Core views
Livou Group released its 24-year report. The revenue side was under short-term pressure due to price cuts in the chemical sector; sales and R&D expenses continued to be optimized, the profit side maintained steady growth, and innovative drugs and high-end complex formulations continued to be realized, driving the company's high-quality long-term development. The company has successively introduced DHODH inhibitors in the anti-infective field, PDE5 inhibitors in the andrology field, and KCNQ2/3, a neuropsychiatric drug, to further enrich the product layout of innovative drugs, and the company's product richness continues to increase. We believe that in the future, the company will continue to increase its BD efforts, gradually implement innovation and transformation, and with the gradual recovery of domestic and foreign biomedical investment and financing, the company's performance is expected to recover steadily.
occurrences
On August 22, Pearl Group released its 24th mid-year report. In the first half of 2024, the company achieved revenue of 6.282 billion yuan, a year-on-year decrease of 6.09%, and net profit to mother of 1.171 billion yuan, an increase of 3.21% over the previous year, after deducting non-return net profit of 1.155 billion yuan, an increase of 5.65% over the previous year.
Brief review
The overall performance is in line with expectations, and the main business is diversifying and developing steadily
In the first half of 2024, the company achieved revenue of 6.282 billion yuan (+6.09%). Among them, diagnostic reagents performed well, and the chemical preparations and traditional Chinese medicine business were under pressure in the short term:
Revenue from chemical products was 3.224 billion yuan (-7.37%), revenue from biological products was 0.088 billion yuan (-22.80%), revenue from APIs and intermediates was 1.761 billion yuan (-1.16%), revenue from traditional Chinese medicine preparations was 0.745 billion yuan (-21.89%), and revenue from diagnostic reagents and equipment was 0.394 billion yuan (+32.33%). The company's fee control effect is remarkable. The short-term profit side continues to increase, overseas market layout and R&D investment have been strengthened, and the innovation pipeline continues to be realized.
Differentiated forward-looking layout of innovative drugs and complex formulations with high barriers. Innovative pipelines continue to implement triprarelin microspheres, which are expected to be approved 24H2; aripiprazole microspheres 1M have been submitted for approval in 25Q1, and are expected to be introduced into medical insurance, and dosage is expected to begin in '26; injectable tedizolamide phosphate, sodium magnesium sulfate, potassium, oral administration, progesterone injections have been declared for marketing; injectable leuprorelin acetate microspheres and paliperidone palmitate injections are undergoing BE JP-1366 testing; Tablets, HHT120 capsules, SG1001 tablets The agents have all entered clinical phase I; recombinant human follicle-stimulating hormone injections have completed phase III enrollment in March '24, and are expected to have 24Q3 readings and pre-BLA declarations; simeglutide diabetes indications have been reported; the recombinant human IL17A/F antibody head-to-head scoquiumab phase III enrollment continues to advance, and it is expected that phase III data will be read and submitted for NDA at 25H1. Featured innovative varieties are being realized, and several potentially large single products will continue to provide an increase in the company's performance.
The price reduction of iprazole is under pressure in the short term, and the diagnostic reagent performance is impressive. I am optimistic that the Chinese medicine sector's revenue will increase by 3.224 billion yuan (-7.37%) throughout the year, with gastrointestinal products revenue of 1.301 billion yuan (-20.0%). Injectables are expected to continue to improve through volume compensation throughout the year. Tablets+injections are expected to achieve single-digit growth; the revenue of gonadotropin products is 1.549 billion yuan (+12.5%), which is a low base of leuprorelin and high 24H1 shipments during the same period in 23 Subsequent national sales will need to absorb the low prices of Guangdong Joint Procurement, which is expected to achieve single-digit growth throughout the year.
The revenue of APIs and intermediates was 1.761 billion yuan (-1.16%). We are optimistic about the cost reduction brought about by improved production processes and the increase in profits brought about by the release of high-end pet drugs and antibiotics in future high-margin products. The diagnostic reagents and equipment segment generated revenue of 0.394 billion yuan (+32.33%), and the company seized the opportunity of influenza to reap significant growth. Revenue from traditional Chinese medicine formulations is 0.745 billion yuan (-21.9%), which is a high base of Shenqi Fuzheng and antiviral granules in the same period in '23. There was some pressure in 24. It is expected that the dosage of Shenqi Fuzheng injection will be further released after canceling the tumor restrictions on the medical insurance catalogue. It is expected that the traditional Chinese medicine sector will achieve low double-digit growth throughout the year.
Deepen the global layout, continue to increase BD efforts, build a new business growth engine. The company continues to increase BD efforts, strengthen the layout of innovative drugs, and actively promote the international transfer or cooperative development of self-developed varieties. BD work has made phased progress: variety licensing has been introduced, focusing on mid- and post-clinical projects with high market potential, strong innovation, and long patent protection periods. The company has successively introduced innovative DHODH inhibitors in the anti-infective field, innovative PDE5 inhibitors in the andrology field, and KCNQ2/3, an innovative neuropsychiatric drug, to further enrich the innovative drug product layout. While “introducing”, the BD team is also speeding up the pace of “going global” for its own projects, continuing to promote international cooperation and external licensing of the company's products and pipelines, actively exploring the “going overseas” of products, promoting simultaneous global development, and continuously exploring the international market. BD will be the company's focus in innovative research and development in the second half of 2024 or for a long time to come, incubate superior projects internally, seek additional opportunities from the outside, and strive to achieve independent R&D and BD two-wheel drive.
In the first half of 2024, the company's sales expenses were 1.74 billion yuan, a year-on-year decrease of 11.57%, mainly due to the reduction in the company's marketing and promotion expenses. Management expenses were 0.331 billion yuan, a year-on-year decrease of 6.43%. This was due to the company strengthening internal operation management, improving supply chain collaborative management capabilities, and reducing costs and increasing efficiency. R&D expenses were 0.491 billion yuan, a year-on-year decrease of 19.67%, mainly due to the reduction in the company's depreciation and amortization and outsourced R&D expenses. The gross profit margin was 65.96%, up 2.92% year on year; the net profit margin was 21.56%, up 25.13% year over year. Operating cash flow was 1.53 billion yuan, up 24.67% year on year. The company's financial indicators performed well, and the short-term profit side is expected to continue to increase.
Profit forecasts and investment advice
The main business of the Pearl Group is developing steadily, and it has long occupied a leading position in the field of assisted reproduction and digestion. It is expected that the long-term layout of innovative biopharmaceuticals+high-end complex formulations will continue to advance in the future. We expect the company's revenue for 2024-2026 to be 12.45 billion yuan, 12.82 billion yuan, and 13.41 billion yuan, and net profit to mother will be 2.16 billion yuan, 2.38 billion yuan, and 2.65 billion yuan respectively, corresponding to PE of 16, 15, and 13 times, maintaining a “buy” rating.
Risk analysis
Risk of uncertainty in new drug development: New drug development has the characteristics of long R&D cycle, high investment, high risk, and low success rate. From laboratory research to approval and marketing of new drugs, it is necessary to go through many complicated steps such as pre-clinical research, clinical trials, new drug registration and marketing, and after-sales supervision. Every step is at risk of loss.
Industry policy risks: Risks such as changes in research design requirements, price changes, volume procurement policy changes, and changes in the scope and ratio of medical insurance reimbursement due to industry policy adjustments.
Product price reduction risk: Pharmaceutical companies face the risk of drug price reduction due to intense market competition, especially under the influence of various industry policy factors such as medical insurance negotiations, tenders, and volume procurement.
Research and development falls short of expectations: In the development process of new drugs, from drug discovery, pre-clinical research, clinical trials to commercial marketing, there are not only problems that companies may face due to poor technology, procedures, etc., but also risks such as lack of timely communication with supervisors and non-compliance.
Risk of sales falling short of expectations: After the drug is marketed, it will be affected by possible risks such as the impact of the epidemic, insufficient logistics capacity, and insufficient production capacity during the sales process.
We also need to be wary of risks such as changes in core technical personnel and increased market competition.