Midazolam upgraded to Class 1 spirit, maintaining purchase rating
On May 7, the State Drug Administration, the Ministry of Public Security, and the Health and Health Commission adjusted the psychotropic drug catalogue. Starting July 1, 24, midazolam raw materials and injections were adjusted from Class II to Class I psychotropic drugs. Other midazolam preparations are still Class II psychotropic drugs. We estimate that Envamidazolam injections have a revenue of 700+ billion yuan in 23 years, accounting for ~ 15% of revenue, which is an important single product for the company. We believe this upgrade further strengthens expectations that midazolam will not be collected. In 24, the company is expected to see high performance growth driven by the recovery of hospital-side diagnosis and treatment, the entry of controlled anesthesia into the release cycle, and the launch of new products. The company is expected to experience both an increase in performance and valuation.
We maintained the company's 24-26 EPS of 1.24/1.51/1.88, and the segmented valuation method maintained the target price of 34.53 yuan.
Class I mentality: There must be no more than 5 manufacturers of active ingredients and single-use formulations. According to the regulations of the former China Food and Drug Administration in '15, the control of narcotics/class psychotropic substances must not exceed 2 families or 5 household/5 or class psychotropic substances, respectively; in November '23, the Drug Administration re-issued a draft for comments, and the upper limit of active ingredients was adjusted to 3 home/5 or 10, and the upper limit for single-use preparations was not adjusted. Currently, the competitive pattern for midazolam is that 4 companies from Enhua+ Renfu+ Sinopharm + Fuan Pharmaceuticals have been evaluated, and the competitive pattern is quite good. In the “Six Provinces and Two Districts” collection led by Sichuan Province in January '21, midazolam, which was a Class II spirit at the time, was included in the catalogue and later removed. Currently, the necessary and insufficient conditions for national collection are over 5 companies.
We believe that upgrading midazolam to one category of spirit this time will further strengthen expectations that it will not be collected.
Recovery from diagnosis and treatment led to strong growth in the anesthesia line. We are optimistic that 24-26 results will accelerate Enhua's 1Q24 revenue by +15.2% yoy, and net profit to mother +16.6% yoy. It is still growing rapidly under a high base. Along with the continued release of TRV130, antaitane, and controlled anesthesia products (we expect TRV130 and Antitan to each contribute 100 million yuan in revenue in 24, and the 4 controlled anesthetics will increase from a total of 800 million yuan in 23 to 1.2+ billion yuan in 24). Looking ahead to 24 years, we believe the company is expected to benefit from hospital-level diagnosis and treatment recovery and high barriers to control the release of essential narcotics & Class 1 new drugs, and achieve ~ 20% revenue growth.
Research and development accelerates, and ocelidine fumarate and deuterphenazine tablets are expected to begin the harvest period for new products 1) Oxelidine fumarate (TRV130): μ-opioid agonist, approved for marketing at 5M23 and included in national health insurance at the end of 23. It is expected to co-resonate with the fentanyl series. We expect a peak of 2.0+ billion yuan; 2) Antitan (deuterphenazine tablets): 2M24 was introduced from Teva and included in national health insurance at the end of 2020, and we expect a peak of 1 billion yuan + billion yuan; 3) Early lactating pipeline Injectables (anesthetic sedation, etomide modification NH600001 , Phase 2 clinical completion in China), NHL35700 (anti-sperm, Chinese phase 2 clinical), NH102 (antidepressant, end of phase 1 clinical trial in China), YH1910-Z02 (antidepressant, end of phase 1 clinical trial in China), NH112 (antisperm, phase 1 clinical in China), NH130 (Parkinson, China Phase 1 clinical), and NH300231 (antisperm, phase 1 clinical in China) are progressing at an accelerated pace.
Risk warning: There is a risk that sales of core products purchased in volume will decline, and product development will fall short of expectations.