Core views

In the first three quarters of 2024, the company's revenue was 1.04 billion yuan, up 22.38% year on year; net profit to mother was 0.217 billion yuan, up 12.03% year on year; net profit after deducting non-return to mother was 0.168 billion yuan, up 14.92% year on year. The company's R&D pipeline achieved excellent results in the first three quarters of 2024. A total of 10 new pharmaceutical products were approved, and in the third quarter, an analgesic EP-0153 injection and two types of improved new drugs, EP-0170T, were declared clinically. Follow-up attention can be paid: (1) 3 pharmaceutical products are expected to be approved in the fourth quarter (potassium citrate sustained-release tablets, bumetanib injections, and rucotinib tablets); (2) International commercial progress and approval promotion of generic drugs such as nalmefene and methylene blue; (3) Other products such as anesthetics Pipeline progress.

occurrences

Recently, Yuandong Biotech released its 2024 three-quarter report.

In the first three quarters of 2024, the company's revenue was 1.04 billion yuan, up 22.38% year on year; net profit to mother was 0.217 billion yuan, up 12.03% year on year; net profit after deducting non-return to mother was 0.168 billion yuan, up 14.92% year on year; and calculated equity incentive expenses were 10.1158 million yuan. Excluding the impact of equity incentive expenses on return to mother and net profit after deducting non-net profit, increased by 47.25% and 21.85% respectively.

In the third quarter of 2024, the company's revenue was 0.37 billion yuan, up 25.81% year on year; net profit to mother was 0.071 billion yuan, up 13.40% year on year; net profit after deducting non-return to mother was 0.054 billion yuan, up 16.72% year on year; accrued equity incentive expenses were 6.834 million yuan, excluding the impact of equity incentive expenses on return to mother and net profit after deducting non-net profit, which increased 24.39% and 31.46% respectively.

The company has a reserve of more than 80 research projects, with major products in the field of anesthesia and analgesia, chronic diseases, etc., and the domestic formulation pipeline is constantly being enriched. Seven special narcotic formulations are under review. Since the beginning of the year, 10 new domestic formulations have been approved, and a total of 13 have been reported for production. Currently, CDE is reviewing 23.

Brief review

1. The performance was in line with expectations. The sales performance of products in key areas was impressive. In the first three quarters of 2024, the company's revenue was 1.04 billion yuan, up 22.38% year on year; net profit to mother was 0.217 billion yuan, up 12.03% year on year; net profit after deducting non-return to mother was 0.168 billion yuan, up 14.92% year on year; calculated equity incentive expenses were 10.1158 million yuan, excluding the impact of equity incentive expenses, and net profit increased by 47.25% and 21.85% respectively.

In the third quarter of 2024, the company's revenue was 0.37 billion yuan, up 25.81% year on year; net profit to mother was 0.071 billion yuan, up 13.40% year on year; net profit after deducting non-return to mother was 0.054 billion yuan, up 16.72% year on year; accrued equity incentive expenses were 6.834 million yuan, excluding the impact of equity incentive expenses on return to mother and net profit after deducting non-net profit, which increased 24.39% and 31.46% respectively.

In the first three quarters of 2024, sales performance of major products in key disease areas increased steadily. Sales revenue of 0.38 billion yuan was achieved in the field of anesthesia and analgesia, up 32% year on year, mainly due to the fact that stock products remained stable, and phenylephrine, etc. were in a rapid growth phase; the cardiovascular sector achieved sales revenue of 0.34 billion, an increase of 20% year over year, mainly due to the increase in stock products bisoprolol amlodipine tablets, bicardipine sulfate tablets, and the new product nicardipine hydrochloride injection.

In terms of R&D, the company continues to maintain a high proportion of R&D investment. In the first three quarters of 2024, R&D investment was 0.206 billion yuan, up 19.76% year on year, accounting for 19.84% of revenue, of which costed R&D investment was 0.188 billion yuan, up 11.47% year on year, with R&D expenses of 18.09%; in the third quarter of 2024, R&D investment was 0.084 billion yuan, up 33.73% year on year, accounting for 22.68% of revenue, mainly due to an increase in trial and clinical research expenses during the reporting period, of which 0.079 was spent on costed R&D billion yuan, a year-on-year increase of 27.68%, R&D expenditure ratio 21.38%. The ratio of R&D investment to revenue for the whole year is expected to remain the same as in the previous three quarters, at around 20%. A high proportion of R&D investment will lay a solid foundation for achieving breakthroughs in product pipelines, technological innovation, internationalization, and refined hemp.

2. The domestic formulation product matrix continues to be rich. Since 2024, the company's domestic formulation has been approved for a total of 10 new products, and a total of 13 products have been reported for production. Currently, CDE is reviewing 23 products. It is expected that 3 more formulation products will be approved in the fourth quarter, including potassium citrate sustained-release tablets, bumetanib injections, and lucotinib tablets. In the future, the company is expected to have multiple approved products every year, and the domestic formulation product matrix will continue to be enriched, which will bring continuous performance growth to the company.

At the same time, domestic pharmaceutical product entry and terminal coverage are progressing steadily. In 2024, the new products nabufin hydrochloride injection, butorphine tartrate injection, and bisoprolol amlodipine tablets have been registered in all provinces and cities across the country. Among them, butorphinol tartrate injections and bisoprolol amlodipine tablets have been shipped and sold, and naburpine hydrochloride injections have covered nearly 100 terminals.

In addition, the company's main products bisoprolol fumarate tablets, ibuprofen injections, and nicardipine hydrochloride injections were also selected by the Henan 17 Provincial League, which is expected to bring new increases next year.

The company focuses on developing specialty narcotic drugs with policy barriers and high-end complex formulations with technical barriers, and focuses on 2 types of improved new drug nasal spray products. At present, the company has accumulated nearly 30 specialty drug approvals, including 7 refined narcotics preparations in the review stage, including aminophenol oxycodone sustained-release tablets, rimazolam benzenesulfonate tablets, oxazepam tablets, ephedrine hydrochloride injections, pirampanid tablets, nafurafine hydrochloride oral tablets, and midazolam oral liquid; at the same time, there are 11 products under development, mainly focusing on the development of new compound formulations (reducing addiction and improving efficacy and safety), and innovative dosage forms (such as oral controlled release formulations) Development of oral solutions, nasal spray preparations) and development of anesthesia-related products are carried out in three directions. The company has nearly 20 pharmaceutical devices and clinical-stage refined narcotics and high-end complex preparations before declaration.

3. The API and CMO sector collaborated to develop integrated formulations. Companies with large growth potential began introducing professional teams to build the API sector in 2023. While collaborating with the integrated development of formulations, they continued to increase domestic and foreign market expansion to promote rapid growth in the APIs and CMO sector.

In the first three quarters of 2024, the APIs and CMO sector achieved revenue of 0.134 billion yuan, an increase of 62% year on year; of these, APIs achieved operating income of 89.47 million, an increase of 37% year on year; the CMO/CDMO business achieved revenue of 44.74 million, an increase of 155.78% year on year. Based on the company's current reserves of customers and orders, the sector has great potential for subsequent growth, and the compound growth rate is expected to reach more than 30% in the future.

4. A breakthrough has been achieved in the internationalization of formulations. The acceleration of commercialization is worth looking forward to the confirmation and breakthrough of revenue from the internationalization of the company's formulations in the third quarter of 2024, and the company's internationalized product pipeline will be further enriched. In September 2024, the Simplified New Drug Application (ANDA) for nicardipine hydrochloride injection was officially approved. The indication is for short-term treatment of hypertension when oral administration is not possible. It is expected that 1-2 batches will be sold in the fourth quarter. Nicardipine hydrochloride injection is the company's second product to be prepared overseas. The raw materials for nicardipine hydrochloride from the subsidiary Aoki Pharmaceutical have also completed US DMF registration. The company has integrated raw materials and formulations in this product, which has a cost advantage. Furthermore, the ANDA application for naloxone hydrochloride nasal spray was submitted on schedule at the end of September and was officially accepted by the FDA, and commercialization is progressing steadily.

In 2024, the international development of the company's formulations began, achieving a breakthrough in commercialization. Recently, agents were switched for nalmefene hydrochloride injections to strengthen customer expansion and matching work, improve R&D conversion efficiency, and increase the speed of commercialization.

5. Establishing a core technology platform to promote R&D and industrialization of innovative drugs and high-end generic drugs. Relying on continuous technological innovation, companies have gradually established leading domestic R&D technology and industrialization platforms that meet international standards, established key technology platforms such as drug crystallization technology platforms, slow controlled release technology platforms, specialty drug technology platforms, innovative drug technology platforms, nasal spray technology platforms, and innovative drug structure design, synthesis and evaluation integrated technology, controlled release and delayed release technology, nasal spray formulation technology, preparation process design and lean control technology6 A broad range of core technologies.

In September 2024, fluvoxamine maleate tablets and procaterol hydrochloride oral solution obtained drug registration certificates one after another, further enriching the company's generic drug product pipeline. The company concentrates resources to build a technology platform, and uses the advantages of the technology platform to create high-end products such as nasal spray preparations, controlled release preparations, and long-term injections. In the future, the international sector will also focus on high-end products such as nasal spray preparations. The company's high-end generic drug projects focus on narcotics and analgesia, cardiovascular and chronic diseases such as tumors and diabetes, focusing on high-end formulations with technical barriers and products with policy barriers, which have a competitive advantage.

At the same time, the company continues to invest in the field of innovative drugs, focusing on steady progress in the fields of anesthesia, analgesia and oncology. The company's self-developed clinical trial of the new chemical class 1 drug eugletine tablets has obtained clinical reports and achieved the expected goals; the new biological drug EP-9001A monoclonal antibody injection is undergoing phase IB/II clinical trials; the IND application for 2 small molecule innovative drugs EP-0108 capsules and EP-0146 tablets has obtained implied clinical approval.

In terms of research and development of improved new drugs, morphine sulfate and naltrexone hydrochloride sustained-release capsules are undergoing clinical research, and the hydrated chloraldehyde oral solution has been declared for production; the marketing license for aminophenol oxycodone sustained-release tablets has been accepted, and the company is the first company in China to apply for marketing license for this product and be accepted.

The company also has a number of large and small molecule innovative drugs in the fields of anesthesia, analgesia, and antitumor in the preclinical research stage. In the third quarter of 2024, the company added the analgesic EP-0153 injection and the hypertension compound formulation EP-0170T, two new Class 2 improved drugs for clinical use.

6. Financial analysis: Revenue and profit were gradually recovered, and the sales expense ratio continued to optimize revenue and profit. In the first three quarters of 2024, the company's operating income was 1.04 billion yuan, up 22.38% year on year; net profit from non-return to mother was 0.217 billion yuan, up 12.03% year on year; net profit without return to mother was 0.168 billion yuan, up 14.92% year on year; calculated equity incentive expenses were 10.1158 million yuan, excluding equity incentive expenses, and the impact of deducted non-net profit increased by 47.25 million yuan, respectively % and 21.85%. In the third quarter of 2024, the company's revenue was 0.37 billion yuan, up 25.81% year on year; net profit to mother was 0.071 billion yuan, up 13.40% year on year; net profit after deducting non-return to mother was 0.054 billion yuan, up 16.72% year on year; accrued equity incentive expenses were 6.834 million yuan, excluding the impact of equity incentive expenses on return to mother and net profit after deducting non-net profit, which increased 24.39% and 31.46% respectively.

In terms of expenses, in the first three quarters of 2024, the company's sales expenses were 0.354 billion yuan, up 23.25% year on year, sales expense ratio was 34.03%, up 0.24pp year on year; management expenses were 0.073 billion yuan, up 1.60% year on year, management expense ratio 7.03%, down 1.44pp year on year, mainly due to reduced depreciation costs of idle production capacity; R&D expenses were 0.188 billion yuan, up 11.47% year on year, and R&D expenses rate 18.09%, down 1.77pp year on year .

In the third quarter of 2024, the company's sales expenses were 0.117 billion yuan, up 21.44% year on year, sales expense ratio was 31.67%, down 1.14pp; management expenses were 0.03 billion yuan, up 22.51% year on year, management expense ratio was 7.99%, down 0.22pp year on year; R&D expenses were 0.079 billion yuan, up 27.68% year on year, and R&D expenses increased by 21.38% year on year, up 0.31 pp year on year.

7. Recent company-related catalysts

(1) Red prescription products, marpine sulfate/naltrexone hydrochloride extended-release capsules, are entering and cleaning up phase III clinical data and are expected to be reported in Q4 in 2024; other red prescription products under development are expected to be approved one after another in 2027; and special drug approval for the other 2 anti-abuse products are expected to be clinically declared in 2025.

(2) International segment. Nicardipine hydrochloride injections and methylene blue injections are expected to achieve sales volume in 2025-2026; and nalmefene hydrochloride injections have completed agent switching, and sales will be achieved in 2025. In addition, naloxone nasal spray forms and nalmefene nasal spray forms will also be manufactured and marketed in the US.

(3) Three pharmaceutical products, potassium citrate extended-release tablets, bumetanib injections, and rucotinib tablets are expected to be approved in the fourth quarter of 2024.

8. Company profit forecast and valuation

The main source and reason for the increase in the company's growth rate: (1) 6 products were included in the 10th batch collection catalogue, including the stock products naloxone injections and sugenglucose injections. In the basic business, bisoprolol and ibuprofen were renewed in the Henan Provincial Alliance collection, which had a positive impact on the company's operations.

(2) Based on steady stock business in 2024, incremental products such as naloxone injections, phenylephrine hydrochloride injections, nicardipine hydrochloride injections, reguaglinide metformin, butorphine, nalbuphine, etc., are expected to drive growth; (3) 2025-2026, based on stock business, refining products, aminophenol oxycodone sustained-release tablets, morphine hydrochloride, naltrexone hydrochloride sustained-release capsules, and overseas business, naloxone, methylene blue, cyanocobalamin, etc. are being marketed and released one after another, and are expected to maintain a relatively steady growth rate and form a second growth rate curve.

Based on the above reasons, we assume that in 2024, 2025, and 2026, the revenue growth rate of the company's pharmaceutical sales business will be 23%, 27%, and 30%, respectively, the company's API sales revenue will maintain a 28% growth rate, and the CMO/CDMO business and technical service business will maintain a 25% growth rate. Therefore, we expect the company's revenue in 2024, 2025, and 2026 to be 1.342 billion yuan, 1.637 billion yuan, and 2.013 billion yuan respectively. Of 22.00% and 23.00%, net profit attributable to mother was 0.269 billion yuan, 0.342 billion yuan, and 0.45 billion yuan, respectively, corresponding growth rates of 18.54%, 27.15%, and 31.66%.