The profit margins of traditional generic drugs continue to be squeezed, and Huadong Medicine (000963. SZ) has accelerated its transformation to the innovative drug track in recent years, but so far related products have not generated large-scale revenue, and the revenue growth rate of its core business segment will be stable and declining in 2023.
At the same time, as more and more new drugs are introduced and self-developed into the clinical trial stage, Huadong Medicine's expenditure on direct R&D continues to increase, and the impact on performance is becoming more and more obvious. In 2023, the company will once again increase the capitalization ratio of R&D investment.
In 2024, a number of innovative drug products of Huadong Medicine are expected to be approved for marketing, and all of them are popular track products, and whether a blockbuster drug can appear to help the company's transformation and performance growth has attracted much attention from the market.
The strategic transformation of the core business is promoted
On April 18, Huadong Medicine disclosed its 2023 annual report, with operating income of 40.624 billion yuan during the reporting period, a year-on-year increase of 7.71%, and a net profit attributable to the parent company of 2.839 billion yuan, a year-on-year increase of 13.59%. The four major sectors of pharmaceutical commerce, pharmaceutical industry, medical cosmetology and industrial microbiology all maintained positive revenue growth, pushing the company's overall revenue level to the best level in history, but the revenue growth rate fell by 4.96, 1.43, 63.32 and 1.33 percentage points year-on-year respectively.
In terms of specific business, the pharmaceutical business sector is one of the company's important sources of income, with revenue reaching 26.981 billion yuan during the reporting period, accounting for 66% of the company's total revenue, but due to low profit margins, the net profit was only 431 million yuan. In contrast, the annual revenue of the pharmaceutical industry business was 12.217 billion yuan, accounting for 30% of the total revenue, but the net profit was 2.33 billion yuan, accounting for 82% of the total net profit attributable to the parent company. Although the revenue growth of the medical aesthetic and industrial microbiology sectors is relatively fast, the total revenue scale accounts for less than 10%, and the total net profit accounts for only about 3%.
As the core business of Huadong Medicine, the pharmaceutical industry has long focused on the fields of specialty, chronic disease drugs and special drugs, and its product pipeline is mainly chronic kidney disease, transplant immunity, endocrine, digestive system, etc. Since the related products are mainly generic drugs, business income has fluctuated since 2020 due to factors such as centralized procurement, and the return on net assets has also declined year by year, and has dropped to 23.98% in 2023, hitting a new low in recent years.
In order to improve the profitability of its core business segments, Huadong Medicine has continued to promote business transformation since 2019, accelerating the layout of biopharmaceuticals on the basis of traditional generic drug business, especially in the fields of tumors, autoimmunity and metabolic diseases, in order to bring new growth momentum.
When will the blockbuster new drug come out
According to the annual report, in 2023, a number of innovative drugs of Huadong Medicine have entered the marketing application stage and have been accepted, including linatercept for injection for the treatment of cold pyriline-related periodic syndrome in the autoimmune track, somituximab injection, an innovative ADC drug for the treatment of ovarian cancer in the anti-tumor track, and a dynamic monitoring system for glomerular filtration rate in the field of innovative medical devices.
Among them, the potential market demand for somituximab injection is the most impressive, with more than 50,000 new cases of ovarian cancer in China every year, and the five-year survival rate is less than 50%, which is a huge unmet clinical need.
In terms of biosimilars, Huadong Medicine has attracted the most attention in the layout of the GLP-1 drug track. The marketing applications for liraglutide injection for hypoglycemic and weight loss indications have been approved in the first half of 2023, becoming the company's first marketed product in the GLP-1 target.
However, liraglutide is not the "hot flower" of the GLP-1 track. In the follow-up drug layout, the phase III clinical study of semaglutide analogue of Huadong Medicine will not obtain the main data until the fourth quarter of this year, and the oral small molecule GLP-1 receptor agonist (HDM1002) and GLP-1/GIP dual-target innovative drugs (HDM1005) have just been approved to enter the phase I clinical trial. This means that Huadong Medicine may have to wait until 2025 or even longer to make a success in the popular GLP-1 track.
On the whole, including the introduced CAR-T product Zewogene autoleucel, Huadong Pharmaceutical's innovative drugs and biosimilars have not yet formed large-scale revenues, and the overall revenue growth rate of its pharmaceutical industry segment in 2023 will be 9.63%, which is even slightly lower than that in the first half of the year.
In 2024, the company may have more innovative drugs and biosimilars approved for marketing, but it will still take some time to develop the market, and it remains to be seen whether it can bring growth momentum to the company after that, or even a blockbuster drug.
It is worth noting that since Huadong Medicine has promoted its strategic transformation, while vigorously promoting the introduction and R&D of innovative drugs, R&D investment has also grown rapidly.
In 2019, the scale of R&D investment in Huadong Pharmaceutical exceeded 1 billion yuan for the first time, and by 2023, the company's R&D investment in the pharmaceutical industry will reach 2.293 billion yuan, and the total direct R&D investment will reach 1.6 billion yuan. The impact of increasing R&D investment on profit growth is also becoming increasingly apparent, and the company has capitalized part of its R&D investment since 2022. In 2023, the company's total capitalized R&D investment will reach 369 million yuan, a year-on-year increase of 61.83%, which also makes the net profit attributable to the parent company achieve double-digit growth during the reporting period.
At present, Huadong Medicine has a total of 17 pipelines under development in different clinical stages (non-marketing application stage), and there will be 2 self-developed products to apply for IND (new drug clinical research approval) in 2024, and it is expected that the scale of follow-up R&D investment will remain at a high level, which may put the company's performance under certain pressure.
(This article is from Yicai)