The company's recent situation
On April 23, the Joint Pharmaceutical Procurement Office of the State Organization issued the “Announcement on the Results of the National Centralized Drug Procurement (Special Insulin Special) Selection Results”. All 6 products declared by the Federal Pharmaceutical Company won the bid 1 in Group A.
reviews
Group A won the bid for all insulin collection lines. 1) Human insulin series: The selected price of human insulin injection/sperm protein human insulin injection/sperm protein human insulin mixed injection (30R) was 25.91 yuan/tube, down 9.9%/11.8%/5.3% from the previous round of collection, and Group A ranked 3/2/5. 2) Insulin glycine: The winning bid price was 65.31 yuan/tube, down 2.5% from the winning bid price in the previous round, ranking 5th in Group A. 3) Mendon insulin series: The selected price of Mendon insulin injection/Mendong insulin 30 injection was 25.91 yuan/tube, a decrease of 37.2% compared to the previous round of collection. Group A was ranked 4th. The Class A selection price for each procurement group was close to the maximum price. We calculated that apart from the 7% difference between the selected price and the maximum price of insulin class A during meals, the difference between the other 5 groups was 0.1%-1.6%.
Expect an increase in the remaining volume of collection and the market outside harvesting. 1) Remaining amount: According to the collection documents, within the same procurement group, the undistributed procurement demand for Class B and Class C selected products and the procurement demand for unselected products are independently selected by pharmaceutical institutions from Class A products, but the sum of the basic amount and surplus amount obtained by the enterprise corresponding to the selected product cannot exceed 50% of the maximum production capacity promised to supply the domestic market.
Federal Pharmaceuticals Zhuhai has the largest insulin production base in South China. After the project is fully completed, the production capacity will reach 3 tons of raw materials and 300 million tablets 2 per year. We believe that the company has some opportunities in the distribution of the remaining amount. 2) Non-collected market: According to data from the National Health Insurance Administration 3, the amount of insulin selected in the last round of collection reached 650 million tablets in 22 months, with an average annual usage of about 350 million. Demand for more than 240 million units of insulin has been reported in this successive procurement, and we expect that there is still some room in the extractive market.
The contract renewal rules for this round of collection are reasonable, and prices are falling steadily. According to data from the National Health Insurance Administration, a total of 53 products from 13 companies participated in this continuous procurement. 49 products were eligible for selection, with a selection rate of 92%. The selected price was reduced by 3.8% from the price reduction in the first round of collection. The price difference of the three-generation premix group with the largest price difference in the first round of collection was reduced from 2.3 times to 1.6 times, and the proportion of Class A selected products with lower prices increased from 40% in the previous round to 71%. The current centralized insulin procurement cycle began on the date of implementation of the selection results until the end of 2027, and the successive procurement results were implemented nationwide in May.
Profit forecasting and valuation
Keep profit forecasts unchanged. The current stock price corresponds to 5.5x/5.1x 2024/2025 P/E. The outperforming industry rating and target price of HK$10.5 remain unchanged, corresponding to 6.0x/5.7x 2024/2025 P/E, with 12% upside compared to the current stock price.
risks
R&D progress falls short of expectations, and there is a risk that intermediate prices will fall.