On April 27, Luoxin Pharmaceutical (002793. SZ) disclosed its 2023 annual report and 2024 first quarter report. According to the announcement, the company will achieve operating income of 2.364 billion yuan in 2023, with a net loss of 661 million yuan and a year-on-year decrease of 46.03%, of which the revenue of the pharmaceutical industry will be 2.074 billion yuan, a year-on-year increase of more than 43%, and from January to March 2024, the operating income will be 689 million yuan, an increase of 28.17% month-on-month, and the net loss will be 36.7 million yuan, a year-on-year decrease of 59.37%. The main reason for the company's performance loss is that the innovative drug business has not been able to cover its costs.
In recent years, with the gradual deepening of medical reform and the normalization of industry policies such as centralized procurement, a number of traditional pharmaceutical companies have sought transformation in response to changes in the industry and market environment. As a veteran pharmaceutical company, Luoxin Pharmaceutical is no exception, and continues to increase innovation and transformation. In the past two years, the disruption of the epidemic, the large amount of capital investment in innovative drugs and their commercialization, and the intensification of the impact of industry policies have also made him experience "labor pains" like many of his peers.
Looking at the company's financial report and previous announcements, the reporter found that the company's year-on-year decline in operating income in 2023 was mainly related to the sharp decline in its pharmaceutical business income. At the end of 2022, due to the strategic focus on the main business, the company divested Shangyao Luoxin (formerly Hyundai Logistics), a subsidiary of the pharmaceutical commercial sector, resulting in a year-on-year decrease of 87% in pharmaceutical commercial revenue in 2023, and also led to a decline in the sales revenue of agency products in the commercial sector. However, the company's main business, the pharmaceutical industry, will have a revenue of 2.074 billion yuan in 2023, a year-on-year increase of more than 43%.
The quality of operation continues to improve, and the basic market of the pharmaceutical industry is stable
Enterprise innovation, transformation and upgrading is never an easy topic, especially for large traditional enterprises, and it is really difficult to break the old path dependence by taking a whole seat. On the one hand, Luoxin Pharmaceutical accelerates innovation and R&D, builds its own direct sales team to increase market development efforts, and on the other hand, promotes refined management and continuously improves the company's operating quality. In 2023, the company's net cash flow from operating activities will be 467 million yuan, a year-on-year increase of 149.72%, and the cash flow will successfully turn positive. At the same time, in the context of deep adjustment and drastic changes in macroeconomic and industry policies, the company's management has continuously improved the efficiency of operation and management, and the company's management expenses in 2023 will decrease by 25.08% compared with the same period last year, and the financing scale will be reduced from 3.5 billion yuan at the end of 2022 to less than 1.5 billion yuan in 2023, and the financial expenses will decrease by 46.74% year-on-year. The asset-liability ratio also decreased from 59.26% at the beginning of 2023 to 49.73% at the end of the year, and the ratio of short-term borrowings to interest-bearing liabilities dropped sharply by 67.60%. The company's debt stress has been significantly reduced, and it has better financial stability.
According to the data of the 2023 annual report and the first quarter of 2024 released by the company, the revenue of the pharmaceutical industry in 2023 (self-product) will be 2.074 billion yuan, a year-on-year increase of more than 43%, and from January to March 2024, the operating income will be 689 million yuan, an increase of 28.17% month-on-month, a significant increase. In addition, the company's administrative expenses and financial expenses decreased year-on-year in the first quarter. The company's pharmaceutical industry has steadily improved, and at the same time, its investment and layout in innovation and transformation have gradually shown results.
P-CAB stirs up the antacids market, and Tegola raw tablets are expected to accelerate the volume
Digestive system medication has always been one of Luoxin Pharmaceutical's trump cards, and it is also the key direction of the company's innovative drug transformation. In April 2022, Luoxin Pharmaceutical's R&D and application of the Class 1 innovative drug Tegola Shengpian (trade name: Taixinzan ®) was officially approved. According to the data, Tegola raw tablets is Luoxin's first self-developed new antacid inhibitor-potassium competitive acid blocker (P-CAB), and it is also a national Class 1 innovative drug and the first chemical Class 1 innovative drug in Shandong Province. At present, two indications have been approved for marketing: reflux esophagitis and duodenal ulcer, and the marketing application for the third indication "eradication of Helicobacter pylori in combination with appropriate antimicrobial therapy" has been accepted by the National Medical Products Administration, and it is expected to be marketed in 2024. Zheshang Securities once predicted in a research report that under the condition of considering only two indications, it is expected that the peak sales of Tegola raw tablets are expected to reach 2 billion to 3 billion yuan. Luoxin Pharmaceutical has also developed p-cab injection products, which are currently not available in the world.
Studies have shown that compared with traditional proton pump inhibitors (PPIs), P-CAB has the characteristics of rapid onset of action in 30 minutes, strong and long-lasting acid suppression, and convenience of taking, and can achieve greater acid suppression effect with the first dose. At present, the latest Chinese guidelines for digestive diseases have listed P-CAB as one of the preferred drugs for reflux esophagitis. At present, the situation of PPI dominance in the acid suppression drug market is changing at an accelerated pace, and in the future, P-CAB may become the mainstream acid suppression drug and gradually replace PPI. In 2020, the domestic PPI market size will be nearly 40 billion yuan, and from the perspective of the national sales amount of PPI of 30 billion to 40 billion yuan, the penetration rate is expected to be about 40%, and the oral drug market of PPI after centralized procurement will be about 10 billion yuan. As P-CAB is recognized by experts and patients and gradually opens up the market, it will seize most of the market share in the future. Luoxin Pharmaceutical is expected to win a huge market with the blockbuster single product of Tegola raw tablets. During the reporting period, the company's direct sales team promoted the access of hospitals at all levels in an orderly manner through professional academic promotion, assisted doctors to quickly obtain drug experience accumulation, and realized the acceleration of product production.
In the process of transformation from generic drugs to innovative drugs, Luoxin Pharmaceutical continued to consolidate the company's dominant position in the field of digestion, successfully developed and marketed innovative drug Tegola Raw Tablets, and achieved a breakthrough of "zero" in the company's Class 1 new drugs. In terms of commercialization, the company broke the sales model of traditional pharmaceutical companies focusing on investment promotion, and built a direct sales team to be responsible for commercialization and promotion, so as to promote the "Xin" speed of Tigola raw tablets to be included in the national medical insurance catalogue at a reasonable price in the first year of listing.
Actively increase innovation and research and development, and constantly enrich the layout of the digestive tract
The R&D cycle of innovative drugs is long, the investment is large, and the risk is high, and it is not easy to succeed in the end. The reason why Luoxin Pharmaceutical has been able to make a major breakthrough is that the company has always adhered to the road of scientific and technological innovation. The annual report shows that in 2023, Luoxin Pharmaceutical's R&D investment will account for about 10% of operating income, and this proportion has been increasing year by year in recent years. Up to now, in addition to Tegola raw tablets, the company has made phased breakthroughs in the research and development of a number of new drugs during the year. These include: the phase III clinical trial of the guanylate cyclase inhibitor pukanatide tablets for functional constipation has been completed, and the primary efficacy endpoint has been reached, and the LX22001 for injection of new drugs under development for the treatment of peptic ulcer bleeding has made phased progress, and the new drug application (IND) has been accepted, and phase I./II./III. clinical studies for multiple indications are planned. In addition, Luo Xin's self-developed Category 1 new drugs, LX-086 for the treatment of advanced solid tumors and LX-039 for advanced breast cancer, have completed phase I clinical trials, and no similar drugs have been marketed in China.
As a leading enterprise in the field of digestion, Luoxin Pharmaceutical has always maintained a keen insight into market demand and continuously expanded its forward-looking layout in addition to increasing the research and development of innovative drugs. In March this year, Luoxin Pharmaceutical also joined the microecological field where multinational pharmaceutical giants such as Pfizer, Roche, and Johnson & Johnson have entered the game, and reached a strategic cooperation with Shenzhen Unknown Jun, an AI+BT microecology R&D company, to make a blockbuster layout of intestinal microbiota transplantation (FMT). Shenzhen UnknownJun licensed the intestinal microbiota transplantation treatment solution to Luoxin Pharmaceutical, and the two parties carried out exclusive commercialization cooperation to jointly accelerate the commercialization process of FMT therapy.
It is reported that there are more than 500 clinical trials related to intestinal bacteria transplantation registered in the world, which have been used for 85 diseases, including digestive system diseases, chronic metabolic diseases, immune diseases and psychiatric diseases. According to the public information on the domestic government website, "microbiota transplantation is becoming a new track in the field of biomedicine, with a global market segment of about 50 billion US dollars." Industry analysts said that Luoxin Pharmaceutical, as a leader in digestive medicine, has great advantages in commercialization, coupled with Shenzhen Unknown's leading position in FMT research and development, the cooperation between the two can be described as a strong alliance to jointly tap the domestic blue ocean market.
Epilogue:
In 2021, we will build a self-built innovative drug direct sales team to lay the foundation for the commercialization of innovative drugs, in 2022, we will focus on the main business, divest non-core businesses, and make every effort to develop the company's first innovative drug market, and in 2023, we will upgrade our refined management and operation, and comprehensively deploy cutting-edge technologies in advantageous fields to consolidate the dominant position of the digestive tract. After dormant years, judging from the quarter-on-quarter data of 2024 and the year-on-year business performance in 2023, this year may become the first year of innovation for Luo Xin to break through the cocoon and become a butterfly. Can the story of transformation and innovation of the old pharmaceutical company go through many difficulties and dangers to achieve the ambition of the leading enterprise in the digestive tract?