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The performance of leading domestic insulin companies has been mixed, which is related to the centralized procurement strategy adopted.

Text/Daily Financial Report Lv Mingxia

The performance of the two insulin giants diverges. Ganli Pharmaceutical (603087.SH) expects to achieve a net profit of 290 million to 330 million yuan in the first half of the year, an increase of 156 million to 196 million yuan compared with the same period last year, a year-on-year increase of 116.17% to 145.98%.

Compared with Ganli Pharmaceutical, Tonghua Dongbao's performance is inferior. On the evening of July 10, Tonghua Dongbao (600867.SH) released its performance forecast, predicting a net loss of 224 million yuan in the first half of the year, which will be 709 million yuan less than the same period last year.

The performance of the two leading domestic insulin companies is very different, which is related to their choice of centralized procurement strategy. In addition to the impact of centralized procurement, the termination of clinical research and development of the soluble insulin glargine lispro injection (hereinafter referred to as "THDB0207 injection") research and development project is another important reason for Tonghua Dongbao's semi-annual performance loss.

What impact will the centralized procurement have on the two leading companies? What new highlights will there be in the second half of the year?

Is centralized procurement the key to success or failure?

According to the financial report, Ganli Pharmaceutical expects a net profit of 290 million to 330 million yuan in the first half of this year, an increase of 116.17% to 145.98% year-on-year. Its competitor Tonghua Dongbao's operating income decreased by 44.66% compared with the same period last year, and its net profit loss is expected to be about 224 million yuan. It should be noted that in the same period last year, Ganli Pharmaceutical's operating income and net profit were both lower than Tonghua Dongbao.

For the two domestic insulin giants, is centralized procurement the key to their success or failure? At the end of 2021, the country organized a special centralized procurement for insulin. Like all previous centralized procurements, the price reduction for this centralized procurement of insulin was huge, with an average price reduction of 48%.

At that time, Gan & Lee Pharmaceuticals' bidding strategy for centralized procurement was relatively aggressive, and all its products won the bid at the lowest price. Its market share was preserved, but its profits fell sharply. In contrast, Tonghua Dongbao's bidding strategy for centralized procurement was much more rational.

On April 23 this year, the bidding for the insulin centralized procurement was opened in Shanghai. Generally speaking, the renewal of the centralized procurement of drugs may face the situation of price cuts again. However, this time Tonghua Dongbao failed to maintain its existing advantages, which directly led to this situation.

Tonghua Dongbao, one of the "two insulin giants", won all six of its bidding products, and the prices of five of its products dropped compared to the previous centralized procurement. Tonghua Dongbao said that during the reporting period, a new round of centralized insulin procurement began to be implemented in various provinces and cities across the country, and the winning prices of the company's insulin products all dropped to varying degrees.

Compared with the prices in the previous round of centralized procurement, the prices of Gan & Lee Pharmaceuticals' proposed winning bids this time have all increased slightly to varying degrees. Gan & Lee Pharmaceuticals' 6 products were all raised in price after being selected. Gan & Lee Pharmaceuticals said that in recent rounds of centralized procurement, the company's domestic insulin preparation product prices have increased, and in the first half of this year, the sales volume of domestic insulin preparation products has also maintained a steady growth.

According to the financial report, after Ganli Pharmaceuticals won the bid for the insulin centralized procurement this year, the first-year procurement demand for insulin-related products was 41.77 million units, an increase of 25.13 million units from the first-year procurement demand of the previous centralized procurement, a growth rate of 151%. Tonghua Dongbao initially estimated that due to the impact of centralized procurement, the company's operating income will decrease by about 538 million yuan.

Tonghua Dongbao not only suffered losses but also terminated its R&D projects

It is worth noting that Tonghua Dongbao reported a loss for the first time in 30 years. In terms of main business, in the first half of 2024, the company achieved operating income of approximately 756 million yuan, a decrease of 44.66% over the same period last year.

In addition to submitting the interim report with expected losses, Tonghua Dongbao also terminated the clinical research and development of a dual insulin product. On July 11, Tonghua Dongbao issued an announcement stating that after careful consideration, the company decided to terminate the clinical research and development of THDB0207 injection. Currently, the research project is still in the Phase I clinical trial stage.

It is understood that in 2018, Tonghua Dongbao cooperated with SA ADOCIA of France, thereby obtaining the exclusive development, production and commercialization rights of THDB0207 injection in all countries and regions in the Greater China region, as well as countries and regions such as Malaysia and Singapore. In October 2023, the company received a summary report on the Phase I clinical trial of the above-mentioned product, and the results showed that the primary endpoint was achieved. In the second quarter of 2024, based on the opinions of many authoritative Chinese clinical experts, it was concluded that a Phase II clinical trial was needed.

If the project continues to move forward, Tonghua Dongbao will need to spend nearly one year of additional development time to complete the Phase II clinical trial. At the same time, it will also increase the development expenditure budget by an additional 50 million to 70 million yuan, as well as pay subsequent milestone payments if it continues to move forward.

Since the product launch time will be delayed by one year than originally planned, it will further widen the gap with similar dual-insulin products that are currently on the market in China or will be launched in recent years. At that time, it will face fierce competition from multiple similar dual-insulin products.

At the same time, in addition to the risk of fierce market competition, the product also faces the risk of being included in the national drug centralized procurement once it is approved for marketing, which will put huge pressure on product pricing and reduce the overall expected return of the project. In this unfavorable situation, Tonghua Dongbao made the decision to terminate research and development.

Ultimately, Tonghua Dongbao's provision for asset impairment and recognition of asset losses will reduce the company's total semi-annual profit in 2024 by 318 million yuan.

The future of insulin companies

The first-year demand for insulin in the national centralized procurement renewal this year increased by about 14%, indicating that the market demand for insulin remains stable. The emergence of a large number of GLP-1 drugs has not yet affected the status of insulin.

In addition to centralized procurement, seeking higher profits and more markets is the direction that insulin companies have unanimously chosen.

According to Tonghua Dongbao's 2023 annual report, in addition to diabetes, the company has actively expanded its development boundaries and extended to the treatment of gout/hyperuricemia. The two innovative pipeline URAT1 inhibitors (THDBH130 tablets) and the first domestically produced dual-target gout inhibitor (THDBH151 tablets) currently under development have been advanced to the clinical trial stage.

In addition, in May this year, it increased its capital in Junhemeng Biopharmaceuticals to enter the growth hormone + medical beauty track. The announcement shows that Tonghua Dongbao increased its capital in Junhemeng Biopharmaceuticals (Hangzhou) Co., Ltd. with its own funds of 100 million yuan. Junhemeng is a company focusing on the development of innovative products in the field of recombinant protein innovative drugs and synthetic biology. Its product pipeline is comprehensively laid out around consumer medical care and serious medical care, including recombinant botulinum toxin type A, recombinant long-acting growth hormone injection, etc.

While Gan & Lee Pharmaceuticals is constantly breaking through the ceiling of diabetes treatment, it is also actively developing drugs in related fields. Currently, Gan & Lee's self-developed innovative biological product GLP-1RA (GZR18) has started Phase I clinical trials in China, with indications including type 2 diabetes, obesity and overweight, and has simultaneously started Phase I clinical trials in the United States, with indications for type 2 diabetes.

At the same time, facing the pressure of domestic performance, Tonghua Dongbao is "looking for a way out" in the international market. In July this year, Tonghua Dongbao said that it had received an official notice from the European Medicines Agency (EMA) that the company's human insulin API has met the conditions for commercial production.

However, in terms of overseas market revenue, Tonghua Dongbao's "old rival" Ganli Pharmaceutical may be one step ahead. According to the financial report, Ganli Pharmaceutical's international sales revenue in 2023 will be 330 million yuan, an increase of 131.78% over the same period last year. Tonghua Dongbao has never announced its specific revenue in the international market.

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