According to the latest information, on September 3, 2020, the official website of National Medical Products Administration showed that Joincare (600380) was approved to produce ipratropium bromide inhalation solution in application of imitated Category IV, which was the first in China to pass the consistency evaluation. Up to now, Joincare has already been approved for production of many kinds of inhalants, such as ipratropium bromide inhalation solution, budesonide suspension for inhalation, compound ipratropium bromide inhalation solution and levalbuterol hydrochloride inhalation solution, which have been considered as evaluated. Among them, levalbuterol hydrochloride inhalation solution fills in the blank domestic market.

The harvest period of inhalation preparation is coming, and the market of hundreds of billions is expected

Public data showed that among Top 100 global best-selling medicines in 2019, there were 5 respiratory preparations with a total sales amount of more than 11.7 billion dollars. Undoubtedly, the department of respiration is an area of large breeds.

However, currently the global market of respiratory field is about 20 billion dollars, and the scale of China exceeds 30 billion yuan. In the future, with the continuous increase of air pollution and aging, the risk of respiratory disease is continue to increase, and the increasing prevalence rate + long-term medication will certainly create a huge market space.

According to the analysis of Guosheng Securities, domestic respiratory preparations accounted for less than 30%, indicating a huge import replacement potential. For domestic medicine enterprises that can overcome these barriers, they will become good moats. In addition, due to high competition barriers and other factors, the participants are limited and the competition pattern is positive. In the meantime, the domestic awareness rate is low, and it is expected to increase rapidly in the future with a market exceeding 100 billion yuan.

Starting from a well-known health care product brand in China, developing into a domestic private medicine group with strong comprehensive strength in time and then to the key layout of the respiratory department at the right time, every step of Joincare’s industrial layout is stable and accurate.

According to information, after years of in-depth layout and focused R&D, Joincare now has rich and profound respiratory line and is welcoming fruitful harvest period.

The announcement showed that currently Joincare has already successfully marketed two products of the respiratory field and completed the networking in most provinces. The marketing team building has also completed basically. Ipratropium bromide solution for inhalation, budesonide suspension for inhalation and other kinds of inhalation preparations have already obtained drug registration certificate, among them, the sales peak of the blockbuster budesonide suspension for inhalation is expected to exceed 1.5 billion yuan and reach about 2 billion yuan. Moreover, many respiratory products are expected to hit the market in 2021-2022. According to product deploy and control, 3-5 new products of the company are expected to launch in the market annually in the future. In view of the above, TF Securities estimated that by 2025, the product income of Joincare respiratory plate will exceed 5 billion yuan, and the net profit is expected to exceed 1.2 billion yuan.

In this regard, many institutions have said that they are optimistic about the continuous realization of the company's R&D capability in the field of inhalation preparations. The products under research are complete and the echelon progress is orderly. In the future, with the coverage of national hospitals with high respiratory potential, Joincare is expected to become the leader of inhalation preparations in China.

Introducing top strategic investment to help it become leader of subdivision

Recently, Joincare (600380.SH) announced that its placement of non-public offering of shares was expected to be no more than 2.173 billion yuan, and it planed to introduce Hillhouse Capital as the strategic investor. Hillhouse Capital planed to subscribe all non-public shares in 2020 of Joincare with “Hillhouse Capital Management Co., Ltd - China Value Fund”. Currently, the shareholders’ meeting has deliberated and agreed to this private placement.

One party is the top strategic investment, and the other party is the “Upstart” in pharmaceutical industry, this private placement could be called a win-win cooperation, which quickly attracted the attention of many investors and institutions.

According to financial report, the operation revenue of Joincare was 10.779 billion yuan, 11.204 billion yuan and 11.98 billion yuan in 2017, 2018 and 2019 respectively, and the compound annual growth rate was 5.42%. With the continuous expansion of the business scale, in the future, its requirement scale of working capital would continue to increase.

Joincare belongs to pharmaceutical manufacturing industry. As we all know, in the future, there will be a big demand for expenditure on R&D and technological innovation. In the meantime, as an important strategic development direction, chronic disease drugs and respiratory drugs also require a large amount of funds for product R&D and market expansion.

However, according to public information, Hillhouse Capital has already had in-depth industrial investment in medical health fields, and currently it has invested 160 enterprises in global medical health industry, including 100 domestic enterprises and 60 foreign enterprises. It also invested 52 innovative pharmaceutical enterprises of innovative pharmaceutical fields in global investment layout, and more than half of them are foreign biotechnology enterprises in the clinical stage. Moreover, Hillhouse Capital has maintained close communication and friendly coordination with invested enterprises for a long time, possessing the ability to import and integrate industrial resources.

According to the announcement, the strategic cooperation between both parties will take equity investment as the link to carry out a series of strategic cooperation in several major fields. First, Hillhouse’s layout in global innovative pharmaceutical field can actively help Joincare to introduce developing innovative drug products of key therapeutic field and high-level R&D technical platform, such as inhalation preparation, microsphere technology, lipid microemulsion technology, CAR-T cell immunotherapy, bispecific antibody and other fields; second, chain pharmacy platforms held and operated Cowell Health can play a synergistic effect with Joincare in the sales channels of medication for chronic diseases such as respiratory products as well as health care products and OTC products; third, Hillhouse will output its experience in lean manufacturing, digital transformation and technology empowerment that is practiced and applied in many of its invested enterprises to Joincare to comprehensively improve its operation and management efficiency.

For this private placement, Huatai Securities believes that the introduction of this top strategic investment has significant meaning for Joincare’s long-term development, and Hillhouse’s advanced management concept, globalized vision and rich medical resources will help Joincare grow rapidly.

Many plates make efforts one after another, and the performance may realize long-term success.

Based on good racing track and projects, Joincare improves its performance comprehensively through the efforts of many plates, which is also the important factor of Hillhouse Capital to choose full subscription and become a shareholder strategically.

According to Joincare’s semiyearly report of 2020, its operation revenue of the first half of the year was 6.476 billion yuan, increasing about 3.04% than the same period of the last year. The net profit attributable to shareholders of listed companies was 676 million yuan, increasing 23.78% from year on year compared with 546 million yuan in the same period of the last year. The net profit attributable to shareholders of the listed company after deducting non-recurring profits and losses was 592 million yuan, increasing 17.25% from year on year. The net cash flow from operating activities reached 1.249 billion yuan, increasing 10.37% than the same period of the last year. In the meantime, the basic earnings per share have also increased by 23.60% year on year. It can be seen that almost all index of Joincare had realized rapid increase in the first half of the year.

Among them, the revenue of Livzon Group (excluding Livzon McAb) was 5.096 billion yuan, increasing 3% year on year; the net profit attributable to parent company was 466 million yuan, increasing 31% year on year, which strongly helped Joincare to realize high growth of performance.

Seeing the details from the perspective of sub-plates, as a pharmaceutical enterprise, under the epidemic of COVID-19, the plate of diagnostic reagents, chemical agents and bulk pharmaceutical chemicals of Joincare were all performed well in the first half of the year. Among them, the revenue of chemical agents was 2.878 billion yuan, and the sales of Iprazole sodium for injection and Perospirone hydrochloride tablets realized rapid increase relying on the advantage of newly entering medical insurance; the revenue of bulk pharmaceutical chemicals and intermediates was 1.945 billion yuan, benefiting from a substantial increase in meropenem (mixed powder) export; the revenue of diagnostic reagents and equipment was 889 million yuan, which increased by 143.35% year on year, mainly due to the significant increase in the sales of COVID-19 antibody detection reagent with a gross profit rate of 76.48%; the revenue of traditional Chinese medicine preparations was 662 million yuan, among which antiviral granules has entered the relevant guide of COVID-19 diagnosis and treatment and its year-on-year sales growth was significant; the revenue of health care products was 72 million yuan, with a gross profit rate increased by 67.84%. The figures showed that Joincare has formed a growth effect with many plates making efforts together.

It is needed to be mentioned that the enhancement of overall profitability of Joincare is also related to the reduction of sales fees in the first half of the year. According to the financial report. the company’s sales rate of the first half of 2020 was 27.85%, with a year-on-year decrease of 8.36%. For the reasons of the decrease, Joincare also gave an answer. “The decrease of sales fees is mainly because of the reduction of the company’s market propaganda and promotion fees, travel expenses, meeting affair expenses and other expenses related to sales promotion activities due to the influence of the epidemic.”

It can be seen that facing the sudden outbreak of epidemic, through rapid layout of corresponding products and equipment as well as actively response to the call of reducing Joincare “added some glory” to its excellent performance in the first half of the year to some extent.

However, the increased performance due to the epidemic only counted for a part for Joincare. The continuous realization of product lines of multi-plate layout is the foundation of its rapid growth as well as the power of realizing the long-term success of its performance. According to the report, Livzon McAb of Joincare’s biopharmaceutics plate is accelerating the development of the projects under research, in the first half of the year, 1 variety has passed the on-site verification of drug registration and 2 products have been approved for clinical use; for bulk pharmaceutical chemicals plate, under the influence of the epidemic, the export of meropenem (mixed powder) have increased significantly, and it was also expected to take this opportunity to expand the international market space; for health care products and OTC plate, it obtained good effects through targeted release and online and offline integration marketing; the speed of the R&D progress of respiratory inhalant preparations plate took the lead, and the production lines continued to enrich and started to enter harvest period.

According to the prediction of Guosheng Securities, several microsphere and McAb varieties of Livzon would be approved together in 2022, which may become an important node of its sprint of market value of 100 billion yuan.

In conclusion, it can be observed that with production lines blooming in many fields and continuing to enter harvest period, and plus Hillhouse Capital’s becoming a shareholder and investing strategically, Joincare can be said to be “like a tiger with wings”, and its future development is really promising.

Disclaimer: the content of this article is for reference only, and does not constitute investment advice.

Repost from Weekly on Stocks