Recently, a secret document from the General Office of the National Development and Reform Commission called the “Draft for Solicitation of Comments on the Implementation Plan to Support the Development of Innovative Drugs in the Whole Chain” made waves in the market. The document elevates the development of innovative drugs to the level of a national strategy. It sees it as the key to promoting new quality productivity and seizing the high ground of the pharmaceutical industry, and is closely linked to the country's innovation-driven development, manufacturing power, and healthy China.
It not only highlights the importance the government attaches to pharmaceutical innovation, but also marks the establishment of the bottom of pharmaceutical industry policy.
At the same time, changes in the external macroeconomic environment have also brought new opportunities to the pharmaceutical sector. With the possibility of a cycle of interest rate cuts, the pharmaceutical sector, which has been suppressed by interest rates for a long time, is expected to usher in a turning point. The Hong Kong stock market, as a value depression, brings together many internationally competitive pharmaceutical companies, especially in the field of innovative pharmaceuticals, and is expected to be the first to benefit.
Against this backdrop, Sansheng Pharmaceutical, an established innovative pharmaceutical company, is particularly remarkable. Compared with many biomedical companies that have not yet achieved profits and still require external blood transfusions, Sansheng Pharmaceutical has shown strong self-hematopoietic capabilities with a revenue scale of nearly 8 billion dollars, continuous operating profit of 1.6 billion dollars, and abundant operating cash flow. This kind of financial performance deserves more attention from investors.
Core products help performance return to high growth
In 2023, the company's revenue reached 7.82 billion yuan, up 13.8% year on year; gross profit reached 6.64 billion yuan, up 17.1% year on year; adjusted operating net profit to mother reached 1.95 billion yuan, up 17.7% year on year.
In terms of profitability, the company's gross margin increased further to 85% in 2023, reaching the best level in history; the company's net interest rate declined slightly, mainly due to increased investment in sales expenses and a decrease in other revenue compared to last year; the overall cost ratio was relatively stable; under the less ideal financing environment, the company's balance ratio was only 30%, and liquidity was still very sufficient.
Source: Compiling from the company's financial report
Source: Compiling from the company's financial report
Judging from the company's overall financial performance, the company's performance has returned to the high growth trend of 17-18, and the main driving force stems from the growth contribution of the company's core products.
The company's business mainly focuses on the three major fields of biopharmaceuticals, hair health, and CDMO. Biopharmaceutical revenue of 6.525 billion, accounting for 83%; followed by the hair health business and CDMO business, with revenue scales of 1.12 billion and 170 million, respectively, accounting for 14% and 2%, respectively.
As a major product, Terbiao has strong vitality. This year, it brought the company 4.2 billion in revenue, an increase of 23.8% over the previous year, accounting for 64% of the entire biopharmaceutical sector. Furthermore, the subsidiary Sansheng Guojian's two products, Yisaipu and Septin, generated a total revenue of 800 million yuan and achieved an overall growth of 18%. This is mainly due to the launch of new products of Exaipu prefillers and the further expansion of the primary market, as well as the increase in the coverage of Ceptin in medical institutions.
In the field of hair health, Mandy products continue to maintain a strong momentum, leading the market with annual revenue of 1.12 billion dollars and a year-on-year growth rate of 25.8%. Its market share of medical institutions increased further to 73%, dominating the minoxidil market.
The company's CDMO business has been developing steadily, achieving 170 million in revenue this year and receiving 200 million orders, showing good market potential and growth prospects.
The future growth momentum of biopharmaceuticals is sufficient, and the hair health business is strategically valued
In terms of revenue share, the products that contributed the most to double-digit growth in '23 were the two major products “Exaipu” and “Septin”, in that order, Terbi Australia, Mandy, and the subsidiary Sansheng Guojian.
As the only commercialized recombinant human thrombocytopoietin product in the world today, revenue grew rapidly after being included in Western Medicine Class B in 2017. It maintained a CAGR of 16% in the past five years. There was no price reduction in the latest round of drug negotiations in 2023, and it still achieved a 24% increase. In 2023, the market share of Terbiao's sales for treating thrombocytopenia was 65%, and the domestic penetration rate for both CIT and ITP indications is about 25% to 35%, and there is still room for further improvement in the future.
In addition, the company continues to consolidate Terbi Australia's competitive advantage by expanding its product pipeline portfolio with new indications. The multi-center, randomized, double-blind, placebo-controlled study of safety, efficacy, and pharmacokinetics in chronic primary ITP in children or adolescents has reached the intended main end and is expected to be approved for marketing in the first half of 2024.
Furthermore, the first phase III clinical study of patients with chronic liver disease-related thrombocytopenia who are undergoing invasive surgery during the selected phase III clinical study has completed enrollment. It is expected that this phase III trial will be completed and an NDA declared within 2024.
In addition, in December 2023, the company introduced Zezheng Pharmaceutical's etrapogan suspension. It is used as an oral medication for out-of-hospital treatment of chronic ITP in adults, and can effectively improve patient compliance. Currently, the product has been submitted for registration. Indications include primary immune thrombocytopenia (“ITP”) and severe aplastic anemia (“SAA”). It is the first TPORA dry suspension drug to be declared for marketing in China, and terbiao will further increase the penetration rate of Australian terbiao as a combined treatment..
“Yisaipu and Ceptin” are the two main products of the subsidiary Sansheng Guojian. In 2023, the approved launch of the Yisaipu pre-filled dosage brought new growth. The superposition company continued to push the grass-roots market to sink, and in exchange for price, it has returned to the growth trajectory;
Ceptin focuses on the HER2 target and is the first breast cancer drug developed independently in China. It has maintained double growth for the past 3 years. In 2022, it was included as a recommended drug for advanced HER2 positive breast cancer grade I diagnosis and treatment, further increasing patient accessibility. In the future, as hospital promotion increases, it will also lead to significant growth.
From the stock price performance of the subsidiary Sansheng Guojian, which has outperformed the biotech industry by nearly 70% in the past year, it can be seen that the market is still optimistic about the future prospects of its major products in the field of self-defense.
As the first non-prescription hair loss medicine in China, Mandy occupies a leading position in the domestic hair health market. The scale of the Mandy brand has maintained rapid growth at a compound growth rate of more than 50% in the past 5 years, while the company continues to optimize and adjust its development strategy:
1. Continuously enrich the company's variety matrix around the Mandy brand: in 2018, Mandy's third-generation Minoxidil tincture upgrade product with PBS patented technology was launched, and the first domestic Minoxidil foam was approved for sale in January 2024, filling the gap for sensitive groups;
2. Upgrading from a big single product to a big brand: In February 2024, the subsidiary Zhejiang Wansheng Pharmaceutical changed its name to Zhejiang Sansheng Mandi to further expand the influence of the Mandi brand;
3. Continue to strengthen digital marketing: comprehensively expand the Mandi sales market through the three major channels of hospitals, pharmacies, and e-commerce, and consolidate the company's excellent record in online channels.
Self-developed and cooperative two-wheel drive, various models will be launched soon
Currently, the company's innovative drug development pipeline is organized around advantageous fields, with a total of 29 products under development, including 13 hematology/oncology products; 11 products under development target autoimmune diseases (including RA), and other diseases including intractable gout and ophthalmology diseases (such as BRVO); 4 nephrology products under development and 1 dermatology product under development.
Source: According to the company's financial report, compiled by Gelonghui
As shown in the figure above, in 2024, the company will declare a number of products for NDA or listing.
1. In the field of hair and skin, the NDA for minoxidil foam (MN709) has been approved
2. In the field of hematology and oncology, the NDA for children's ITP has been submitted and is expected to be approved for marketing in the first half of 2024; it will be used for chronic liver disease-related thrombocytopenia after completing phase III trials and applying for an NDA within the year; the dry suspension of etrapopa ethanolamine used to treat persistent or chronic immune thrombocytopenia has now been included in the priority review by the CDE;
3. In the field of nephropathy, the long-acting erythropotropin NuPIao (EPO, SSS06) is expected to submit a new drug marketing application within the year, and nafurafine hydrochloride (TRK820) is expected to be declared an NDA within the year;
4. In the field of self-immunity, anti-IL-17A monoclonal antibody (608) is expected to be declared for NDA within the year; Pegsiticase (SSS11) and anti-VEGF monoclonal antibody (601A), which have completed phase III clinical trials, will also make significant progress during the year.
In 2023, the company will vigorously develop external cooperation to supplement the company's existing pipeline and help increase the company's revenue.
In November 2023, the company signed a license agreement and production technology transfer agreement with Cornerstone Pharmaceutical, and obtained exclusive rights for the development, registration, production, and commercialization of the anti-PD-1 monoclonal antibody NofazinLimab (CS1003) for the treatment of hepatocellular carcinoma in mainland China, making an important addition to the company's pipeline.
Currently, PD-1 is undergoing key global phase III clinical studies. It is expected that the main research results will be announced in the first quarter of 2024. It is expected to become the first anti-PD- (L) 1 monoclonal antibody approved for first-line treatment with lenvatinib to treat advanced hepatocellular carcinoma, providing first-line treatment options for patients with advanced hepatocellular carcinoma; the two will jointly develop more indications to maximize the clinical value and market potential of nofazinlimab in mainland China.
In December 2023, the company introduced Zezheng Pharmaceutical's etrapogan suspension. Indications include primary immune thrombocytopenia (“ITP”) and severe aplastic anemia (“SAA”). It is the first TPORA dry suspension drug to be declared for marketing in China. In the future, it will rely on Terbiao's advantages and sales channels for ITP treatment and sales channels to further increase the market share of both.
In addition, Remiji (nafurafine hydrochloride oral disintegrant tablets), a collaboration between the company and Toray in Japan, has been approved for listing. This product has been used clinically in Japan for more than 10 years. Currently, it is the first and only drug in China to treat itching in dialysis. In the future, relying on the company's commercial strength in the field of nephrology, it will give full play to its market potential.
Continue self-research and improve product lines, activate endogenous growth, improve R&D efficiency through cooperation and collaboration with external partners, and provide a driving engine for our own continuous growth.
The valuation is undervalued, and there is plenty of room for the stock price to rise
The business segment of Sansheng Pharmaceutical covers biopharmaceuticals, CDMO, and currently popular hair growth fields. The profit scale continues to expand, but the market capitalization is smaller than that of subsidiaries. Obviously, this market capitalization phenomenon does not fully reflect the fundamentals and actual value of the parent company.
Compared with its Hong Kong stock peers, Sansheng Pharmaceutical's dynamic price-earnings ratio (PE) is less than 5 times, which is far below the average value of comparable Hong Kong stock companies.
Source: WIND
According to brokers' profit forecasts, even if the company's net profit to mother only maintained a 10% growth rate in the past 3 years, the current stock price has room for 100% growth.
Source: WIND
In summary, Sansheng Pharmaceutical's financial report gives the following key information:
1. Judging from the performance and financial indicators, the company's revenue and profit returned to double-digit growth, with strong profitability, stable rate management, and stable financial situation;
2. From a business perspective, core products in the biopharmaceutical sector have sufficient growth momentum, and the hair health sector is expected to usher in explosive growth;
3. From the R&D perspective, the company continues to introduce high-potential varieties through self-development and cooperative two-wheel drive, which is expected to bring new growth points;
4. Judging from the valuation perspective, it is lower than its Hong Kong stock peers, and there is a value depression.
Therefore, there is every reason to believe that Sansheng Pharmaceuticals fully has the potential to achieve Davis' double hit.