A pioneer in domestic biopharmaceuticals, the core products are growing steadily. Sansheng Pharmaceutical is a leading domestic biopharmaceutical company with rich experience in biomedical R&D, production and sales. The company currently has more than 30 types of products on the market. The core products include the world's only commercialized recombinant human thrombocytopoietin terbiao, recombinant human erythropoietin products (rhEPO) ibio and Cybor, the first monoclonal antibody TNF-α inhibitor marketed in China, and Mandi, the first non-prescription drug for hair loss in mainland China, while increasing revenue scale through strategic layout of the CDMO business.

In 2024, H1's performance grew rapidly, and the penetration rate of core products increased. According to the company's 2024 semi-annual report, the company's core product sales revenue was 2.476 billion yuan, up 22.6% year on year, mainly due to the continuous increase in clinical accreditation and continuous increase in sales volume. The market share in terms of sales reached 66%, and continued to rank first in the platelet raising drug market; the two erythropotropic drugs, Ibio and Cyborg, achieved revenue of 0.516 billion yuan in the first half of the year, up 11.3% year on year, with a market share of about 43% for EPO products; Yisaipu achieved revenue of 0.329 billion yuan in the first half of the year, an increase of 9.5% over the previous year, and continued to expand new dosage forms, while actively promoting entry into the basic drug catalogue and rural revitalization projects, and continued to sink at the grassroots level; Septin achieved revenue of 0.162 billion yuan in the first half of the year, an increase of 48.9% over the previous year. The accessibility of the drug continued to improve, and the number of entrants to hospitals continued to increase; Mandy achieved revenue of 0.55 billion yuan last year, up 10.0% year on year. (FAGA) The highest level of recommendation in the guidelines, 618GMV won first place in all Tmall Health OTC categories, and its market share continues to increase.

The company has outstanding R&D capabilities, and various reserve products are progressing smoothly. As of 2024H1, the company is developing 28 products, and R&D is progressing smoothly. Among them, Terbiao: CLDT Indication Phase III clinical trials have reached the end; SSS06:

The CKD anaemia indication NDA was accepted; Winlevi, an acne treatment; patients with acne vulgaris phase III bridged were enrolled; 608 (IL-17A antibody): phase III clinical work for moderate to severe psoriasis in adults was completed in 52 weeks, reaching the main end point. The company expects a number of products to be declared for NDA in the past three years. It is recommended to focus on Terbiao CLDT indications and the weight loss indications for the Smeglutide (GLP-1) program being approved.

The company has excellent market development and sales capabilities, and the core products are highly competitive. As of 2024H1, the company has a digital marketing team with nearly 3,000 experienced marketing and sales personnel, covering nearly 10,000 medical institutions and 3,000 tertiary hospitals. The company earlier laid out the big health field, and the core products each dominated the treatment segment. In terms of sales, Mandy's share of the minoxidil tincture market in China is as high as 72%, Terbiao's share of the thrombocytopenia treatment market in China is 66%, Ibio and Cybor's combined share of the RHPO market in China is 43%, and Exaipu's TNF-α market share in China is 22.7%.

The company's core product, Terbiao, is expected to grow steadily. In 2022, the Chinese Society of Clinical Oncology (CSCO) guidelines expanded the recommended treatment scope of terbiao from chemotherapy-induced thrombocytopenia (CIT) to thrombocytopenia (CTIT) due to tumor treatment. In 2023, Terbiao received the expert consensus recommendation for thrombocytopenia caused by sepsis and liver disease. In May 2024, the “Primary Liver Cancer Diagnosis and Treatment Guidelines (2024 Edition)” was released, and rHTPO is recommended for the treatment of chronic liver disease thrombocytopenia (CLDT). In July 2024, the Phase III clinical study of patients with chronic liver disease-related thrombocytopenia undergoing invasive surgery at the selected stage reached its intended primary end. In 2024 H1, the sales revenue of the company's core product, Tebiao, was 2.476 billion yuan, an increase of 22.6% over the previous year. The revenue growth rate in the past three years was over 20%. Thanks to the expansion of indications and increased penetration in the field of oncology, Terbi Australia is expected to maintain growth over the next 3 years.

The company established a larger health sector earlier, and hair growth products have been growing for a long time. As the first OTC minoxidil approved for marketing in China, Mandy (minoxidil tincture) has strong brand recognition in the domestic hair loss market. According to statistics from the Health and Health Commission, the number of people with hair loss in China in 2022 has exceeded 0.25 billion. According to the company's 2023 annual report, Mandy's penetration rate among people with hair loss in China is currently only about 3-4%. With the advancement of scientific hair growth market education and increasing awareness of drug treatment among people with hair loss, Mandy's penetration rate still has great potential to increase.

According to Frost & Sullivan's data, the market size of alopecia treatment and care products in China reached 106.9 billion yuan in 2021, and is expected to grow to 203.5 billion yuan by 2030, with a compound annual growth rate of over 7%.

The company adopted diversified online and offline sales strategies around Mandy. In 2023, Mandy's sales revenue increased 25.8% year-on-year to 1.12 billion yuan, and the CAGR reached 45.6% in 2019-2023. In January 2024, Mandy (5% minoxidil) foam was approved for marketing as an over-the-counter remedy for male pattern baldness and alopecia areata. Mandy foam has a higher transdermal rate and scalp accumulation rate, and is less well tolerated by the scalp, and continuous penetration is expected to be a better choice for hair loss patients. Mandy foam will be launched on various platforms in mid-2024, which is expected to further increase product market share and profit margins.

The new dermatology drug has entered phase III clinical trials and is expected to become a new growth point for the company. Winlevi (clacoterone cream) is the world's first marketed topical androgen receptor inhibitor for acne vulgaris patients aged 12 and above. It was approved by the FDA for marketing in November 2021, making it the first novel mechanism acne drug approved by the FDA in 40 years. In July 2022, the company signed a cooperation agreement with Cosmo to obtain the exclusive right to develop and commercialize Winlevi in Greater China. Acne vulgaris has a large base of patients. According to the “Guidelines for Primary Diagnosis and Treatment of Acne Vulgaris (2023)” issued by the Chinese Medical Association, acne vulgaris is common in adolescent men and women. The incidence rate among adolescents is as high as 93%, making it the eighth largest chronic disease in the world. By the end of June 2024, Winlevi continued to be the most prescribed acne medication in the US market. The Chinese phase III bridging clinical trial of the company's clacoterone cream to treat acne vulgaris began in May 2024. It is expected that the clacoterone cream is expected to submit an NDA application in 2025 and is expected to be approved for marketing in 2026, injecting new growth momentum into the company.

Investment advice: The company earlier deployed large health fields. Hair growth and dermatology products have a first-mover advantage, and the product system is mature in various advantageous fields such as oncology and nephrology. We expect the company to achieve operating income of 9.09 billion yuan, 10.251 billion yuan, 11.711 billion yuan, and net profit of 2.173 billion yuan, 2.443 billion yuan, and 2.727 billion yuan in 2024-2026. The PE multiples corresponding to the current stock price are 6.9X, 6.1X, and 5.5X, respectively, covered for the first time, giving a “gain” rating.

Risk warning: Prices of core product health insurance negotiations fluctuate, industry competition intensified, R&D progress fell short of expectations, and pharmaceutical industry policies fell short of expectations.