered the harvest period, and the continuous relay of new growth points boosted the growth rate of performance. In recent years, the company has gradually expanded from a single PPI (proton pump inhibitor) product line in gastroenterology to four major treatment fields, including gastroenterology, anti-infection, oncology, and chronic disease series. The dosage form has expanded from a single injection to an oral dosage form. Growth points for new products in the medium to long term are expected to continue to be relaying, boosting the growth rate of performance.
First, the consolidation of “1” (PPI product cluster). The company undertook 5 “National Major New Drug Creation” projects in the PPI product cluster. Among them, injectable dexabeprazole sodium (first in China) and injectable levapantoprazole sodium (second in China) are expected to be approved for marketing in the first half of next year, and injectable dexlansoprazole sodium is expected to complete clinical trials and production in the first half of next year.
Second, from “1” to “4,” the expansion of multiple product lines has entered the release period. The company has expanded its oncology, anti-infection, and chronic disease product lines. The market introduction of pemetrexed disodium (oncology), saproglitine tablets (diabetes), injectable tigacycline (anti-infection), and injectable parecicib sodium (anesthetic and analgesic), which have been marketed in the past two years, sales are expected to enter a period of rapid growth. In the next two years, injectable posaconazole sodium, posaconazole enteric tablets, and injectable polymyxicin E sodium methanesulfonate are expected to be approved for marketing quantity.
Third, from injectables to oral extension, new products and production capacity are being developed in parallel. The company recently introduced maltol iron capsules, a next-generation oral iron product for the treatment of iron deficiency in adults, from Shield Therapeutics in the UK, and submitted a marketing application for dilalose dispersion tablets for the treatment of thalassaemia, and invested abroad in Yangzhou Sanyao to further expand new varieties and production capacity reserves of oral formulations.
Combining innovation at the beginning and end, improving the research system drives us into a full harvest period of transformation and upgrading. The company insists on balancing innovation at the beginning and end. In recent years, on the one hand, it has built a complete leading innovation system for the two major technology platforms of the research institute and the seven major research institutes. R&D investment has continued to increase, and R&D expenses accounted for 7.38% of revenue in 2018; on the other hand, innovation at the end has not slackened, continuously consolidated API formulation integration and generic drug quality consistency evaluation, and achieved brilliant achievements in GMP certification, quality control and process improvement. Osecon has now disclosed a total of 3 drugs under development in its innovative drug pipeline. We expect an average of about 3-4 innovative drugs to enter the clinical stage each year in the future. Currently, the fastest progressing project, ASK120067, is a third-generation EGFR-TKI that targets T790M to treat non-small cell lung cancer. It is currently in clinical phase IIb. We expect that clinical trials will be completed before the end of 2020. Assuming that ASK120067 is the fourth or fifth domestic EGFR-TKI to be marketed, it is expected that 2026 will peak sales of about 480 million yuan after launch. Next year is expected to be the first year for the implementation of the company's research institute's innovative drug pipeline results.
Profit forecast and investment rating: In the short term, as a leading domestic proton pump inhibitor company, the company's new product line expands into a release period, and revenue and profit growth are expected to enter a period of continuous improvement. In the medium to long term, we are firmly optimistic about the comprehensive innovation and upgrading driven by the company's perfect research system. 2021 is expected to be the first year of high growth in the company's performance and delivery of innovative drug results. Therefore, we expect the company's EPS in 2020-2022 to be 0.74, 0.86, 1.00 yuan respectively. The corresponding stock prices PE are 21.73, 18.76 and 16.13 respectively Double, first coverage, buy rating.
Risk warning: The application and approval of drugs under development fell short of expectations; research and development of innovative drugs fell short of expectations; the price reduction in collection exceeded expectations; sales of core varieties fell short of expectations; and the company's performance fell short of expectations.