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Yangtze Business Daily News●Changjiang Business Daily reporter Pan Ruidong

Tonghua Dongbao (600867.SH), one of the two insulin giants, reported its first interim loss.

According to the performance forecast, Tonghua Dongbao expects to lose 224 million yuan in the first half of 2024, compared with a profit of 485 million yuan in the same period last year. The company said the loss was mainly due to the decline in insulin prices caused by the continuation of the centralized procurement schedule.

On the evening of July 10, Tonghua Dongbao also announced that it had terminated the clinical research and development of the fourth-generation insulin soluble glargine lispro dual insulin injection project. The provision for asset impairment and recognition of asset losses will reduce the company's 2024 semi-annual total profit by 318 million yuan.

Facing the challenge of centralized procurement, its strong rival Ganli Pharmaceutical reported good news in its interim report, with an expected profit of more than 290 million yuan in the first half of the year, a year-on-year increase of more than 116.17%.

Behind the two insulin heroes, there is a story of "Gan" and "Li" from alliance to separation. Today, the performance trends of the two are divergent. After five years of "Li" representative Li Yikui's retreat behind the scenes, the second generation Li Jiahong officially took the center stage. At present, Tonghua Dongbao is accelerating the layout of product pipelines and overseas commercialization.

What will be the trend of the offensive and defensive battle between the two insulin giants next?

Domestic second-generation insulin dominates

In my country's insulin market, Li Yikui is a name that cannot be avoided.

Li Yikui was born in 1951 and graduated from Peking University with a degree in biopharmaceuticals. In 1974, after graduation, Li Yikui returned to his hometown of Tonghua, Jilin, and joined a local pharmaceutical factory, where he worked for ten years. During these ten years, Li Yikui kept a close eye on the vitamin C project. Due to insufficient funds, the project eventually failed, and along with it, Li Yikui's ten years of youth and hard work were lost. In 1985, Li Yikui founded Tonghua Dongbao and began his journey from scratch.

After leaving the pharmaceutical factory, Li Yikui first earned his first pot of gold by buying and selling ginseng, and later entered the supplement business to accumulate market and capital.

Tonghua Dongbao really stood out by drug research and development. In 1986, Li Yikui began to get involved in the research and development of therapeutic drugs. He spent 60,000 yuan to cooperate with the Changchun Chinese Medicine Hospital Research Institute to jointly develop a new drug called "Zhennaoning", which is specifically used to treat vascular and neuralgic headaches. Under market demand, Zhennaoning's sales quickly rose from a few million to over 100 million yuan. In August 1994, Tonghua Dongbao was listed on the Shanghai Stock Exchange.

In 1995, Li Yikui discovered a huge business opportunity in the field of diabetes. At that time, his Peking University classmate Gan Zhongru was working at Merck Pharmaceuticals in the United States, focusing on insulin. The two hit it off immediately, with Gan Zhongru providing technology and Li Yikui providing funds, and they worked together to develop insulin.

In 1998, my country's first recombinant human insulin, Gansulin, was born, making China the third country capable of producing recombinant human insulin.

With the successful development of Gansulin, Gan Zhongru also formally established Ganli Pharmaceutical, which was named after the surnames of Gan Zhongru and Li Yikui. Initially, Ganli Pharmaceutical was controlled by Tonghua Dongbao. For the next 20 years, Li Yikui served as the chairman of Tonghua Dongbao. During his tenure, Tonghua Dongbao became the leader in recombinant human insulin, also known as second-generation insulin.

Public data shows that in 2020, Tonghua Dongbao accounted for 34% of the market share of second-generation recombinant human insulin, second only to Novo Nordisk. In 2021, Tonghua Dongbao's operating income hit a new high since its listing, reaching 3.268 billion yuan, exceeding 3 billion yuan for the first time. During the same period, the company's net profit attributable to the parent was 1.308 billion yuan.

It is worth mentioning that with the rapid growth of Gan & Lee Pharmaceuticals, it and Tonghua Dongbao gradually split. In 2011, Tonghua Dongbao transferred its shares in Gan & Lee Pharmaceuticals, and "Gan" and "Li" were completely separated. After several attempts to go public, Gan & Lee Pharmaceuticals finally got its wish in 2020. That year, Gan & Lee Pharmaceuticals' third-generation insulin market share exceeded 40%.

At present, Tonghua Dongbao and Ganli Pharmaceutical are the two leading insulin companies in China, dominating the fields of second-generation and third-generation insulin respectively.

The second generation takes over and starts the offensive and defensive battle

The competitive offensive and defensive battle between "Gan" and "Li" is becoming increasingly fierce.

After breaking up with Gan Zhongru, Li Yikui started to develop the third-generation insulin, but it was not until 2019 that Tonghua Dongbao's third-generation insulin glargine insulin received the marketing approval. Li Yikui lost the competition with Gan Zhongru for the third-generation insulin and was two years behind United Pharmaceutical.

In March 2019, 68-year-old Li Yikui resigned as chairman of Tonghua Dongbao. Subsequently, Leng Chunsheng took over as chairman and general manager of Tonghua Dongbao.

Before resigning, Li Yikui had already started the research of Tonghua Dongbao's fourth-generation insulin. In 2018, Tonghua Dongbao cooperated with the French company Adocia to jointly promote the research of the fourth-generation insulin super-fast-acting lispro insulin and glargine insulin and super-fast-acting insulin premixes.

But this project has recently received bad news. On the evening of July 10, Tonghua Dongbao announced that it had terminated the clinical research and development of the soluble glargine lispro dual insulin injection project. Since the R&D expenditure was fully expensed, the company also made an asset impairment provision and recognized asset losses, which will reduce the company's total profit in the first half of 2024 by 318 million yuan.

Tonghua Dongbao gave the reason that continuing to promote the project will require an additional year of development time to complete the Phase II clinical trial and to pay subsequent milestone payments to Adocia. The one-year delay in the launch time will further increase the launch time of similar dual insulin products that are currently on the market or will be launched in the near future in China, and will face fierce competition from multiple similar dual insulin products.

At present, among the drugs similar to the company's fourth-generation insulin, Novo Nordisk has already been launched, Jilin Huisheng has applied for production in 2023, and United Laboratories, East Sunshine, Chongqing Chen'an, and Sino-US Huadong have entered the phase III clinical trial stage. Tonghua Dongbao is clearly lagging behind again.

On July 10, Tonghua Dongbao disclosed its performance forecast for the first half of 2024. The company's net profit attributable to the parent company in the first half of the year is expected to be a loss of 224 million yuan, a decrease of 709 million yuan compared with the same period last year. This will be the first time that Tonghua Dongbao has a mid-year loss.

However, Ganli Pharmaceutical, a strong rival, reported good news in its interim report. Ganli Pharmaceutical expects its net profit attributable to shareholders of the parent company to be between 290 million yuan and 330 million yuan in the first half of 2024, an increase of 156 million yuan to 196 million yuan compared with the same period last year, a year-on-year increase of 116.17% to 145.98%.

The pressure fell on the "second generation" successor. In March this year, five years after Li Yikui retired, Li Jiahong, Li Yikui's son, became the chairman of Tonghua Dongbao. Public information shows that Li Jiahong was born in 1988 and joined Dongbao Industrial Group in February 2016, and has experienced many years of experience.

It is worth mentioning that Tonghua Dongbao is accelerating its diversified business layout.

On May 7 this year, Tonghua Dongbao announced that the company plans to increase investment in Junhemeng Biopharmaceuticals to enter the growth hormone + medical beauty track, to layout the consumer medical field and expand its business scope. In addition, the company has obtained the exclusive commercialization rights in the mainland of ZT001 semaglutide injection, a clinical product under development by Beijing Zhipeptide Biopharmaceutical Technology Co., Ltd., as well as the right to jointly develop overseas markets. The company said that the introduction of this product will form synergy with the company's existing diabetes treatment products.

In addition, Tonghua Dongbao has high hopes for going overseas. On July 4, Tonghua Dongbao said that it had received an official notice from the European Medicines Agency (EMA) that the company's production facilities met the requirements of EU GMP regulations and had the conditions for commercial production of human insulin APIs. The company also reached a strategic cooperation with Jianyou Pharmaceutical to jointly enter the US insulin market.