The current capital market has put forward higher requirements for pharmaceutical companies, not only to develop drugs with competitive advantages, but also to "sell well", do a good job in commercialization, and achieve steady growth in performance.

on October 18, Sansheng Guojian released the third quarterly report of 2023: the total revenue was 0.731 billion yuan, up 38.54 percent year-on-year. after deducting operating costs and various expenses, the net profit attributable to the parent was 0.164 billion yuan, up 13826.23 percent year-on-year.

Since 2023, Hong Kong stock trading has been sluggish and many Biotech are facing financing troughs, while the old pharmaceutical company Sansheng Guojian has achieved a year-on-year increase of up to 67%, becoming the "handsome boy" of the board market ".

Sansheng Guojian's share price trend since 2023 Source: Oriental Wealth Terminal

It is driven by a number of core products that Sansheng Guojian has achieved a Davis double whammy of performance improvement and valuation improvement.

what is more interesting is that under the background that innovative pharmaceutical companies are eager to lay out a wide range of disease areas and build rich pipelines, sansheng guojian has instead made a "subtraction": chose to strip off the tumor pipeline and focus on the autoimmune track with the same huge market space.

Can such a unique strategic choice make Sansheng Guojian rejuvenate the "second spring"?

1. the "troika" driving performance growth

Sansheng Guojian was established in 2002. It is the first batch of domestic antibody innovative drug companies and a holding subsidiary of Sansheng Pharmaceutical, a Hong Kong-listed company.

Interestingly, the market capitalization of the two is similar. As of the close of trading on October 13, Sansheng Guojian's total market value was 13.107 billion yuan, and Sansheng Pharmaceutical's Hong Kong stock market value was 16.39 billion.

as an old pharmaceutical company, sansheng guojian was approved to list China's first all-human antibody- Yisepp as early as 2005. This is also the first tumor necrosis factor (TNF-α) inhibitor listed in the field of rheumatism in China, filling the gap of all-human therapeutic antibody drugs in domestic enterprises.

After that, etanercept was approved for 3 indications, including rheumatoid arthritis (2005), ankylosing spondylitis and psoriasis (2007), and supported Sansheng Guojian's performance growth for a long time thereafter.

judging from the performance of previous years, Sansheng Guojian's total revenue increased from 0.159 billion yuan in 2008 to 1.142 billion yuan in 2018, with an average annual compound growth rate of 18.93, while the net profit attributable to the parent increased from 62.435 million yuan to 0.37 billion yuan and CAGR reached 19.48.

With a strong sales system (the first to adopt professional academic promotion of antibody drugs in China) and a first-mover advantage in the market, Eisep has been a leader in the domestic market share of TNF-α inhibitors since its launch, reaching approximately 52.3 percent in 2018.

In 2019 and 2020, Sansheng Guojian's second and third products Jianipa and Septin were approved for listing, thus forming a "troika" that drives performance growth ".

among them, siputin is a HER2 monoclonal antibody with innovative design, which is used to treat HER2 positive metastatic breast cancer patients, and the market prospect of solid tumors is quite broad. Jianipi is a domestic exclusive CD25 monoclonal antibody, which is used to prevent acute rejection caused by kidney transplantation and can be combined with regular immunosuppressive programs, which can significantly improve the survival rate of transplanted organs.

after achieving the highest revenue since its establishment in 2019, sansheng Guojian has experienced a performance "stall": from 2020 to 2022, the net profit attributable to the parent will be -0.217 billion yuan, 18.0585 million yuan and 49.2974 million yuan respectively, mainly due to the impact of the new crown epidemic on the number of diagnosis and treatment, as well as the impact of intensified market competition, sharp drop in product prices and regional centralized procurement, moreover, the market share of etanercept in the domestic TNF-α inhibitor also dropped significantly to 27% in 2022.

however, after this "episode", other core businesses of sansheng guojian began to exert their strength: in 2022, the sales revenues of etanercept, septin and jianipi will reach 0.531 billion yuan, 0.159 billion yuan and 0.026 billion yuan respectively, up-34%, 138 and 45% year-on-year. the CDMO business laid out has also become a new performance growth point, realized revenue of 0.1 billion yuan, up 160 year on year.

From the perspective of single-quarter results, for the four consecutive quarters since 2022Q3, the net profit of the parent company has achieved high growth year-on-year and month-on-month, not only makes Sansheng Guojian usher in a performance inflection point, but also obtains the recognition of the capital market.

2. strategic transformation: stripping the tumor pipeline and focusing on the free track

At this stage, the "troika" and CDMO businesses are still the key to support Sansheng Guojian's performance growth.

first, compared with similar products (Johnson & Johnson) approved for 6 indications, etanercept, which has only approved 3 indications, still has more room for growth. moreover, it was approved in March 2023 for the first domestic pre-filled water injection type, which can be injected by patients at home or in community medical units, which is conducive to expanding patient coverage. Second, there is still room for further expansion of anti-tumor product Septin, CDMO business can still increase performance and accumulate cash flow.

as of the third quarter of 2023, the total cash in Sansheng Guojian's account was 1.91 billion yuan, and the asset-liability ratio was only 7.17, which became the guarantee to support the company's subsequent product research and development. In addition, in terms of cash flow, net cash flow from operating activities was $0.293 billion and cash received from the sale of goods and provision of services was $0.81 billion.

It is worth mentioning that when other innovative pharmaceutical companies are doing "addition" (laying out a variety of disease areas and piling up rich pipelines), Sansheng Guojian has instead done "subtraction" and made a strategic transformation.

on April 26, 2023, sansheng Guojian announced that in order to further focus on core advantageous assets, optimize the company's product pipeline, improve capital utilization efficiency, reduce clinical development risks and enhance the company's core competitiveness, the company's anti-tumor projects 602, 609, 705, ophthalmology 601A and dansheng pharmaceutical 707 were exclusively awarded to Shenyang sansheng; all compounds produced by the recombinant human mouse chimeric anti-CD20 monoclonal antibody injection (304R) project and all other rights worldwide after becoming drugs are transferred to Shenyang Sansheng at a technology transfer fee of 99.3 million yuan.

Sansheng Guojian's R & D Pipeline Source: 2023 Semi-Annual Report

In fact, Sansheng Guojian's focus on the strategic transformation of the self-exemption track is not without reason.

On the one hand, in recent years, there is no shortage of cash flow depletion Biotech in China due to continuous "addition" or "greed for more and faster, betting around", and those Biotech that focus on differentiated pipelines or a certain area of concentration are more favored by multinational pharmaceutical giants.

On the other hand, the financing environment of the domestic innovative pharmaceutical industry has long been different from the past, and the Hong Kong stock market is even more sluggish. Therefore, passing through the capital winter through "increasing revenue and reducing expenditure" has naturally become the key to life and death.

More importantly, the autoimmune track has always been a big market second only to tumors. Not only is the market growing fast, but also self-exempted drugs often appear in the TOP10 list of the world's best-selling drugs.

3. 5 self-exempted products under research, and the research and development progress is in the forefront

After stripping the tumor pipeline, Sansheng Guojian's focus fell on the autoimmune track.

according to the financial report, sansheng guojian has laid out five self-exempted products under research (608, 610, 611, 613 and 621), involving important targets related to autoimmune diseases such as IL-17A, IL-5, IL-4R, IL-1β and IL-33.

specifically,SSGJ-608 is a humanized anti-IL-17A monoclonal antibody independently developed, designed and screened by it. currently, the psoriasis clinical phase iii study has been completed and the data is expected to be read out in the fourth quarter of 2023. will submit an application for listing in 2024, and the research and development progress is in the top three in China, Domestic enterprises have not yet listed such drugs (Zhixiang Jintai, Hengrui Pharmaceuticals has submitted NDA), the market potential is greater.

In terms of competing products, four pharmaceutical companies around the world, including Novartis, Lilly, Concord Fermentation Kirin and UCB, have approved their products, of which the first three have been listed in China. However, the market space for IL-17 targets is very large, the total global sales of Novartis and Lilly's two products will reach more than $7.2 billion in 2022.

the results of the 12-week phase ii clinical study in patients with moderate to severe psoriasis suggest that the 608 dose groups are significantly superior to the placebo group in PASI 75, PASI 90, PASI 100, PASI 75 + sPGA 0/1, and PASI 90 + sPGA 0/1. At the same time, compared with the same target, the efficacy indicators were significantly better than the efficacy data disclosed in the clinic.

SSGJ-610 is the fastest-moving domestic IL-5 monoclonal antibody. asthma clinical phase ii has been completed in July 2023, and the data is expected to be read out by the end of 2023 or early 2024. is expected to be listed in the first echelon.

in terms of competing products, three IL-5 target drugs have been approved for listing in the world, of which GlaxoSmithKline and AstraZeneca have a total sales of more than US $3 billion in 2022. at present, only GSK products have been approved for listing in China, and the competition pattern is good.

SSGJ-611 is an anti-IL-4Rα monoclonal antibody with a brand-new amino acid sequence. it is aimed at the treatment of moderate to severe atopic dermatitis, asthma and chronic sinusitis with nasal polyps. currently, phase iii clinical treatment of moderate to severe atopic dermatitis is being started. the progress is second only to CM310 of conoya/shiyao group. however, there are many domestic pharmaceutical enterprises and the competition pressure is great.

in terms of competing products, only sanofi/regenerant IL-4Rα monoclonal antibody (Dupilumab) has been approved for listing in the world, with global sales reaching 8.293 billion euros in 2022 and sample hospital sales reaching 0.373 billion yuan after listing in China.

SSGJ-613 belongs to a brand-new anti-IL-1β antibody. there is no similar drug on the market in the world. phase ii clinical treatment of patients with acute gouty arthritis has been completed before, and phase iii is expected to be launched within this year. is the second in the progress of similar domestic products, second only to Novartis and kinsey pharmaceutical.

SSGJ-621 is a brand-new anti-IL-33 monoclonal antibody. There is no such drug on the market in China. For chronic obstructive pulmonary disease (COPD) indications, NMPA IND has been submitted and accepted.

4. epilogue

Overall, it is rare for domestic pharmaceutical companies to bet on a certain field. The reason why Sansheng Guojian chose to bet on the autoimmune track is not only related to the historical background of its growth and the accumulation of relevant sales promotion experience, but also the self-free track shows the same huge market potential as the tumor field.

In addition, the market competition pattern of many products under research is good, the research and development progress is in the forefront of the country, and the efficacy and safety are also relatively significant. If the subsequent listing can be successfully promoted, it may help Sansheng Guojian to maintain a steady growth trend and rejuvenate the vitality of the "second spring.

Reference:

1. Sansheng Guojian Company's financial report, announcement and official website

2. "Sansheng Guojian -688336-In-depth Research Report: Comprehensive Layout of Self-Exemption Track, Product Matrix Gradually Shaping", Huachuang Securities

3. "Sansheng Guojian -688336-Adhering to Differentiation Strategy and Building the Future Leader of Domestic Self-Exempting Drugs", Guolian Securities