Events:

On August 17, 2023, Hua Medicine announced another important milestone in the development of Huatangning, which will receive a milestone payment of 800 million RMB from Bayer.

Comments:

Exclusive regulation of blood glucose mechanism to effectively reshape blood glucose homeostasis

Huatangning was officially listed by the State Drug Administration (NMPA) on September 30, 2022 and was approved to improve blood glucose control in adult patients with type 2 diabetes. Huatang Ning wrote her first prescription in October. As a mechanism of glucokinase activity regulator (GKA), clinical studies have shown that Huatangning can effectively control the blood glucose level of patients with type 2 diabetes, whether alone or in combination with metformin. At the same time, its unique chemical structure can reduce the accumulation of metabolites, regulate the enzyme activity of GK, repair the protective function of β-cells and reshape blood glucose homeostasis. Huatangning is an innovative therapeutic drug on the market. At the same time, Huatangning has definite curative effect and high safety. it can also be used at the same dose in patients with impaired renal function, and the combination is safe, and it has an advantage in clinical application in the fierce competition for hypoglycemic drugs.

Get Bayer's strong endorsement, milestone payment to support Commercial value according to the terms of the commercialization cooperation agreement, Bayer has the exclusive right to commercialize Huatangning in China as a giant in the field of diabetes management. Bayer has rich experience and channels in commercializing the Chinese market, and its core hypoglycemic drug Baitangping is the leading manufacturer of acarbose drugs (70% +). The cooperation between Hualeng and Bayer can give full play to the synergy, reduce the cost of self-built commercial team, and roll out sales quickly. At the beginning of its listing, Huatangning was in short supply. In January 2023, Huatangning still recorded sales of nearly 100000 boxes after a half-month restriction and unreleased production capacity, indicating the high recognition of patients and the medical community to Huatangning. Due to Huatangning's good effect in reducing blood sugar, safety and weight loss, Bayer has so far paid Hua Medicine a milestone payment of 340,800 million yuan, which has enriched Hualeng's net profit and cash flow in recent years. It also proves the good expectation of the commercial value of the international pharmaceutical giant Bayer.

Actively prepare for national talks on medical insurance, the second generation pipeline is expected to go to sea.

2023 health insurance preliminary review catalogue announced, Huatangning (Douglaitin) is among them, 23Q3 will open state talks, if successfully entered the health insurance, will further benefit the broad masses of patients, to achieve further sales volume. In addition, Huacheng is also actively planning to go out to sea. The second generation of GKA is already under research in the United States. It is expected to submit an application for IND clinical trial to FDA at the end of 2023 or early 2024, and complete the first phase of clinical study in the United States in 24 years. The second generation of GKA, which will target metabolic diseases, including, but not limited to, type 2 diabetes, is an effective prodrug for dorzagliatin and, if successfully developed, will expand the global landscape.

Investment suggestion

We estimate that the operating income of Huacheng Pharmaceutical from 2023 to 2025 is 167 million yuan, 672 million yuan and 1.386 billion yuan respectively, an increase of 849%, 303% and 106% respectively over the same period last year. The net profit from 2023 to 2025 is expected to be-189 million yuan,-121 million yuan and 17 million yuan, up by 7%, 36% and 114% respectively. We are optimistic about the rapid release trend of Huatangning after its listing, the clinical benefits of Huatangning in the functional repair of diabetic patients, the broad application space of its single drug and in combination with other hypoglycemic drugs for type 2 diabetes, and the potential milestone revenue that the future second-generation GKA promotion can bring to the company. We maintain the "overweight" rating.

Risk hint

The risk of insufficient capacity, the risk of less than expected access, the risk of rising costs, the risk of floating sales, the risk of industry policy