Jianyou: The heparin+sterile injection business complement each other to help the company reach the global stage

Since its establishment, the company entered the heparin industry with the standard heparin business, and has since gradually completed research and development of low molecular weight heparin preparations. It also entered the export business earlier through heparin API exports. Later, it acquired Jianjin Pharmaceutical in 2016 to enter the US sterile formulation market, and further improved overseas marketing channels through the acquisition of American Meitheal in '19. Based on the company's accumulation in the heparin field, enoxaparin is a major variety to help the company open up the US market and enhance competitiveness. Currently, enoxaparin preparations account for 30% of the US market. At the same time, based on the continuous improvement of the company's sales capacity and competitiveness in the US market, it will continue to strengthen the US sterile injection market. The two complement each other to help the company reach the global stage.

Heparin: It is the company's cornerstone business to achieve the integrated development of API+ formulations Heparin API: It is affected by both upstream supply and downstream demand: upstream supply is determined by the number of pig intestines and the storage situation of API companies, while downstream demand is determined by formulation demand and the storage situation of formulation companies. Prices of heparin crude products and APIs have been declining this year. We think the main reason for this is that terminals are out of inventory and relatively oversupply in upstream. In the short term, we are still facing effects such as inventory removal and manufacturer price games, but our judgment is that based on China's self-growing and self-supporting pig breeding profits continuing to lose this year, pig production capacity is expected to be further reduced, and along with the gradual digestion of terminal inventories, demand and supply sides are expected to return to a tight balance to bring profit recovery to heparin API companies. At the same time, we compared the gross margin level of heparin API of comparable companies. Jianyou is at a higher level than its peers, indicating that the company has excellent experience and strategic vision in storage, and is also expected to help the company continue to improve its competitiveness.

Heparin preparations: 1) Domestic market: The company's approved varieties include enoxaparin sodium, nadroparin calcium, and daxaparin sodium. Among them, the company's Enoxaparin and Nadroparin won the 8th batch.

We believe that the impact of collection on the company is relatively manageable, and the impact has basically been implemented this year. The future incremental logic is: increased penetration rate of heparin preparations and expansion of clinical application+replacement of unclassified low-molecular heparin preparations (22-year sales of 1,555 billion yuan) +replacement of original research under collection (original research collection won bids). 2) Overseas markets: The company's overseas approved products include heparin sodium and enoxaparin injections. According to Frost & Sullivan, the global heparin preparation market was US$4.749 billion in 2019, of which enoxaparin preparations accounted for the highest share of US$2,736 billion, with an estimated CAGR of 10.1% in 19-25. According to IQVIA (2020), the global market share of enoxaparin preparations is Europe (52%) /the US and Canada (27%) /other countries (26.8%) /Japan (0.3%). We believe that the company's core logic for increasing heparin overseas in the future is: increased demand+opportunities for periodic shortages of heparin in the US + development of countries and regions other than the US market.

? Sterile injections: two-wheel drive in the Chinese and US markets, helping the company open up room for growth

US market: Backed by incremental logic, it is expected to achieve rapid growth. Incremental logic 1: increased market share of ANDA+potential incremental ANDA varieties.

According to Bloomberg, the company's stock of ANDA products corresponds to sales of more than 17 billion US dollars in the US market, and there is a clear trend of increasing market share after the company's products are approved, so I am optimistic about the incremental contribution brought about by the subsequent increase in market share. At the same time, compared to varieties that the company already has production capacity but has not applied for approval in China and the US, potential incremental ANDA varieties correspond to sales exceeding 10 billion US dollars in the US market and are mostly large varieties, so looking forward to the future is expected to bring growth to the company.

Incremental logic 2: Use the advantages of the platform to join hands with partners to enter the US complex formulation and biopharmaceutical analogue market. The company has cooperated with Hainan Shuangcheng and Tonghua Dongbao on the US market for injectable paclitaxel (albumin binding type) (according to Fierce Pharma, sales volume of US$898 million in 2021) and glycine, lidol, and insulin (according to Bloomberg, the three had combined sales of US$24.94 billion in '22). According to our analysis below, the US biosimilar market is expected to usher in a golden period of development, and the company has broad prospects for entering the US biosimilar market.

Chinese market: The main logic is “double reporting between China and the US plus collection and release volume”, and there is still plenty of room to declare the number of varieties. Of the 13 injectable types approved by the company in China, 8 are double reported by China and the US; 7 of the 8 generic drug types being reviewed and approved have already been approved in the US. Currently, 47 drug varieties have been approved in the US, and the number of ANDA continues to increase. Therefore, there is still plenty of room for the number of varieties reported by China and the US. I am optimistic that the company will continue to launch the Chinese and US double report varieties domestically and continue to sell them through collection and winning bids.

Performance forecasting and investment recommendations

The company is a leading global exporter of heparin raw materials and a leading overseas market for sterile injections in China. Looking forward to the future, the company's heparin business and sterile injection business are expected to continue to bring growth to the company. At the same time, the company continues to use its platform advantages to join hands with partners to enter the field of complex formulations and biosimilars in the US, and the market space is large. Considering that the company's heparin APIs were affected by terminal inventory removal, etc., we adjusted the revenue forecast for the previous 23 years from 6.133 billion yuan to 4.194 billion yuan, and adjusted the corresponding EPS from 1.52 to 0.66 yuan; and added the 24-year and 25-year forecasts. The revenue forecast was 51.85/6.492 billion yuan, and the corresponding EPS was 0.87/1.14 yuan, respectively. According to the closing price of 15.43 yuan/share on December 15, 2023, the corresponding PE was 23/18/14 times, respectively, maintaining the “buy” rating.

Risk warning

Raw material prices rise; exchange rate fluctuations cause uncertainty in the company's business; changes in the formulation market pattern; downstream demand falls short of expectations; new drug development falls short of expectations; risk of falling short of expectations