On February 3, Lee's Pharmaceutical Company (0950.HK) announced that the antiviral drug You Jingan® (recombinant human interferon α2b gel) has become an emergency strategic material for epidemic prevention and control. The company's stock price will open at HK$11 the next day, an increase of 158.82%.

Chart 1: Summary of company announcements

Data source: Company announcements, compiled by Gelonhui

Recombinant human interferon: classified as a novel coronavirus pneumonia prevention drug

On January 28, the Chinese Center for Disease Prevention and Control announced the fourth edition of the “Novel Coronavirus Pneumonia Diagnosis and Treatment Plan”. In the antiviral treatment, alpha-interferon nebulization inhalation can be tested.

Chart 2: Excerpt from the “Novel Coronavirus Pneumonia Diagnosis and Treatment Plan (Trial Fourth Edition)”

Data source: China Center for Disease Prevention and Control, compiled by Gelonghui

Interferon has a broad spectrum of antiviral efficacy, and recombinant human interferon was once the preferred medication regimen for viral hepatitis. Prior to the COVID-19 pandemic, it had already been used in the treatment of respiratory viral infections.

Interferon is one of the mechanisms of the human immune system to fight viral infections. It can inhibit the proliferation of viruses by inducing cells to synthesize antiviral proteins, and is a broad-spectrum antiviral drug. Recombinant human interferons were once the treatment of choice for hepatitis B and hepatitis C, but now they have been replaced by nucleoside analogues. Only long-acting interferons are still used in the treatment of viral hepatitis.

While recombinant human interferons have gradually withdrawn from the field of treatment of viral hepatitis, they have also developed a new field of treatment for respiratory viral infections. Although no indications have been approved yet, the “Expert Consensus on Rational Clinical Application of Alpha-Interferon in Pediatrics” was issued in September 2018, recommending interferon nebulized inhalation or injection to treat pediatric viral pneumonia, pediatric herpetic angina, paediatric hand, foot and mouth disease, pediatric EBV infectious-related diseases, and hepatitis B and hepatitis C in children. Interferons are also included in the treatment plan in the “Hand, Foot and Mouth Disease Diagnosis and Treatment Guidelines (2018 Edition)”.

You Jingan®: Exclusive gel, with a daily production of 60,000 tablets to ensure supply

Judging from the genetic sequence, the novel coronavirus is similar to SARS, with 85% homology. It is mainly spread through close contact, droplets, etc. Placing a barrier on people's hands and nostrils is an effective way to prevent the novel coronavirus pneumonia, so applying this gel to the skin and inside of the nose can effectively prevent contact with the virus.

You Jingan® (recombinant human interferon α2b gel) independently developed by Lee's Pharmaceutical Co., Ltd. was launched as early as 2001. It is currently the only recombinant human interferon that does not require refrigeration and is easy to carry. The recombinant human interferon α2b gel has a good transdermal absorption function. After applying the gel to the inside of the nose, a high concentration can be concentrated in the nasal mucosa for a short period of time, effectively setting up the first barrier for airborne transmission of the novel coronavirus to prevent it from entering the respiratory tract. At the same time, applying to lips and exposed skin can also reduce infections due to exposure to the virus. As a broad-spectrum antiviral substance, “recombinant human interferon alpha-2b gel” can improve local immunity and effectively inhibit viruses.

According to the announcement, interferon is included in the protection guidelines issued by the Chinese Center for Disease Prevention and Prevention, and has also become a treatment drug for the health commissions in Wuhan, Shanghai and other places. Meanwhile, You Jing'an® was included in the “Catalogue of Emergency Goods Manufacturers in Anhui Province” and the “Key Material Security Information Monitoring Platform of the Ministry of Industry and Information Technology” by the Anhui Provincial Department of Economy and Information Technology, and has become one of the epidemic prevention and emergency strategic materials.

After becoming an epidemic prevention and emergency strategic material, Lee's Pharmaceutical Co., Ltd.-Zhaoke Hefei is investing in You Jing'an® at the fastest speedThe production of products is at work, 60000 per dayMake every effort to ensure the output of the branch to ensure You Jingan®The supply quantity of products contributed to winning the epidemic prevention and control sniper war.

What is the impact on the performance of Lee's Pharmaceuticals?

So, after being “named” for use as an epidemic prevention product this time, what impact will it have on the performance of Lee's Pharmaceuticals?

Judging from the company's performance in the past, as the company's core product, Jingan®The year-on-year growth rate of operating income has increased rapidly in the past three years. After being classified as a drug to prevent the novel coronavirus pneumonia, it is expected to be effective in 2020Annual performance growth has been driven to a certain extent.

Specifically, in terms of product structure, Jingan® accounts for a relatively large share of the company's main business revenue. According to the 2018 report data, the company's main products, and main revenue sources, include the following six types: own products (You Jingan®, Limaiqing®, Sulejuan®) and imported products (Keineng®, Fippley®, and Zaining Ping®). The six main products accounted for 93% of the company's sales revenue, of which you Jingan® accounted for 10% of the company's total main business revenue.

In terms of individual product revenue, the operating income of You Jingan® has gradually picked up, with rapid growth in the past three years. From 2013 to 2018, the year-on-year revenue growth rates of You Jingan® were 45%, 31.1%, 24%, 9.3%, 5.4%, and 22.8%, respectively, with a compound annual growth rate of 14.89%. However, in the latest financial report for the third quarter of 2019, no specific sales amount was announced, but the year-on-year increase was 29.7% compared to the third quarter of 2018.

Considering the sharp increase in market demand during the pandemic, the company worked overtime to produce 60,000 bottles of You Jing'an® every day. Considering the stocking needs of various hospitals, the current procurement volume will exceed the number of patients. If all of the interferons produced by the company at full capacity are sold, it will have a certain impact on the company's performance growth in 2020.

Chart 3: You Jingan®'s operating income from 2013 to the third quarter of 2019

Data source: WIND, compiled by Gronghui

Summarize

As of 19:00 on February 4, 2020, 20,522 cases of the novel coronavirus, 23,214 suspected cases, 426 deaths, and 725 cured patients have been confirmed nationwide. Behind these 725 cured patients, it is a reflection of the struggles of countless angels in white and the hard work of researchers.

Interferons have been included in the protection guidelines issued by the Chinese Center for Disease Prevention. Among them, the only recombinant human interferon that does not require refrigeration and is easy to carry, you can carry, has become one of the epidemic prevention and emergency strategic materials. The pharmaceutical company behind it is Zhaoke Pharmaceutical (Hefei) Co., Ltd., a wholly owned subsidiary of Lee's Pharmaceutical Co., Ltd., which was developed independently. Judging from past performance, You Jingan® is its core product. The performance growth rate has remained above 2 digits in the past 6 years, with a year-on-year increase of 29.7% in the third quarter of last year. In the future, the company's performance may benefit from product promotion as demand grows during the pandemic.