TONGHUA DONGBAO PHARMACEUTICAL(600867)：WINS PRELIMINARY BIDS FOR A FULL RANGE OF INSULIN PRODUCTS;MARKET SHARE LIKELY TO CONTINUE RISING

What's new

    On November 26, the National Joint Procurement Office announced the initial bidding results for the sixth round of centralized procurement of insulins. Tonghua Dongbao Pharmaceutical won the class-B bid (i.e., the type of bid for winners whose rankings are out of the top 3) for a full range of insulin products.

    Comments

    Won preliminary bids for a full range of insulin products; winning prices in line with expectations. Tonghua attended the latest centralized drug procurement and won preliminary bids for products including human insulin injection, protamine human insulin injection, protamine human insulin mixed injection, insulin glargine injection, and insulin aspart injection. The bid-winning prices (based on the same dosage form: 300IU/3ml [refill]) for each group are Rmb28.97, 29.96, 28.96, 42.33, and 77.98 per cartridge.

    Share in the domestic insulin market to continue increasing. The combined sales value of the above-mentioned bid-winning products came in at Rmb2.34bn in 2020 (80.84% of total revenue) and Rmb2.05bn in 1- 3Q21 (83.54% of the total). Corporate filings state that Tonghua Dongbao holds a stake of around 38% in the domestic second-generation human insulin market. We expect the winning bids to help the company gain a firmer foothold in the market. Given that its third-generation insulin glargine injection and insulin-aspart injection products are still at the early ramp-up stage, we think that the winning bids will accelerate the marketing approval, and contribute to rapid sales volume growth and market share gains in the near term.

    Accelerated development of innovative drugs for diabetes and endocrine diseases. In June, Tonghua Dongbao received approval for clinical trials of the world’s first triple-target inhibitor (SGLT1, SGLT2, and DPP4). In October, the company’s clinical application of URAT1 inhibitor (State Category I New Drug) for gout was reviewed, and its application for Phase I and III clinical trials of ultra-fast-acting insulin lispro (BC Lispro) was also approved.

    Valuation and recommendation

    We leave our 2021 and 2022 net profit forecasts unchanged at Rmb1.32bn (up 41.8% YoY) and Rmb1.31bn (down 0.4% YoY). The stock is trading at 18.3x 2021e and 18.4x 2022e P/E. Given the smooth implementation of the centralized-procurement policy and the improving market sentiment, we maintain OUTPERFORM and raise our TP 10.1% to Rmb14.86 (implying 22.9x 2021e and 23x 2022e P/E), offering 25% upside.

    Risks

    Ramp-up of new products and/or R&D projects disappoint.