1. Event

Weiming Pharmaceutical released its semi-annual report for 2016. the company's income was 551 million yuan (+ 71.74%), including 369 million yuan (+ 14.80%) from the biological pharmaceutical manufacturing industry and 183 million yuan from the chemical raw material and chemical products manufacturing industry. The net profit belonging to listed shareholders is 153 million (+ 75.18%), deducting 147 million (+ 69.57%). The increase in the company's performance was mainly due to the increase in the scope of the merger during the reporting period as a result of the completion of the reverse merger in September 2015, which increased the profits of the former Wanchang fine chemical products. Rat nerve growth factor is the company's main product, with revenue of 344 million yuan during the reporting period, accounting for 62% of revenue, an increase of 18.27% over the same period last year, slightly faster than expected. Affected by hospital terminal fee control, bidding price limit and other factors, the sales volume of interferon decreased to 25 million yuan, down 18.20% from the same period last year, and the gross profit margin was 44.82%, down 14.47% from the same period last year, which was lower than market expectations. The overall revenue of the fine chemicals sector shrank slightly compared with the same period last year, but the gross profit margin increased significantly, from 39.50% to 44.63%.

two。 Our analysis and judgment

(1) steady growth of rat nerve growth factor to ensure performance commitment

The sales volume of mouse nerve growth factor for injection is 344 million yuan in the first half of the year, which is the company's main product. The product trade name "Enjingfu", belongs to nerve injury repair drugs, mainly used in craniocerebral injury, stroke, spinal cord injury, children with cerebral palsy, optic nerve contusion and other nerve injuries. Enjing is the company's cash cow product, and the competition pattern is good. At present, there are only 4 enterprises competing, and the company is the earliest product to launch. According to the 2015 sample hospital data of the Southern Institute, Enjingfu's second market share in 2015 was 28.47%, second only to Shutaishen's 43%, higher than Haite's 24% and Lizhu Group's 4%. Enjingfu's growth rate in the first half of 2016 was slightly higher than expected, mainly due to: a. Enjingfu is mainly sold in first-tier cities and less than half of the second-tier cities, covering only more than 600 hospitals, leaving room for growth. During the reporting period, the company adopts differential regional marketing management strategy, focusing on key market investment and rapid investment in high-growth market to ensure the effective allocation of resources to the market; improve work flow, strengthen standardized sales management, standardize sales behavior, follow up process control, and establish a professional and efficient sales management system.

Interferon is a product that Tianjin Hualida was acquired by the company in 2014, the trade name is Anfulong, which has the dual effects of antivirus and immune regulation, and is widely used in clinic. it is often used in the treatment of acute and chronic toxic hepatitis (type B, C), malignant tumors (hairy cell leukemia, chronic myeloid leukemia, lymphoma, etc.), condyloma acuminatum, AIDS and other diseases. Tianjin Hualida (currently Tianjin Weiming) is the earliest bioengineering company engaged in the production and sales of interferon in China, and its market share ranked first in 2007. Since then, due to the intention of the original shareholders, Amsterdam Gadio Investment Company of the Netherlands and TEVA Pharmaceuticals of Israel, to withdraw from the field of biopharmaceuticals in China, sales have declined year by year, from the first market share to the fifth in 2013, with output of only 30 per cent of the designed capacity. After the unknown acquisition, the sales team and distribution network were rebuilt and optimized, and sales gradually rebounded. According to the data of the sample hospitals of the Southern Institute in 2015, Tianjin Weiming ranked fourth in terms of market share of 11%, lagging behind Huaxin Biology, Schering-Plough and Zhaoke Biology, and ahead of Anke Biology and Beijing Cain. Affected by policies such as bidding in the first half of this year, sales declined and capacity utilization was not high, resulting in a decline in both revenue and gross profit margin. The company participates in 26.91% Sinovac Biotech to carry out the strategic layout of preventive vaccine. Sinovac Biotech has an income of 385 million yuan and a net profit of 49 million yuan in 2015. his main products are hepatitis vaccines, including inactivated hepatitis A vaccine "Child Laifu" and hepatitis A combined vaccine "Beerlai", with a total income of 321 million yuan. The listing of new products is expected to promote Sinovac Biotech's performance growth. In May 2016, the inactivated enterovirus 71 vaccine (EV71 vaccine, trade name "Yilaifu") was officially put on the market, vaccinated to children aged 6 months to 3 years (encouraged to complete the vaccination before the age of 12 months), the basic immunization program is 2 doses, one month interval, for the prevention of severe hand, foot and mouth disease, belongs to the second class vaccine, the local terminal vaccination price in Beijing is 188 yuan per shot.

Hand, foot and mouth disease (HFMD) was included in the statutory report of Class C infectious diseases by the former Ministry of Health in 2008, which was mainly transmitted through air and feces. From 2008 to 2015, the average incidence of HFMD was 1.47 million, with 130000 severe cases reported and more than 3300 deaths. Among them, the incidence level of 1-year-old children is the highest, with an annual incidence of more than 30 million. The constituent ratios of EV71 in hand, foot and mouth cases with different severity, such as mild illness, severe disease and death, were 40%, 74% and 93%, respectively. The protective effect of EV71 vaccine against EV71-related hand, foot and mouth disease is more than 90%. The number of newborns in China is about 16 million every year, and the number of newborns is expected to rise to 20 million after the release of the second child. It is estimated that the vaccination rate of EV71 vaccine will reach 20% during the incubation period. In the long run, with reference to oral rotavirus and other vaccines, the vaccination rate of this product can reach about 50%. At present, the product is in a good competitive situation, with only two companies on the market, namely, the Institute of Medical Biology of the Chinese Academy of Medical Sciences (Kunming Institute) and Sinovac Biotech; and the EV71 vaccine developed by the Institute of Chinese Medicine Zhongsheng Biotechnology Research Institute (Beijing Weigu) and Wuhan Biological products Research Institute completed phase Ⅲ clinical trials in 2013. We predict that the annual sales of Hexing's EV71 vaccine is more than 1 million doses, corresponding to the company's income of more than 100 million; the peak sales are about 5 million doses, corresponding to the company's income of 500 million yuan; Hexing has a production capacity of 20 million doses, which can meet the terminal demand.

Sinovac Biotech lost 34.04 million yuan in the first half of 2016, mainly affected by the vaccine incident in Shandong since March. Since the fermentation of media and public opinion has had a significant impact on China's vaccine industry, resulting in a significant decline in the number of outpatients at vaccination sites, the state has also filed a case in the CDC system to investigate hundreds of people, changing vaccine circulation rules and bringing the whole industry down to a freezing point. We believe that vaccine products are in rigid demand, and the impact is gradually digested in the first half of this year. Grass-roots research shows that 60-70% of the terminal vaccination population has recovered, and it is expected to return to the normal level in the second half of the year. The company submitted a privatization offer to Sinovac Biotech in February 2016, and the currently unnamed buyer group has reached a consensus with Yin Weidong, general manager of Sinopec, on privatization, and the specific privatization plan, pace and timing are still uncertain.

The promised net profit of non-return in 2016 and 2017 is 302 million yuan and 368 million yuan, respectively. It is expected that the steady growth of rat nerve growth factor, the restoration of interferon marketing channels and the listing of new EV71 products are expected to ensure that the company achieves the performance commitment target.

(2) long-term layout of monoclonal antibodies and insulin

The McAb and insulin businesses are currently incubated in subsidiaries of the group, in Weiming in Anhui and Weiming in Jiangsu. In the reverse takeover of Wanchang Technology, the Group promised to build Weiming Pharmaceutical into the only listing platform of Weiming Group in the pharmaceutical field, which will be injected into listed companies after the products are listed in the future. The specific conditions for injection are as follows: once Anhui Weiming and Jiangsu Weiming have obtained the necessary approval documents for the establishment, environmental assessment, land use, planning and construction of its pharmaceutical production project, and obtained the drug production license, GMP certification and drug production approval documents, and the products are actually produced and can be sold to the outside world, after the audit of the accountant qualified for securities practice hired by the listed company confirms that it has begun to make a profit. The listed company shall have the right to immediately initiate the acquisition of Anhui unknown equity and Jiangsu unknown equity held by Weiming Group, the acquisition price shall be determined on the basis of the evaluation value determined after the evaluation of the relevant equity by an evaluation institution qualified for securities practice hired by the listed company. The evaluation method adopted by the evaluation institution for the asset evaluation of Jiangsu unknown name shall be the same as that used by Weiming Biopharmaceutical Co., Ltd. when transferring Jiangsu unknown shares to unknown groups in July 2014 to determine the transaction price, or use an evaluation method approved by both parties and in line with the requirements of the relevant legal and regulatory authorities.

Anhui Weiming (Anhui Weiming Biopharmaceutical Co., Ltd.) was established in August 2014 in Hefei Bantang Bio-economic Experimental Zone, with the goal of building the world's leading antibody drug R & D and production base. At present, Anhui Weiming has purchased four kinds of antibody drugs, of which 3 were purchased from Zhangjiang Bio, which are recombinant anti-CD25 human-mouse chimeric monoclonal antibody injection (obtaining new drug certificate), recombinant anti-CD52 humanized monoclonal antibody injection (completion of clinical phase 2), recombinant anti-CD3 humanized monoclonal antibody injection (clinical phase 1). In addition, Adamumab has completed clinical evaluation. The company also has 6 clinical approval products. In terms of foreign cooperation, Anhui Weiming has signed a strategic cooperation agreement with BioAtla, one of the world's leading antibody drug research and development institutions, and has become the company's only partner for the fourth generation antibody drugs in Greater China, focusing on the development of the company's fourth generation antibody drug technology platform-conditional active biological agents (CAB) platform. Two fourth-generation antibody drug projects of anti-AXL antibody (treatment of lung and breast cancer) and anti-LAG-3 antibody (immune checkpoint inhibition) under CAB platform have been launched. Anhui Weiming also cooperated with many research institutions, including China University of Science and Technology and Nanjing Medical University, to continue to develop targets, discovery and new drug development on the basis of the existing coupling drugs of LUNX McAb, EpCAM Monoclonal Antibody, Trop-2 Antibody and Cmae Metadriamycin Antibody.

Jiangsu Weiming (Jiangsu Weiming Biopharmaceutical Co., Ltd.), controlled by 51% of Weiming Group, was established in August 2012 in Changzhou, Jiangsu Province, based on the research and development of new biological drugs. a high-tech pharmaceutical company that produces and sells recombinant human insulin and its analogues. The company is committed to building the largest insulin enterprise by relying on the core technology, and the design production line can produce 500kg of recombinant human insulin and 1000 million pieces of human insulin injection. There are also 1500 square meters of quality control, pilot workshop and R & D laboratory.

At present, the raw material drug of insulin has been sold, and the preparation will be sold domestically in the future.

3. Performance forecast

It is estimated that the EPS from 2016 to 2018 will be 0.67,0.82 and 1.01 yuan respectively. The company is ambitious, with rat nerve growth factor and other biological drugs and fine chemical products as the main source of income, building dream creatures, monoclonal antibodies and insulin for a long time. We are optimistic about the strategic layout, variety selection and R & D capabilities of the company, as well as the vision and resource endowment of Chairman Pan Aihua, and believe that the company is expected to grow into a leading biomedical company in China.

4. Risk hint

The impact of hospital bidding and price reduction on interferon sales, vaccine channels did not straighten out the impact on sales.