Sihuan Pharmaceutical (0460.HK): Be a friend of time, 2021 is the year of turning point

HONG KONG,March 10,2021 --Sihuan Pharmaceutical Holdings Group Ltd. plays a pivotal role in the domestic medical industry. It is a leading company in China's CCV prescription drugs. According to IMS data in 2018,Sihuan Pharmaceutical is well-known on the national hospital prescription drug market share list,with its central cerebrovascular drug market share of nearly 8.3%.

Recently,such a traditionally recognized prescription drug leader is being famous in the Hong Kong stock market,due to the aggressive medical aesthetics sector and the sparing efforts in the R&D of innovative drugs.

After 20 years of intensive work in the industry,Sihuan Pharmaceutical's development resilience has been widely recognized by the market. Surrounding the entire pharmaceutical industry chain and the diversified layout of the medical aesthetics sector,Sihuan Pharmaceutical will also stand firm in the future pharmaceutical market with scale effects.

Prescription Drug Manufacturers

Sihuan Pharmaceutical was established in 2001,being a leading company in traditional CCV prescription drugs originally and a white horse share in Hong Kong stock market. At that time,Hainan Sihuan Pharmaceutical Co.,Ltd. was established,marking the starting point for the entrepreneurial development of Sihuan Pharmaceutical Holdings Group.

After that,through capital operation methods such as acquisitions and mergers,Sihuan Pharmaceutical further improved its industrial chain,and successively included Beijing Sihuan Pharmaceutical and Shenzhen Sihuan Pharmaceutical into its subsidiaries,and developed into a group pharmaceutical enterprise integrating R&D,production and sales.

In April 2006,Sihuan Pharmaceutical Holdings Group Ltd was incorporated in Bermuda and successfully listed in Singapore in March 2007. Later,in order to meet the needs of greater development,Sihuan Pharmaceutical was privatized and delisted from Singapore in 2009,and relisted on the Hong Kong main board in 2010.

With the funds raised,the company acquired Jilin Duofei,Changchun Xiangtong,and Jilin Sichang,expanding Sihuan's products from the fields of CCV and central nervous system to metabolism,tumor,and anti-infection.

After being listed in Hong Kong for two years,Sihuan Pharmaceutical's share price has soared by investors,making it one of the few pharmaceutical companies in the pharmaceutical sector of the Hong Kong stock market with a market value of over 40 billion yuan.

With its gorgeous performance and abundant cash flow,Sihuan Pharmaceutical stocks ran out of the big white horse trend that year. At the end of 2014,the company's medical sales terminal's blessing also allowed a number of brokerages to give a "buy" rating.

Be A Friend of Time

Buffett said that time is the friend of outstanding companies and the enemy of mediocre companies. The realization of high-quality corporate value requires the accumulation of time to appear.

Twenty years since its establishment,Sihuan Pharmaceutical has been working hard to avoid arrogance and rashness,and concentrate on management.

It is well understood that the pharmaceutical R&D and marketing team is the lifeblood of pharmaceutical enterprises. At the beginning of its establishment,Sihuan Pharmaceuticals adhered to the principle of market development and product R&D,and established Hainan Sihuan CCV Drug Research Institute,and also built a strong marketing team which enables the company to develop rapidly.

In terms of R&D,the company has a R&D team composed of approximately 600 R&D personnel,and its generic drug R&D platform,Aohe Research Institute,has developed imitation and innovation simultaneously. The pipeline includes 53 generic drugs with high technical barriers,a number of products have successively obtained production approvals,also passed the consistency evaluation.

In addition,Sihuan Pharmaceutical has continued to increase technical barriers through the extension of mergers and acquisitions and cooperation,and continue to accelerate the speed of product cultivation. It has declared and is developing nearly 100 generic drugs.

The core product cinepazide maleate injection,with the trade name Kelinao,was approved by the National Medical Products Administrationat the end of last year and became the only approved drug in the field of stroke treatment since the launch of post-marketing clinical research in China.

This product is mainly used to treat acute ischemic stroke indications. Stroke is a major disease with high morbidity,high disability,high mortality and high recurrence rate. According to IQVIA data,the market size of stroke prescription drugs in China exceeds RMB 120 billion,and it has a huge extent for growing in the future.

When it comes to the construction of the marketing team,Sihuan Pharmaceutical's sales ability is recognized by the market. The company has a professional academic marketing team of more than 1,000 people. It has worked closely with 3,000 distributors and more than 20,000 salespeople behind for more than 10 years,covering nearly 14,000 hospitals,and achieving 100% national province coverage.

The powerful marketing system and unique marketing model ensure the advantages of Sihuan pharmaceutical industry. According to IMS data in 2018,with its central cerebrovascular drug market share of nearly 8.3%.

In terms of performance,Sihuan Pharmaceutical has a stable financial position,and the company has maintained a cash balance of nearly RMB 5 billion every year in recent years. Except in 2019,the company suffered a financial loss for the first time due to the impairment of nearly RMB 2.8 billion of goodwill. If the goodwill impairment is added back,the adjusted profit attributable to the company's owners will exceed RMB 1.2 billion.

Aggressive Medical Aesthetics Business

While cultivating the pharmaceutical industry in depth,Sihuan Pharmaceutical has pioneered a unique approach to enter the medical aesthetics industry with the advantage of being a pharmaceutical company.

Since 2014,the company has exclusively obtained the general distribution rights of botulinum toxin and hyaluronic acid from Hugel Bio,a leading medical aesthetics biomedical company in South Korea,and began to transform into the medical aesthetics industry.

After years of deployment,the medical aesthetics business is gradually entering a harvest period. A type A botulinum toxin for injection,Letybo was approved by the National Medical Products Administrationin October 2020,becoming the fourth type A botulinum toxin approved to be marketed in China.

Letybo is the product with the largest market share in South Korea. It has been on the market in Mainland China in February 2021,becoming the first and only South Korean product in the Chinese market. It has received widespread attention and high recognition from the market as soon as it went on the market.

The purity of Letybo is 99.5% of 900KDa effective protein,which is far higher than the industry's purity requirement (95%),so this is a very high-quality botulinum toxin product. Clinical data shows that Letybo is slightly better than BOTOX in purity and dispersion,and is equivalent to the effectiveness and safety of BOTOX in effect.

Under the economy of beauty,the market potential of this product is very large. Experts predict that by 2025,the sales scale of licensed botulinum toxin in China will reach 1.8 billion US dollars,or RMB12.5 billion.

With such a large market size,there are currently only a few 3-4 competitors. Letybo is expected to gain more than 30% of the market share within three years,which means that its annual sales are expected to reach dozens in the future. Sihuan's medical aesthetics business will also become Sihuan's new cash cow.

Although holding the "king bomb" in the field of botulinum toxin,Sihuan Pharmaceutical is very forward-looking in its medical aesthetics layout. Through overseas introduction and independent R&D,it continuously enriches its product matrix and covers multiple non-surgical medical aesthetics product pipelines.

In terms of overseas introduction,the company has conducted closer and in-depth strategic cooperation with South Korean Hugel and other international first-line medical aesthetics product manufacturers,and plans to quickly bring high-quality medical aesthetics products within China and overseas into the Chinese market.

Following Letybo,Sihuan Pharmaceutical has been the exclusive distribution of Hugel's hyaluronic acid product,which is expected to be launched at the end of 2021. In view of the fact that botulinum toxin and hyaluronic acid are the two major consumables in the two major medical and medical aesthetic circles,this product will set off a new growth climax for Sihuan Pharmaceutical in the future. It is expected that from 2023 to 2025,more products will receive registration approvals one after another.

In addition to overseas introduction,Sihuan Pharmaceutical has a rich pipeline of products under research,with more than 10 self-developed medical aesthetics products,all of which are best-selling non-surgical medical aesthetics products on the market.

The company's PLLA gel product can improve wrinkles,brighten skin tone,reduce pores,and repair scars. The PLLA,which is also a PLLA ingredient,can improve facial wrinkles from shallow to deep to achieve the role of anti-aging.

These products will become important supports for Sihuan's medical aesthetics sector in the medium to long term,and will establish Sihuan's leading position in medical aesthetics in one fell swoop.

Gear Up Innovative Drugs

The innovative medicine is another focus of Sihuan Pharmaceutical,apart from the medical aesthetics business in recent years.

As a leading large-scale pharmaceutical group in China,Sihuan Pharmaceutical is doing a good job in evaluating the consistency of leading generic drugs,and at the same time it is making full efforts to transform into innovative drugs.

Driven by policies and capital,the upsurge of innovative drugs has swept traditional and new-generation pharmaceutical companies. Changing the situation is a challenge,and it can also give birth to opportunities.

In the process of transforming generic drugs to innovative drugs,Sihuan Pharmaceutical started to build its own innovative drug R&D platform Xuanzhu Biopharmin 2012.

It is a leading biomedical R&D platform which integrating R&D,clinical development,production and sales. It focuses on important therapeutic areas such as tumors,metabolic diseases and non-alcoholic hepatitis. It has nearly 20 research pipelines,including large and small molecules,also with completely independent intellectual property rights.

The innovative drug product birociclibis a CDK4/6 inhibitor for the treatment of advanced breast cancer. Its single-drug treatment has entered clinical phase II.

Another blockbuster product is Plazomicin,a new generation of nitrogen-synthesizing aminoglycoside antibiotics,which is also the latest generation of super antibiotics and has entered phase III clinical trials.

The company's independent R&D of a new generation of digestive disease drug anaprozole sodiumhas completed clinical phase III enrollment.

In advancing innovation and development,the company uses endogenous plus extension methods to further improve its R&D platform through financing and mergers and acquisitions.

In August 2020,Xuanzhu Biopharmcompleted the first round of equity financing,attracting "SDIC China Merchants" as a shareholder,plus co-investment funds,for a total of 960 million yuan.

The two parties will also conduct comprehensive strategic cooperation on the introduction and research and development of innovative drugs.

In January 2021,Xuanzhu Biopharmcompleted the acquisition of 100% equity of Combio Pharmaceutical,a leading domestic biopharmaceutical company. It has successfully upgraded to be a leading biomedicine company which has comprehensive innovation and independent R&D capabilities in both the small molecule and macromolecule fields,the ability to carry out dual specificity and the R&D development capabilities for sex antibodies and ADC drugs at the same time .

Continue to promote and improve the innovative drug platform by means of capital operation,Sihuan Pharmaceutical is determined to win the innovative drug field. The company's book cash is close to RMB 5 billion,and it has the strength and resources to continue to promote the R&D of innovative drugs and realize corporate value. It is expected that the innovative drugs will become the company's profit growth tool like medical aesthetics in the near future.

Layout the Whole Industry Chain

In the layout of the entire industry chain,Sihuan Pharmaceutical has also incubated the CDMO business.

Jilin Kangtong is a raw material medicine and production platform of Sihuan Pharmaceutical. It has a very strong advantage and strength in the industrial development of pharmaceutical intermediates and raw material research and development.

Adopting the integrated strategy of "raw materials + CDMO + preparations" can give full play to Sihuan Pharmaceutical's advantages in the entire chemical generic drug industry chain,focusing on the fields of antiviral,anticoagulant and antifungal drugs,forming outstanding product series features and core competitiveness to create an integrated CDMO leading enterprise in the fields of advanced intermediates,APIs and preparations.

Through the layout of the entire industry chain,not only the company can ensure the safety and stability of the API supply chain,but also reduce production and raw material costs.

On the basis of the innovation-driven R&D platform,Sihuan Pharmaceutical invested RMB 2 billion to create a high-efficiency and low-cost production platform.

With its high-efficiency and low-cost production platform,Sihuan Pharmaceutical can not only benefit from the reduction in sales costs and the increased volume of products brought about by centralized procurement,but also effectively cope with the price reduction brought by centralized procurement.

At the beginning of 2021,good news such as the Sihuan Pharmaceutical's medical aesthetics section,the concept of innovative drugs,and the construction of "API + CDMO platform",which have regained the favor of the capital market.

Sihuan Pharmaceutical's stock price has risen fiercely this year. According to Wind data,as of the close of March 3,the company's stock price has risen by more than 1.85 times.

Enter to Spring

Twenty years is neither long nor short.

Continued to cultivate in the pharmaceutical industry,Sihuan Pharmaceutical finally ushered in the spring.

In the short to medium term,Sihuan Pharmaceutical will mainly provide strong cash support from generic drugs,while its long-term development will mainly depend on the innovative medicine board and the medical aesthetics sector. In particular,Letybo is expected to gain 30% of the market share within three years and thence will bring in several billions in annual sales and become the company's new cash cow.

In the next two to three years,the company's innovative drug products will gradually go on the market,including the API/CDMO segment business to achieve large-scale development.

As the major business segments enter the maturity and harvest period,it will also drive the rapid growth of Sihuan Pharmaceutical's future revenue and profit. By then,the company will stand firm in the leading position of China's biomedicine and medical aesthetics market with scale effect.

Sihuan Pharmaceutical Holdings Group Ltd.

Founded in 2001 and listed on the Main Board of the Hong Kong Stock Exchange Limited in 2010,Sihuan Pharmaceuticals Holdings Group Ltd. ("Sihuan Pharmaceutical" or the "Company",together with its subsidiaries the "Group") (HKSE: 00460.HK) is an international pharmaceutical company led and driven by both innovation and generic,with an independent and leading independent research and development ("R&D") technology platform,a rich global product pipeline and a mature and excellent sales system. Focusing on high-growth therapeutic areas such as oncology,metabolic diseases,medical aesthetics,anti-infectives,digestive system,cardiovascular and cerebrovascular,Sihuan Pharmaceutical is building a leading medical aesthetics and biopharmaceutical leader in China with a two-wheel drive strategy of independent innovation and research and incubation to cultivate high growth new businesses.

For more information on Sihuan Pharmaceutical,please visit the company websitehttps://www.sihuanpharm.com/