Leading large pharmaceutical companies with outstanding commercialization capabilities are determined to innovate and transform strategies. China Biopharmaceutical is one of the companies under the Zhengda Group. Its core subsidiaries, such as Chia Tai Tianqing and Beijing Tide, have an advantage in the fields of oncology, liver disease, surgery/analgesia, and respiratory treatment. It is one of the few large domestic pharmaceutical companies with outstanding commercialization capabilities in the fields of liver disease and oncology. In 2023, the company's total revenue was 26.376 billion yuan (-8.71% YoY; +0.7% YoY if Chia Tai Qingdao's revenue caliber was excluded), and net profit to mother was 2.33 billion yuan (-8.32% YoY). Since the launch of anlotinib, the core product of innovative drugs, in 2018, the company has established a comprehensive innovation and transformation strategy. Since then, the transformation has been accelerated through various methods. Currently, the company has a rich pipeline of innovative drugs, and its innovative business revenue continues to grow rapidly, successfully transforming from a pharmaceutical company that mainly focuses on generic drugs to a first-line manufacturer of innovative drugs.

With the help of self-development+BD+ overseas platforms, innovation and transformation have accelerated into a period of reaping performance. In 2023, the company's innovative drug revenue was 9.89 billion yuan, up 13.3% year on year, accounting for 37.8%, up 4.3 pct; total R&D investment accounted for 17.1% of revenue, of which investment in innovative drugs accounted for 84%. Revenue for innovative drugs grew rapidly, and R&D investment continued to expand. As of the 2023 annual report, there are 57 products in the company's innovative drug pipeline, and it is expected to launch more than 10 self-developed & BD innovative drug products within the next three years (2024-2026). In terms of self-development, TQB2450 (PD-L1 monoclonal antibody) submitted a marketing application to the CDE in January 2023 and is currently included in priority approval.

On the BD side, in recent years, the company has obtained products such as Kangfang Biotech's PD-1 piamplimab, Yuanyi Biotech's long-acting granulocyte colony stimulating factor (G-CSF) F-627, Inventiva's pan-PPAR agonist lanifibranor, and Plai Pharmaceutical's novel non-antibiotic antimicrobial drug PL-5, etc., continuing to enrich the company's product matrix. On April 8, the company announced that it had established a strategic partnership with BI to jointly develop multiple clinical-stage assets including brigimadlin, zongertinib, and BI 764532. Furthermore, through the acquisition of overseas platforms, the company actively promoted the internationalization process. In 2021, the company established an overseas subsidiary, Invox Pharma, and successfully acquired Softhale, a leading soft mist inhalation platform, PhiON, a pioneering mRNA delivery platform, and F-star, a differentiated bispecific tumor research and development platform. As the results of overseas subsidiaries are transformed, it is expected to open up the long-term growth ceiling for the company's innovative products.

The collection risk has basically been cleared, and the scale of generic drug revenue has been rising steadily. The company's generic drug revenue in 2023 was 16.31 billion yuan, a year-on-year decrease of 5.72%, accounting for 62.2%. The generic drug business is the cornerstone of the company. In 2018, entecavir dispersible tablets, the core product of “4+7”, won the bid and reduced the price by more than 90%, reducing the hospital's sales volume of more than 4 billion dollars to single digits. Since then, the company has continued to actively participate in national collection. Currently, more than 300 million generic drug types have been included in the scope of collection, and the collection risks have basically been clarified. In addition, the fifth batch of budesonide atomized inhalation suspensions in generic drugs did not win the bid. Currently, the price is about 1/3 of the original research, and it is expected that they will continue to be released in the future; flurbiprofen gel paste, limaprost, etc. are exclusive products of Beijing Tide. There is no collection pressure yet, and there is still great potential for growth; entecavir dispersible tablets are concentrated in the out-of-hospital market, and the volume of entecavir dispersible tablets will maintain a steady upward trend in the future.

Investment advice: The company's generic drug product collection risk has been clarified, and innovative products have entered the performance harvest period. We expect the company's revenue to be RMB 317.30/369.61/41,159 billion yuan in 2024-2026, +21/16/ 11% year on year, and net profit to mother will be 25.83/31.29/ RMB 3.626 billion, respectively, +11/21/ 16%. The corresponding PE was 19/15/13 times, respectively. The first coverage gave it a “recommended” rating.

Risk warning: 1. Risk of new drug development progress falling short of expectations; 2. Risk of price reduction due to competition for large single products; 3. Risk of further collection and price reduction of generic drugs; 4. Risk of impairment of goodwill and intangible assets due to projects introduced by BD that may not meet expectations