Incident: 1) On February 27, the new drug clinical application for Lingxiang tablets submitted by the company was accepted by the CDE. It is an innovative medicine in the category of traditional Chinese medicine. It invigorates blood circulation and pain relief, and is used to treat chronic pelvic pain. 2) On April 2, the company issued the “Notice Concerning Approval for the Conversion of Linglian Granules into Non-prescription Drugs”. The company's exclusive variety of Linglianhua Granules was converted from prescription drugs to non-prescription drugs.
Actively building a moat for the Wuling series, the secondary development of Wuling capsules and the innovative drug Lingxiang tablets go hand in hand. According to the “Prospectus for Issuing Shares to Specific Targets (Registration Draft)” issued by the company in August 2022, the company plans to invest a total of 50 million yuan in research and development of new drugs, of which the development of the Wuling series of innovative drugs is expected to account for 17.5 million yuan. The company has always focused on its main business and is rich in Wuling series products, focusing on the ingredients of Wuling bacteria powder. Currently, it has 3 exclusive products in the Wuling series: Wuling capsules, Lingze tablets, and Linglian granules. Reixiang tablets also use Wuling bacteria powder as medicine to treat chronic pelvic pain. As of February 27, clinical applications have been processed by the CDE and are expected to be approved for marketing in 2027. According to the “May 13, 2022 Investor Relations Activity Record Form”, the company will strive to turn the Wuling series of gynecology's exclusive variety, Lingxiang tablets, into a large-scale variety of 500 to 1 billion dollars in the future.
Linglianhua granules were converted to over-the-counter medicine, and I am looking forward to efforts outside the hospital. Linglianhua granules belong to the Wuling series of products. It is a compound formulation developed around Wuling bacteria powder under the theoretical guidance of traditional Chinese medicine. It aims to comprehensively improve women's menopausal symptoms and pay more attention to the mood and sleep of menopausal women. Clinically, the therapeutic effect is obvious, and it has entered the “Guidelines for Clinical Application of Proprietary Chinese Medicine in the Treatment of Menopausal Syndrome”. According to the “Investor Relations Activity Record Form of January 14, 2024”, the company's out-end sales account for a little more than 10%. In order to continue to increase the proportion of out-of-hospital pharmacies, the company specially set up Zoli Health Technology Company to carry out internet marketing; continue to increase the coverage of out-of-hospital pharmacies and promote strategic cooperation with major pharmacy chains; and focus on building a demonstration area for the OTC market. After switching to non-prescription drugs this time, it is expected that sales will increase in the future through the Internet sales model.
Investment advice: The company's core products, Wuling capsules, and Lingze tablets, are all in the national drug catalogue. Among them, Wuling capsules and Lingze tablets are exclusive products. The company's main business has strong “hematopoietic” capabilities, and continues to be optimistic about psychotherapy tracks such as anxiety and depression. The company is expected to achieve revenue of 19.42/23.79/2.82 billion yuan in 2023-2025, up 8%/22%/19% year on year; achieve net profit of 3.85/4.97/606 billion yuan, up 41%/29%/22% year on year respectively; corresponding PE valuations are 19/14/12X, respectively. Considering the company's continued increase in hospital terminal coverage and out-of-hospital expansion, core products have good endogenous growth potential, and fine management is continuously optimized. The company has strong growth and maintains a “buy” rating.
Risk warning: macroeconomic fluctuation risk; policy risk; increased industry competition; risk of cost fluctuations; product promotion falling short of expectations; R&D risk.