Among the pharmaceutical stocks that have released their 2024 annual performance forecasts, Huiyu Pharmaceutical's performance is impressive enough.

In 2024, it is expected to achieve a net profit of 300 million yuan to 360 million yuan, a year-on-year increase of 114.61%-157.54%. Net profit after deducting non-recurring gains and losses is expected to be between 95 million yuan and 110 million yuan, a year-on-year increase of 43.92%-66.64%.

Huiyu Pharmaceutical was once known as the "lucky guy" of centralized procurement, having stood out in centralized procurement and won the main domestic market share of pemetrexed disodium. However, with the increasingly fierce market competition, its share has been gradually eroded. However, under the guidance of innovation and internationalization strategies, performance has gradually recovered, and the innovative drug business has also been put on the right track and revitalized again.

With 40 high-end generic drugs in hand,

in 2017 and 2018, Huiyu Pharmaceutical's core product, pemetrexed disodium for injection, had sales revenue of 29 million yuan, and its market share was not high.

In 2017, Huiyu Pharmaceutical's pemetrexed disodium for injection was deemed to have passed the consistency evaluation because it was listed in Europe and the United States and produced on the same line as in China, becoming the first generic pemetrexed for injection to pass the evaluation.

In November 2018, the state organized the "4+7" centralized procurement of drugs with volume. Huiyu Pharmaceutical's pemetrexed disodium, as the only product that passed the consistency evaluation, entered the centralized procurement together with Eli Lilly's original research drug. Huiyu Pharmaceutical won the bid with a 65% price reduction, and then won the bid in the centralized procurement in the alliance region.

After successfully entering the centralized procurement, Huiyu Pharmaceutical's pemetrexed disodium quickly seized market share. From 2019 to 2021, the sales revenue of this variety reached 655 million yuan, 1.227 billion yuan, and 1.45 billion yuan, respectively, accounting for 92.77%, 91.02%, and 79.54% of the company's revenue.

However, with the expiration of the centralized procurement contract for pemetrexed disodium, more than seven pemetrexed disodium generics, including Jiangsu Hausen and Qilu Pharmaceutical, have passed the consistency evaluation and entered the centralized procurement. Huiyu Pharmaceutical once again significantly reduced its price to participate in market competition, and its net profit in 2022 and 2023 fell by 44.15% and 43.86% respectively.

The success of pemetrexed disodium also allowed Huiyu Pharmaceutical to explore a generic drug strategy around centralized procurement. The focus of generic drug research and development projects is tilted towards projects with higher technical difficulty, larger market space and relatively mild competition.

As of January this year, Huiyu Pharmaceutical has more than 40 high-end generic drugs approved for marketing, including first-generation varieties such as azacitidine for injection, sodium thiosulfate injection, and morpholinotriazole sodium chloride injection, as well as docetaxel injection, acetylcysteine injection and other first-generation varieties. In the first ten batches of national procurement, Huiyu Pharmaceutical had a total of 9 products winning the bid, laying a solid foundation for its sales revenue in the future.

In addition, Huiyu Pharmaceutical has more than 10 high-quality generic drugs under review, including blockbuster products such as polymyxin B sulfate for injection, lanreotide acetate sustained-release injection, and carfilzomib for injection. Once approved, these products will continue to provide impetus for its performance growth.

"Opening up new territory" in overseas markets

At a time when domestic generic drug competition is becoming increasingly "white-hot", profit margins are constantly compressed, and generic drug profits are already very meager. For pharmaceutical companies, if they want to gain greater profit growth space, developing innovative drugs and promoting internationalization strategies have become the only way. Although the research and development of innovative drugs has great potential, it requires huge investments, a long research and development cycle, and is accompanied by high risks.

In contrast, generic drugs "going overseas" have become a faster development path with their relatively short payback cycle.

In 2024, facing the overall downturn in the industry, Huiyu Pharmaceutical still achieved a doubling of profits. This impressive achievement is mainly due to two key factors: one is the rich harvest in investment returns; the other is the outstanding performance in the international market.

In December 2023, Huiyu Pharmaceutical led the nearly RMB 200 million D round of financing for Tongyuankang Pharmaceutical, followed by well-known institutions such as CICC Capital's funds, Changxing Financial Holdings and Huzhou Talent Fund. Tongyuankang Pharmaceutical's post-investment valuation was 3.084 billion yuan. Tongyuankang Pharmaceutical was founded in 2017 and is a clinical-stage biopharmaceutical company focusing on small molecule drugs and other related innovative drug types. It focuses on "deuterium generation technology" and has 11 candidate drug pipelines. On

August 20, 2024, Tongyuankang Pharmaceutical was listed on the Hong Kong Stock Exchange. The closing market value on the first day of listing exceeded HK$5 billion. Since then, the stock price has been rising all the way, with the highest market value reaching HK$20.581 billion, more than 6 times that of the D round of financing. Huiyu Pharmaceutical also recognized a fair value change gain of 211 million yuan in 2024 due to this investment, and the return on investment is very considerable.

In terms of overseas market expansion, Huiyu Pharmaceutical mainly relies on its subsidiary Haiyue UK to conduct business, mainly adopting the consignment sales model. Actively participate in drug procurement bids organized by government departments of various countries. After winning the bid, Haiyue UK commissioned drug wholesalers to sell drugs to public hospitals and other end customers in a consignment sales model. At the same time, in countries such as Portugal, the Netherlands, and Italy, Huiyu Pharmaceuticals adopts a self-operated and distributed model, deeply participates in the bidding and subsequent sales of local governments and public health systems, and continuously expands its market share.

In order to open up overseas market channels and ensure the smooth export of products, Huiyu Pharmaceuticals strictly refers to the GMP regulations of China, the European Union, and the United States to build a scientific, rigorous, comprehensive and meticulous quality management system. It has passed the GMP certification of China and the United Kingdom many times; passed the GMP certification of Finland and Portugal recognized by the European Union; won the GMP certification of Libya, and passed the on-site certification of the US FDA twice.

In 2024, Huiyu Pharmaceuticals has obtained a total of 100 additional approvals in the international market, with a total of about 430 overseas approvals, covering about 70 countries. Under the strong development trend of overseas markets, sales revenue has achieved a substantial increase, an increase of about 90 million yuan compared with last year, a growth rate of up to 103%, achieving a leapfrog improvement, and the internationalization strategy has begun to show results.

Innovative drugs "show sword"

In the process of steadily developing generic drug business, Huiyu Pharmaceutical actively deploys innovative drug field, vigorously promotes the research and development of innovative biological drugs and small molecule innovative drugs in the field of tumor treatment. In

the third quarter report from 2020 to 2024, Huiyu Pharmaceutical's R&D expenses were 88.77 million yuan, 248 million yuan, 356 million yuan, 341 million yuan and 225 million yuan respectively. The investment of real money shows its high attention and firm determination to innovative research and development.

The reason why Huiyu Pharmaceutical has a strong confidence in innovative research and development is inseparable from its luxurious R&D team. Dr. Ding Zhao, chairman and dean of the research institute, has a deep scientific research background and leads the direction of the R&D team. As of the first half of 2024, Huiyu Pharmaceutical has 565 R&D personnel, accounting for 41.76% of the total number of the company, including 208 postgraduates and above, accounting for 36.8% of the total number of R&D personnel. The high-quality and highly educated R&D team provides strong intellectual support and talent guarantee for its new drug research and development.

In terms of project selection, Huiyu Pharmaceutical will focus precisely on large molecule innovative drugs such as triple antibodies and ADC drugs, while small molecule innovative drugs will focus on first-in-class (FIC) or innovative drugs with breakthrough therapeutic advantages such as dual-target single molecule compounds, avoiding homogeneity, Me-too, and Biosimilar.

In 2024, Huiyu Pharmaceutical's innovative drugs have achieved phased results and have 13 Class 1 innovative drug projects, among which the self-developed product HY-0002a continues to advance clinical phase I research, and three other projects HY-0006, HY-0007 and HY-2003 have obtained IND approval this year and started clinical phase I research. At the same time, the research and development of blockbuster complex injections and improved new drugs are also progressing in an orderly and smooth manner.
Among them, HY-0002a is a KRAS G12C/PI3K dual-target small molecule inhibitor that dually blocks the downstream signaling pathways mediated by KRASG12C and PI3K. It is expected to become an iterative new KRAS inhibitor that improves drug resistance and enter a huge market worth over 10 billion US dollars. And the study showed that the single-drug effect of this product is significantly better than the combination of KRAS G12C inhibitor and PI3K inhibitor.

HY-0007 is a triple-antibody fusion protein of anti-PD-1, anti-TIGIT, and IL-15. On the one hand, it can supplement and increase the number of immune effector cells in the tumor. On the other hand, it can restore the function of immune cells exhausted due to continuous fighting from multiple angles and overcome the problem of acquired drug resistance in some immunotherapy patients. It is expected to become a blockbuster product of the second-generation immunotherapy.

HY-0006 is a highly selective SOS1 small molecule inhibitor. The mechanism of the target-related pathway is very clear and the target itself is relatively novel. It can be used in combination with KARS inhibitors and EGFR inhibitors to achieve synergistic effects and overcome drug resistance. This target drug has a wide range of combination therapy space in lung cancer, pancreatic cancer, and colorectal cancer, especially in combination with the third-generation EGFR osimertinib, which has great potential.

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