Sihuan Pharmaceutical (0460.HK): 'A Friend of Time' 2021 - The Turning-point Year

HONG KONG,March 16,2021 --Sihuan Pharmaceutical Holdings Group Ltd. plays a pivotal role in China's domestic medical industry and is a leading company for the development of the country's cardio-cerebral vascular prescription drugs. According to IMS data in 2018,Sihuan Pharmaceutical held a prominent place in China's national hospital prescription central cerebrovascular drug market with a share of nearly 8.3%.

More recently,this widely renowned prescription drug leader has become a stellar player on the Hong Kong stock market due to its standout performance in the competitive medical aesthetics sector and aggressive R&D efforts in the development of innovative drugs.

After 20 years of intensive efforts in the industry,Sihuan Pharmaceutical's developmental excellence has been widely recognised by the market. Boasting a strong footprint within the pharmaceutical industry chain and a diversified line of products in the medical aesthetics sector,Sihuan Pharmaceutical is ideally positioned for future large-scale success in the pharmaceutical market.

Prescription Drug Manufacturers

Sihuan Pharmaceutical was established in 2001,and quickly became a leading company for traditional cardio-cerebral vascular prescription drugs as a blue chip share on the Hong Kong stock market. At the same time,Hainan Sihuan Pharmaceutical Co.,Ltd. was also established,marking the starting point for entrepreneurial development with the Sihuan Pharmaceutical Holdings Group.

Later,with expanded capital accumulation through acquisitions and mergers,Sihuan Pharmaceutical grew larger,adding Beijing Sihuan Pharmaceutical and Shenzhen Sihuan Pharmaceutical into its list of subsidiaries,further developed into a pharmaceutical conglomerate,integrating R&D,production and sales.

In April 2006,Sihuan Pharmaceutical Holdings Group Ltd. was incorporated in Bermuda. The following year in 2007,the Company was successfully listed on the Singapore Stock Exchange. Afterward,in order to meet the needs of greater expansion and development,Sihuan Pharmaceutical was privatised and delisted in Singapore in 2009. It relisted on the Hong Kong main board in 2010.

After raising more capital,the company acquired Jilin Duofei,Changchun Xiangtong,and Jilin Sichang,broadening Sihuan Pharmaceutical's product portfolio from the fields of CCV and central nervous system drugs to metabolism,tumour,and anti-infection medications.

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

With its outstanding performance and strong cash flow,Sihuan Pharmaceutical has truly emerged as a blue chip stock. At the end of 2014,the company's medical sales results also prompted a number of brokerages to give Sihuan a "buy" rating.

A Friend of Time

The famous American investment guru Warren Buffett once noted that time is the friend of outstanding companies and the enemy of mediocre firms. The realisation of high-quality corporate value requires the passage of time before it comes into full view.

Twenty years on since its establishment,Sihuan Pharmaceutical has been working hard to avoid rash,unsound decision-making,and rather focus on establishing managerial excellence.

It is widely understood that a drug company's pharmaceutical R&D and marketing teams are the lifeblood of any enterprise. Since its establishment,Sihuan Pharmaceutical has strictly adhered to a philosophy of pursuing market development and R&D,and eventually established the Hainan Sihuan CCV Drug Research Institute,as well as building a strong marketing team which has enabled the company to develop rapidly.

The company now boasts an R&D team comprising approximately 600 personnel. Its Aohe Research Institute,Sihuan's generic drug R&D platform,has succeeded in developing both imitation and new innovative drugs. Their product pipeline includes 53 generic drugs with high technical barriers to entry. A number of products as well have obtained production approvals and passed rigorous evaluations for efficacy and consistency.

In addition,Sihuan Pharmaceutical has continued to overcome various technical barriers through mergers,acquisitions and joint cooperation,as it continues to accelerate the speed of product development. In fact,the company has announced that it is presently developing nearly 100 generic drugs.

Sihuan Pharmaceutical's core pharmaceutical drug,the injectable cinepazide maleate,under the trade name - Kelinao,was approved by the National Medical Products Administration at 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 strokes. Stroke is a major medical condition,resulting in both high mortality,long-term disability,as well as showing a high rate of recurrence. According to IQVIA data,the market size for stroke prescription drugs in China exceeds RMB 120 billion,and offers a huge room for growth in the future.

Recruiting and assembling a world-class marketing team,Sihuan Pharmaceutical's sales record has been widely hailed by the market. The company has a professional marketing team of more than 1,000 top-notch professionals. They have been working closely with 3,000 distributors and more than 20,000 sales personnel for over 10 years,serving nearly 14,000 hospitals. Today they have achieved 100% nation-wide coverage.

Their powerful marketing system and unique marketing model form a unique set of advantages in the industry for Sihuan Pharmaceutical. According to IMS data in 2018,Sihuan Pharmaceutical is a widely known firm on the national hospital prescription drug market share list with a central cerebrovascular drug market share of nearly 8.3%.

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

Aggressive Entry into the Medical Aesthetics Business

While cultivating a deep presence within the pharmaceutical industry in general,Sihuan Pharmaceutical has pioneered a unique approach to entering the medical aesthetics sector,drawing on its the advantage of being a large-scale pharmaceutical company.

Since 2014,the company has exclusively owned the general distribution rights for botulinum toxin and hyaluronic acid from Hugel Bio,a leading medical aesthetics biomedical company in South Korea. This was the start of Sihuan Pharmaceutical's gradual evolution into the medical aesthetics industry.

After many years of development,the Company's medical aesthetics business is now entering a harvest period. An injectable type A botulinum toxin - Letybo was approved by the National Medical Products Administration in October 2020,becoming the fourth type A botulinum toxin approved for marketing in China.

Letybo holds the largest market share in South Korea. Available in mainland China since February 2021,it is the first and only South Korean drug product on the Chinese market,receiving widespread attention and recognition since its release.

Letybo boasts a 99.5% purity level of the 900KDa effective protein,which is far higher than the industry's purity requirement (95%),making it a very high-quality botulinum toxin product. Clinical data shows that Letybo is slightly better than BOTOX in terms of purity and dispersion,and is on par regarding effectiveness and safety.

As a beauty supplement,the market potential of Letybo is extremely promising. Experts predict that by 2025,the scale of licensed botulinum toxin sales in China will reach 1.8 billion US dollars,or RMB12.5 billion.

Despite such a large market size,there are currently only a few competitors,perhaps three or four. Letybo is expected to gain more than 30% market share within three years with annual sales anticipated to skyrocket. Sihuan's medical aesthetics business is also poised to become Sihuan's new cash cow.

While holding the "crown jewel" in the field of botulinum toxin,Sihuan Pharmaceutical is also a very forward-looking company in its strategic approach to medical aesthetics. By introducing new products overseas and carrying out independent R&D,Sihuan continuously seeks to enrich its product mix in order to cover multiple,non-surgical,medical aesthetics pipelines.

Expanding its overseas interests,Sihuan Pharmaceutical has been initiating closer,in-depth strategic cooperation with South Korean firm - Hugel and other international top-tier medical aesthetics product manufacturers. This has led to plans for the rapid introduction of high-quality medical aesthetics products across China from both domestic and overseas sources.

Following its cooperative venture with Letybo,Sihuan Pharmaceutical also serves as the exclusive distribution of Hugel's hyaluronic acid product,expected to be launched at the end of 2021. Given the fact that botulinum toxin and hyaluronic acid are key consumer products in two major medical and medical aesthetic circles,they are expected to drive new high growth horizons for Sihuan Pharmaceutical in the future. It is widely anticipated that from 2023 to 2025,even greater numbers of products will receive registration approvals.

In addition to its current overseas market penetration of products,Sihuan Pharmaceutical has a rich pipeline of new products including more than 10 proprietary medical aesthetics products,all of which are best-selling,non-surgical medical aesthetics items currently on the market.

The company's PLLA gel product improves wrinkles,brightens skin tone,reduces pores,and repairs skin scars. PLLA,which is also an ingredient,can improve and repair even deep facial wrinkles,giving it a prominent role as an anti-aging treatment.

All of these products will become important pillars for Sihuan in the medical aesthetics sector over the medium- to long-term,and will help propel it into a leading position within the medical aesthetics field.

Gearing Up Innovative Drugs

If medical beauty has been the powerful right hook for Sihuan Pharmaceutical in recent years,then innovative medicine serves as the company's impressive left jab.

As China's leading large-scale pharmaceutical group,Sihuan Pharmaceutical has been exemplary in evaluating the consistency of leading generic drugs,and at the same time is sparing no effort to successfully segue into the development of new innovative drugs.

Driven by strategic policies and strong capital backing,the upsurge in innovative drugs has been transforming both traditional and new-generation pharmaceutical companies. This quickly changing environment is both a challenge,and is giving birth to exciting new opportunities.

In the process of transforming generics into new innovative drugs,in 2012,Sihuan Pharmaceutical built its own innovative drug R&D platform - Xuanzhu Biopharm,a leading biomedical unit,which integrates R&D,clinical development,production and sales.

This company focuses on important therapeutic areas such as tumors,metabolic diseases and non-alcoholic hepatitis. Xuanzhu Biopharm has nearly 20 research pipelines,including the study of large and small molecules. It also has completely independent intellectual property rights.

The innovative drug product birociclib is a CDK4/6 inhibitor for the treatment of advanced breast cancer. This single-drug treatment therapy has entered clinical phase II trials.

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

Xuanzhu Biopharm's independent R&D of a new generation digestive disease drug called anaprozole sodium has completed clinical phase III enrollment.

In its efforts to advance innovation and development,the company uses both internal as well as external means to further improve its R&D platform through financing as well as mergers and acquisitions.

In August 2020,Xuanzhu Biopharm completed its first round of equity financing,attracting SDIC China Merchants as a shareholder,as well as receiving co-investment funds,to amass a total of 960 million yuan. These two parties will also conduct comprehensive strategic cooperation in terms of the introduction as well as research and development of new innovative drugs.

In January 2021,Xuanzhu Biopharm completed a 100% equity acquisition of Combio Pharmaceutical,a leading domestic biopharmaceutical company. Xuanzhu Biopharm has successfully upgraded its operations to become a leading biomedicine company,boasting comprehensive innovation and independent R&D capabilities in both the small molecule and macromolecule fields. It also has the ability to carry out dual specificity studies and R&D development capabilities for sex antibodies and ADC drugs.

As it continues to promote and improve its innovative drug platform through greater capitalization,Sihuan Pharmaceutical is determined to become the leader in the innovative drug field. The company's book cash totals are close to RMB 5 billion,and it has the strength and resources to continue to promote R&D into innovative drugs and enhance corporate value. It is widely expected that the innovative drugs sector will become the company's main driver of profit growth along with medical aesthetics in the near future.

Comprehensive Industry Chain Layout

As part of the layout of the entire industry chain,Sihuan Pharmaceutical has also been a prime incubator the CDMO business.

Jilin Kangtong is a raw materials medicine and production platform for Sihuan Pharmaceutical. It has a very strong advantage and considerable strengths in the industrial development of pharmaceutical intermediates as well as raw material research and development.

Adopting an integrated strategy formula of "raw materials + CDMO + preparations" gives full play to Sihuan Pharmaceutical's advantages along the entire chemical generic drug industry chain. It focuses on the fields of antiviral,anticoagulants and antifungal drugs,creating outstanding product series features and core competitive advantages to emerge as a leading integrated CDMO enterprise in the fields of advanced intermediates,APIs and preparations.

Viewed against a backdrop of the entire industry chain,Sihuan Pharmaceutical ensures not only safety and stability of the API supply chain,but also reduces production and raw material costs.

Based on its innovation-driven R&D expertise,Sihuan Pharmaceutical invested RMB 2 billion to create a high-efficiency,low-cost production platform. With it,Sihuan Pharmaceutical not only benefits from lower sales costs and an increased volume of products,but also effectively manages price reductions all through centralised procurement.

At the beginning of 2021,favourable news concerning its medical aesthetics section,the introduction of innovative drugs,and the construction of the API + CDMO platform,all helped Sihuan Pharmaceutical gain favour with capital markets.

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

Entering Spring

Twenty years is neither a long nor short time.

While continuing to cultivate its development within the industry,Sihuan Pharmaceutical is finally ushering in spring.

In the short- to medium-term,Sihuan Pharmaceutical will primarily generate strong cash support from generic drugs while its long-term development will depend largely on innovative medicines and the medical aesthetics sector. In particular,Letybo is expected to gain up to 30% market share within three years,and will become the company's cash cow,bringing in several billions of dollars in annual sales.

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

As Sihuan Pharmaceutical's major business segments enter maturity and a period of harvest,this will also drive the rapid growth of the company's future revenues and profits. They will then hold a large-scale,leading position in China's biomedicine and medical aesthetics market.

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/