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According to the latest news, on September 3, 2020, the website of the National Medical Products Administration showed that Jiankangyuan (600380) was approved for the production of ipratropium bromide inhalation solution, which was declared as a Class 4 imitation, becoming the first domestic company to pass the consistency evaluation. To date, Jiankangyuan has obtained production approval and deemed to have passed the evaluation for multiple inhalation agents, including ipratropium bromide inhalation solution, budesonide suspension for inhalation, compound ipratropium bromide inhalation solution, and levalbuterol hydrochloride inhalation solution. Among them, levalbuterol hydrochloride inhalation solution fills the gap in the domestic market.

The harvest season for inhalation preparations is coming, with a trillion-dollar market expected.

Public information shows that among the top 100 best-selling drugs globally in 2019, respiratory preparations accounted for 5, with total sales exceeding US$11.7 billion. Respiratory medicine is undoubtedly a field that produces many large varieties.

Currently, the global respiratory medicine market is approximately US$20 billion, and the Chinese market exceeds US$30 billion. In the future, continued increases in air pollution and aging will lead to a continued increase in the risk of respiratory diseases. The rise in morbidity plus the need for long-term medication will inevitably create a huge market space.

According to Guosheng Securities' analysis, the domestic share of respiratory preparations is less than 30%, with huge potential for import substitution. For domestic pharmaceutical companies that can overcome these barriers, this will become a good moat. Due to high competitive barriers and other factors, the number of participating players is limited, and the competitive landscape is good. At the same time, the current domestic awareness is relatively low, and it is expected to increase rapidly in the future, with a trillion-dollar market expected.

Starting as a nationally renowned health product company, then transforming into a domestic private pharmaceutical group with strong comprehensive strength, and finally seizing the opportune moment to focus on respiratory medicine, every step of Jiankangyuan's industrial layout has been both stable and accurate.

It is understood that after years of in-depth layout and dedicated research and development, Jiankangyuan currently has a rich and profound respiratory pipeline and is experiencing a period of abundant harvests.

The announcement shows that Jiankangyuan currently has two products in the respiratory field that have been successfully launched and have been listed in most provinces. The marketing team has also been basically established. Multiple inhalation preparations, such as ipratropium bromide inhalation solution and budesonide suspension for inhalation, have also obtained drug registration certificates. The peak sales of the key product, budesonide inhalation suspension, are expected to exceed 1.5 billion yuan and reach around 2 billion yuan. Moreover, several respiratory products are expected to be launched in 2021-2022. According to product deployment, it is expected that 3-5 new products will be launched each year in the future. Based on this, Tianfeng Securities estimates that by 2025, Jiankangyuan's respiratory product revenue will exceed 50 billion yuan, and net profit is expected to exceed 12 billion yuan.

In this regard, many institutions have stated that they are optimistic about the continuous realization of the company's R&D capabilities in the field of inhalation preparations. The R&D products are complete and the team's progress is orderly. In the future, with the coverage of high-potential respiratory hospitals nationwide, Jiankangyuan is expected to become a leader in domestic inhalation preparations.

Introducing top-tier strategic investment to help it quickly become a leader in its segment.

Recently, Jiankangyuan (600380.SH) announced that it plans to issue non-publicly offered shares to raise funds of no more than 2.173 billion yuan, and plans to introduce Hillhouse Capital as a strategic investor. Hillhouse Capital plans to subscribe for all the shares issued non-publicly by Jiankangyuan in 2020 through its managed "Hillhouse Capital Management Co., Ltd. - China Value Fund". The current shareholders' meeting has approved this additional issuance.

One is a top-tier strategic investor, and the other is a "new star" in the pharmaceutical industry. This additional issuance is a strong "marriage" that has quickly attracted the attention of many investors and institutions.

According to the financial report, Jiankangyuan's operating revenue in 2017, 2018, and 2019 was 10.779 billion yuan, 11.204 billion yuan, and 11.98 billion yuan, respectively, with a compound annual growth rate of 5.42%. With the continued expansion of its business scale, its future demand for working capital is also continuing to grow.

Jiankangyuan belongs to the pharmaceutical manufacturing industry. As is well known, this industry has a large demand for future expenditure on research and development and technological innovation. At the same time, chronic disease drugs and respiratory drugs, as its important strategic development directions, require a large amount of funds for product research and development and market expansion.

According to publicly available information, Hillhouse Capital has made in-depth industrial investments in the medical and health field. Currently, it has invested in a total of 160 companies in the global medical and health industry, including 100 domestic companies and 60 overseas companies. It has also invested in a total of 52 innovative pharmaceutical companies in the global investment layout of the innovative drug field, more than half of which are overseas biotechnology companies in the clinical stage. Moreover, Hillhouse Capital maintains close communication and friendly cooperation with its invested companies and has the ability to introduce and integrate industrial resources.

According to the announcement, the strategic cooperation between the two parties will use equity investment as a link to carry out a series of strategic collaborations in several areas. First, Hillhouse's layout in the global innovative drug field can actively assist Jiankangyuan in introducing R&D innovative drug products in key therapeutic areas, as well as high-level R&D technology platforms, such as inhalation preparations, microsphere technology, lipid microemulsion technology, CAR-T cell immunotherapy, and bispecific antibodies; second, the chain drugstore platform held and operated by Gaoji Medical Holdings can play a synergistic effect with Jiankangyuan in the sales channels of respiratory products and other chronic disease medications, health products, and OTC products; third, Hillhouse will provide Jiankangyuan with its own experience in lean manufacturing improvement, digital transformation, and technological empowerment, which has been applied in practice in many invested companies, to comprehensively improve its operational efficiency and management efficiency.

Regarding this additional issuance, Huatai Securities believes that the introduction of this top-tier strategic investment is of great significance to Jiankangyuan's long-term development. Hillhouse's advanced management philosophy, global vision, and abundant medical resources will help Jiankangyuan grow rapidly.

Multiple sectors are making efforts, and performance may achieve "long-term bull market".

Based on the good track and excellent projects, Jiankangyuan's efforts in multiple sectors to help improve its overall performance is undoubtedly an important factor in Hillhouse Capital's choice to fully subscribe and strategically invest.

According to Jiankangyuan's 2020 semi-annual report, its operating revenue in the first half of the year reached 6.476 billion yuan, an increase of about 3.04% year-on-year. The net profit attributable to shareholders of the listed company was 676 million yuan, compared with 546 million yuan in the same period last year, a year-on-year increase of 23.78%. The net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was 592 million yuan, a year-on-year increase of 17.25%. The net cash flow from operating activities reached 1.249 billion yuan, an increase of 10.37% year-on-year. At the same time, the basic earnings per share also increased by 23.60% year-on-year. It can be seen that almost all indicators of Jiankangyuan in the first half of the year have achieved rapid growth.

Among them, the revenue of Lizhu Group (excluding Lizhu monoclonal antibody) was 5.096 billion yuan, a year-on-year increase of 3%, and the net profit attributable to the parent company was 466 million yuan, a year-on-year increase of 31%, which strongly contributed to Jiankangyuan's high-growth performance.

From a segmented perspective, as a pharmaceutical company, during the COVID-19 pandemic, HealthGen's diagnostic reagents, chemical preparations, and raw materials sectors all performed excellently in the first half of the year. Chemical preparations revenue reached 2.878 billion yuan, with injections of Aprazolam sodium and Piperolone hydrochloride tablets achieving rapid sales growth thanks to their inclusion in the medical insurance catalog; raw materials and intermediates revenue reached 1.945 billion yuan, benefiting from a significant increase in exports of Meropenem (powder for injection); diagnostic reagents and equipment revenue reached 889 million yuan, a year-on-year increase of 143.35%, mainly due to a significant increase in sales of COVID-19 antibody detection reagents, with a gross profit margin as high as 76.48%; traditional Chinese medicine preparations revenue reached 662 million yuan, with anti-viral granules included in the COVID-19 diagnosis and treatment guidelines, resulting in significant year-on-year sales growth; health product revenue reached 72 million yuan, with a significant increase of 67.84% in gross profit margin. The figures show that HealthGen has currently formed a growth effect with multiple sectors developing simultaneously.

It is worth mentioning that the enhancement of HealthGen's overall profitability is also related to the reduction in its sales expenses in the first half of the year. According to the financial report, its sales expense ratio in the first half of 2020 was 27.85%, a year-on-year decrease of 8.36 percentage points. Regarding the reasons for the decrease, HealthGen also provided an explanation: "The decrease in sales expenses is mainly due to the impact of the epidemic, resulting in a decrease in expenses related to sales promotion activities, such as market publicity and promotion fees, travel expenses, and conference fees."

It can be seen that in the face of the sudden epidemic, HealthGen, by quickly deploying corresponding products and equipment, and actively responding to the call to significantly reduce gatherings, has to some extent added luster to its outstanding performance in the first half of the year.

However, the performance increase due to the epidemic is only part of the story for HealthGen. The continuous realization of its multi-sector product line layout is the fundamental reason for its rapid growth and the driving force behind its sustained high performance. According to the report, HealthGen's biological drug sector, Lizhu monoclonal antibody, is accelerating the progress of its research projects. In the first half of the year, one product passed the on-site inspection of drug registration and production, and two products were approved for clinical trials; in the raw materials sector, Meropenem (powder for injection) achieved a significant increase in exports under the influence of the epidemic, and is expected to use this opportunity to expand its international market space; the health products and OTC sector also achieved good results through precise investment and integrated online and offline marketing; the development progress of the respiratory inhalation preparation sector is leading, the production lines are constantly being enriched, and it has begun to enter the harvest period.

According to Guosheng Securities' prediction, in 2022, multiple Lizhu microspheres and monoclonal antibody products will be approved, which may become an important node for its market capitalization to reach 100 billion yuan.

In summary, it can be seen that with its product lines blossoming and successively entering the harvest period, coupled with the strategic investment and cooperation from Hillhouse Capital, HealthGen is truly thriving, and its future development is truly promising.

Disclaimer: The content of this article is for reference only and does not constitute investment advice.

Source: "Securities Market Red Weekly"