Pegylated recombinant human granulocyte colony stimulating factor(CSPC Pharmaceutical Group Ltd.)

Traditional large pharmaceutical companies Hengrui Pharmaceutical and Stone Pharmaceutical Group, which have made remarkable achievements in research and development and business expansion, experienced a significant decline in profitability in the third quarter of 2024 when there was no fault in the innovative drug product line. In the face of competition from biotechnology companies, these two large pharmaceutical companies have achieved the revival of innovation transformation, especially Hengrui Pharmaceutical, which has been approved for the listing of 17 Class A new drugs in China, and ranks among the top three domestic listed drugs in the same target. The 12 innovative pharmacological products approved since 2021 should be in the market growth and climb stage. However, Hengrui Pharmaceutical's revenue in the third quarter of 2024 was 6.589 billion yuan, up 13% year-on-year, down 13% quarter-on-quarter, and the net profit attributable to the parent company was 1.188 billion yuan, up 1.91% year-on-year. If we take into account the capitalization of R&D expenditure of about $126 million, there is actually negative growth. What the hell happened? Hengrui Pharmaceutical's operation and research and development have not made mistakes, and there is no need to reflect. However, even with efforts and efforts, the results are still not satisfactory and there may still be certain problems. The traditional big pharma model of relying on domestic demand may have reached its limits. Although each innovative drug of Hengrui Pharmaceutical ranks among the top three in China, it faces fierce competition from small and medium-sized pharmaceutical companies in each segment, and there is no absolute leading advantage. Although Hengrui has a commercialized portfolio of 17 innovative drugs, its peak sales and life cycle are decisively influenced by the level of payment. Hengrui does not yet have a drug with annual sales of $1 billion, and there is no hope in the short term. Lack of peak sales, the number to gather, essentially did not leave the generic drug stage to win the model of quantity, earn hard money, and eventually may be a dream in ten years, in place. Based on Zbrutinib's sales in 2024, once you have a drug with annual sales of $2 billion, all domestic competitors will no longer matter, and you need to consider a higher level of issues. Geopolitical uncertainty looms, but innovation and internationalization are still the only way for traditional large pharmaceutical companies. Hengrui Pharmaceutical suddenly announced plans to secondary listing in Hong Kong, it seems to have the intention of breaking the game. As of the third quarter of 2024, Hengrui Pharmaceutical is in the New Drug application (NDA) stage or has been listed in the first class of new drugs and second class of new drugs summary. Innovative drugs bear social benefits and public welfare responsibilities in the domestic market. According to Galaxy Securities, according to the sales data of the world's top 25 best-selling drugs in 2021, assuming that the drug price level in the United States is 100%, the average drug price in the United Kingdom, the European Union and Japan is about 20%-25% of the United States, and the price system of innovative drugs in China is relatively low, and the average drug price is 10% of the United States. Innovative drugs benefit from positive externalities in the domestic market, including engineer dividends and clinical resource advantages. Considering the difference in payment environment, the reasonable conversion ratio of pharmacoeconomics in the United States and China may be about 1/7, while the actual rate is as low as 1/10, and the difference between them is the subsidy provided by innovative drugs to the positive externalities of the domestic market. In the 2024 medical insurance negotiations, a total of 162 general-name drugs participated in the negotiation/bidding, including 117 kinds outside the medical insurance list and 45 kinds in the list, with a passing rate of less than 50% in the expert review process, compared with 74.2% in 2022 and 63.8% in 2023. The average decline in new health insurance negotiations over the years: 59% in 2016, 44% in 2017, 57% in 2018, 61% in 2019, 51% in 2020, 62% in 2021, 60% in 2022, and 61.7% in 2023. The 2024 decline is about to be revealed. From a more macro perspective, on November 18, the Ministry of Finance announced the general public budget expenditure for the period from January to October 2024, and the health expenditure was 1,652.1 billion yuan, down 8.5% year-on-year, the largest decline among the 10 major expenditure subjects. Hengrui has not yet shaken off the shadow of centralized purchasing. Since the implementation of the ninth batch of national centralized procurement of products involving carpofungin acetate for injection from March 2024, sales in the first half of 2024 decreased by 279 million yuan compared with the same period last year; Among the products involved in local centralized procurement, the sales of ioformol injection, sevoflurane for inhalation and papaverine hydrochloride injection in the first half of 2024 decreased by 276 million yuan year-on-year. Three major generic drugs with sales of more than 1 billion yuan (Lomefloxacin/Lodisloxacin/Butorphanol) are still facing potential centralized procurement risks. In the third quarter of 2024, the net profit attributable to the parent company was 758 million yuan, down 50% year-on-year and 46% quarter-on-quarter, showing a cliff-like decline. Among the seven business lines, the anti-tumor therapy segment was the most competitive and saw the most severe decline in performance, with revenue in the third quarter and the first nine months down 31.2 percent and 17.6 percent year-on-year, respectively. This is mainly due to the price reduction of the two products, Jinyouli (PEGylated recombinant human granulocyte stimulating factor injection) and Dometic (Doxorubicin hydrochloride liposome injection), by about 58% and 23% respectively in the centralized drug procurement of the Beijing-Tianjin-Hebei "3+N" alliance. Revenue in the cardiovascular treatment field in the third quarter decreased by 26.7% year-on-year, mainly due to the fact that Xuanning (levoamlodipine maleate tablets and disperse tablets) was not selected for the eighth batch of national centralized procurement in 2023, resulting in a greater impact on its sales in hospitals that strictly implement the centralized procurement policy, especially the decline in the second quarter and the third quarter was more significant. In the third quarter, the revenue of the nervous system treatment field decreased by 15.8% year-on-year. The core product of Embip was mainly due to the strict control of the top drugs in the hospital in the environment of strict control of medical costs, resulting in a relatively large decline in sales.