In December 2021, based on the logic of “policy encouragement + product price increase + market concentration increase + significant weakening of channel inventory cycle”, we took the lead in recommending OTC of traditional Chinese medicine in the whole market. At the current time point, based on the in-depth and extensive research on the whole industrial chain of traditional Chinese Medicine & policy research, we recommend the traditional Chinese medicine prescription drug sector for the first time. The core logic is “policy support for the allocation of basic drugs 986 to drive the sustained and rapid growth of exclusive basic drugs of traditional Chinese medicine”.
Traditional Chinese medicine prescription drugs, or “traditional Chinese medicine innovative drugs”, have been continuously encouraged by national policies in recent years. The multidimensional degree has shown important changes, and the growth of the industry is expected to accelerate. Since 2019, the traditional Chinese medicine industry has been continuously supported by national policies in many dimensions, such as new drug review, hospital use and medical insurance support. The overall top-level design has laid a good foundation for the development of the whole industrial chain of traditional Chinese medicine, and the industry perspective has been realized.
The industry development of traditional Chinese medicine prescription drugs in the first ten years faced obvious pain points: there were many competing products in the same treatment field, which made it difficult for products to enter the hospital, and the volume of most varieties after listing was not obvious. Due to the characteristics of the traditional Chinese medicine industry, the same treatment field generally has multiple exclusive traditional Chinese medicine varieties (all innovative traditional Chinese Medicine). Superimposed hospitals are subject to restrictions such as medical insurance fee control and drug proportion assessment. Traditional Chinese medicine prescription drugs are generally faced with difficulties in entering the hospital. Even if some varieties can enter the hospital, they will also face fierce competition from the original products in the same treatment field, and the volume speed is significantly lower than that of chemical medicine innovative drugs.
The policy requirements of “986” and “1 + X” of basic drugs significantly weaken the threshold for the admission of basic drugs of traditional Chinese medicine, and further rapidly increase the quantity of exclusive basic drugs of traditional Chinese medicine driven by structure. GBF [2019] No. 47 stipulates that the proportion of varieties of essential drugs provided by government run grass-roots medical and health institutions, secondary public hospitals and tertiary public hospitals shall not be less than 90%, 80% and 60% respectively in principle. The requirements of the 986 policy have significantly weakened the threshold for the admission of exclusive basic drugs of traditional Chinese medicine, and will be structurally beneficial to the large amount of exclusive basic drugs. Note: Taking Zhejiang Jolly Pharmaceutical Co.Ltd(300181) Wuling capsule as an example, the sales revenue remained about 400 million from 2013 to 2018. Benefiting from the list of newly imported basic drugs in 2018, the cumulative number of Wuling capsule entering the hospital increased rapidly from 2018 to 2020, and the sales revenue also achieved the second rapid growth simultaneously (the revenue doubled in three years from 2018 to 2021).
Marketing ability + product acquisition ability are still the two most important core competitiveness of traditional Chinese medicine prescription drug enterprises. On the one hand, due to the large number of competing products in the same treatment field, enterprises with excellent marketing ability can seize the market share; On the other hand, due to the current policy environment, a single large variety faces great risks, and the product pipeline layout is also an important support for the long-term sustainable development of enterprises. Similar to chemical drugs and innovative drugs, the acquisition of new products of traditional Chinese medicine prescription drugs also includes independent research and development and the introduction of lisensein.
Generally speaking, prescription drugs of traditional Chinese medicine benefit from national policy support as a whole, and the inflection point of the industry is obvious. Structurally, benefiting from the requirements of the basic drug 986 policy, the threshold for the admission of exclusive basic drugs of traditional Chinese medicine is reduced and the rapid and large-scale volume is driven, which will be more certain to benefit from the dividends of the industry. From the perspective of the enterprise itself, we focus on the two core competitiveness of “marketing ability + product acquisition ability”. We believe that two types of targets deserve investors’ attention: first, leading companies with strong marketing ability + excellent variety acquisition ability + benefiting from the basic drug catalogue, it is suggested to focus on Hubei Jumpcan Pharmaceutical Co.Ltd(600566) , Shijiazhuang Yiling Pharmaceutical Co.Ltd(002603) ; 2、 The marketing ability is average, but the benefit of the basic drug catalogue has significantly weakened the elasticity of the company’s short board. It is suggested to focus on Jiangsu Kanion Pharmaceutical Co.Ltd(600557) , Zhejiang Jolly Pharmaceutical Co.Ltd(300181) . In addition, it is also suggested to pay attention to Shandong Buchang Pharmaceuticals Co.Ltd(603858) , Tasly Pharmaceutical Group Co.Ltd(600535) , Kpc Pharmaceuticals Inc(600422) , Guiyang Xintian Pharmaceutical Co.Ltd(002873) , Guizhou Sanli Pharmaceutical Co.Ltd(603439) , Tianjin Chase Sun Pharmaceutical Co.Ltd(300026) , etc.
Focus on company profile
Hubei Jumpcan Pharmaceutical Co.Ltd(600566) : Children’s fermented soybeans & second-line products drive rapid growth. 1) Pudilan was subject to the withdrawal from the provincial medical insurance and drugstore channels, and showed negative growth from 2018 to 2020. At present, the withdrawal from provincial medical insurance has been in the late stage, and the channel inventory is healthy, which is expected to achieve steady growth; 2) The sales volume of Xiaoer douqiao Qingre granules has increased rapidly. At the same time, the price of sugar containing type for sugar free type has increased, and it is possible to enter the 2022 version of the national base catalogue, which is expected to continue to grow rapidly; 3) The echelon of second tier varieties has been formed, and the total income of protein iron + Huanglong cough relieving + stomach strengthening and digestion accounts for about 15-20%, which continues to achieve rapid growth; 4) In 2022, both revenue and profit are expected to grow rapidly, “strong marketing ability + lisencein introduced varieties” to ensure sustainable growth in the future.
Jiangsu Kanion Pharmaceutical Co.Ltd(600557) : 6 exclusive varieties of basic drugs to ensure sustainable growth in the future. 1) The innovation ability of traditional Chinese medicine is second to none in China. Over the years, a total of 45 innovative varieties of traditional Chinese medicine have been developed. President Xiao, chairman of the company, was elected as an academician of the Chinese Academy of engineering last year. The enterprise has a State Key Laboratory of traditional Chinese medicine; 2) The six exclusive basic drug varieties make up for the marketing weakness and are expected to continue in large quantities. In the history of the company, the marketing ability is weak and the variety advantage can not be brought into full play. In 2018, the company has six exclusive varieties. With the support of the basic drug 986 policy, the superimposed marketing is gradually changed to the hospital director responsibility system, which is expected to continue to grow rapidly; 3) The price of ginkgolide injection remained unchanged at the end of last year, and the volume growth remained at a high level. The company’s ginkgolide significantly reduced the price in the medical insurance negotiation in 2019, the renewal price will remain unchanged in 2021, and will maintain rapid growth in the future; 4) Resources + marketing + varieties + basic drug support are complete, and it is expected to achieve rapid growth in the long term in the future.
Shijiazhuang Yiling Pharmaceutical Co.Ltd(002603) : Lianhua Qingwen monopolized the three exclusive basic drugs of anti epidemic Aotou and cardio cerebrovascular, with steady growth. The company’s exclusive variety Lianhua Qingwen capsule (granule) has become a representative variety of covid-19 treatment traditional Chinese medicine “three parties and three drugs”, and its market popularity has increased significantly during the epidemic; The three exclusive varieties of cardio cerebrovascular drugs have entered the catalogue of basic drugs, which is expected to continue to achieve rapid growth; With the help of the company’s strong marketing ability, second-line varieties are expected to achieve rapid volume on the basis of low base.
Zhejiang Jolly Pharmaceutical Co.Ltd(300181) : the leading variety Wuling capsule has achieved a second take-off with the help of basic drug support policies. In 2018, the company’s three leading products (Wuling capsule, bailing tablet and Lingze tablet) were newly imported into the basic drug catalogue, and the number of entering the hospital increased rapidly, driving the rapid growth of sales revenue.
Traditional Chinese medicine prescription drugs are supported by national policies. The valuation level of major listed companies in the sector is low. Benefiting from the support of the national basic drug catalogue, the growth of relevant companies is expected to accelerate. Maintain a recommended rating for the traditional Chinese medicine industry.
Risk tip: the risk of covid-19 epidemic affecting hospital terminal sales; The risk that the implementation of basic drug support policies in all provinces is lower than expected; The risk that the price reduction rate of centralized purchase of some products exceeds the expectation; The risk that the review progress of new traditional Chinese medicine on the market is lower than expected; There is a risk that the cost of traditional Chinese medicine will rise too fast.
