Incidents: 1) The company released its 2022 annual report and achieved revenue of 770 million yuan (+259.5%) in 2022; the company's adjusted net loss narrowed sharply to 100 million yuan from 260 million yuan in 2021; cash and cash equivalents were 2.24 billion yuan. 2) On March 24, 2022, the company announced that it had reached an exclusive strategic cooperation with Medici Health to jointly promote the registration, distribution and marketing of Gong Securities Qing in Hong Kong, China. Gong Zengqing's retail price in Hong Kong was 900 HKD/unit.
The 2022 performance exceeded expectations, and Chang Weiqing made a big splash. Looking at performance by product, in 2022, Chang Weiqing achieved revenue of 360 million yuan (+266.2%), achieved annual shipping volume of about 860,000 units (+21%), and confirmed revenue of about 361,000 units (+150%); Pu Pu Tube achieved revenue of 200 million yuan (+73.7%), with annual shipments exceeding 7.963 million boxes (+37%); Youyou Tube achieved revenue of 210 million yuan (approved for listing in January 2022), with annual shipments exceeding 3,551 million boxes. Furthermore, Chang Weiqing went on sale to the Hong Kong market in June 2022, and achieved revenue of 600,000 yuan in the international market in 2022. We believe that the current market penetration rate of Chang Weiqing, Pu Pu Guan, and You You Tube is low. With the expansion of the sales team, the strengthening of multi-channel strategic cooperation, and the continued deepening of market education, future performance is expected to continue to rise.
The gross margin has increased dramatically, and the expense ratio has dropped significantly. Gross margin increased significantly in 2022, achieving gross profit of 650 million yuan (+318%), and gross margin increased to 84.5% (+11.8pp). Looking at gross margin by product, Chang Weiqing's gross margin in 2022 was 83.4% (+7.4 pp); the gross margin of Pu Pu Tube was 82.1% (+10.6pp); and Yu Yu's gross margin was 90.7%. Expense rates declined significantly in 2022, where the sales rate was 70.5% (-55.4 pp); the R&D fee rate was 11.5% (-14.3 pp); and the management rate was 14.8% (-28.9 pp). With the release of Chang Wei Qingping's high unit price clinical channel and DTC channel, the average factory price is expected to increase further, and the increase in sales has further strengthened the scale effect of production and testing, reduced the cost of a single test, and gross margin is expected to increase further in the future. Furthermore, upfront investment in marketing and team building is gradually beginning to be realized, and sales rates are expected to continue to decline as revenue increases. The company's net loss is expected to narrow at an accelerated pace in 2023, and the break-even target will be achieved by 2024.
Accelerate commercialization and launch international marketing. By the end of 2022, the company's clinical sales numbers had expanded to more than 450 people, completed the admission and sales of more than 1,000 hospitals, and established a strong relationship network between KOLs and physicians. 2022 was a landmark year for Novartis Health's internationalization. Chang Weiqing and You Tube entered overseas markets in June 2022 and January 2023.
The foundation for research and development pipelines has been steadily built to fuel long-term development. The company has now publicly disclosed 4 research pipelines, namely Gong Zhengqing, Xian Zhengqing, Yi Biqing, and PANDA. 1) Gong Zhengqing: In June 2022, Gong Zhengqing began a registration test and recruited the first test subject in November 2022. It is expected that the trial will be completed and the research data published in 2026. In February 2023, Gong Zengqing obtained CE certification and met the requirements to apply for listing approval in Hong Kong and the Greater Bay Area. In March 2023, they joined forces with Medical Think Health to jointly promote the listing of Gong Zengqing in Hong Kong.
2) Glycoside Verification: It is currently in the late development stage, and it is planned to start a forward-looking multi-center clinical trial of glycoside certification in 2023. 3) Yi Biqing: It plans to conduct a series of clinical studies after finalizing the case in June 2023, with the aim of starting registration trials in June 2024, and then obtaining approval from the National Drug Administration and the new drug marketing application in June 2025. 4) PANDA: In November 2022, the “PANDA Project”, a clinical program for early detection of pan-cancer types for more than 22 types of cancer, was launched in China, and aims to complete the project within at least six years. The total investment is expected to exceed RMB 200 million, and 50,000 test subjects will be recruited.
Profit forecast: Considering that the industry is in a period of rapid development and the obvious advantages of commercializing the company's products, revenue for 2023-2025 is estimated to be 14.6/26.3/3.89 billion yuan respectively, with a growth rate of 91.2%/79.6%/48% respectively. The break-even point is expected to be reached in 2024.
Risk warning: R&D and commercialization fall short of expectations; market competition increases risk; risk of policy change; risk of continued loss.