- Medical aesthetic segment achieved a revenue of RMB194.0 million Returned to high growth
- Significant R&D investment continued to effectively facilitate the implementation of various research achievements.
Sihuan Pharmaceutical Holdings Group Ltd. (HKG: 0460) (Sihuan Pharmaceutical or the Company, together with its subsidiaries, the Group) announced its interim results for the period ended 30 June 2023 (the Period). Despite the ongoing challenges in the global economy during the first half of 2023, the Group remained steadfast in implementing its “two-wheel drive strategy of “Innovative Pharmaceuticals + Medical Aesthetics”, and recorded total revenue of approximately RMB1,055.7 million and operating profit of approximately RMB146.2 million during the Period.
In particular, the medical aesthetic segment achieved a revenue of approximately RMB194.0 million, representing a year-on-year increase of approximately 96.8%, and achieved a segment result of RMB62.9 million, increasing 51.2% year-on-year, which were mainly due to the Group’s medical aesthetics platform Meiyan Space has successfully upgraded and developed through its 3.0 version of sales reform and achieved stage-by-stage success.
During the Period, the total R&D expenses was RMB294.0 million, decreasing by 35.7% year-on-year, which was mainly due to the completion of phase III clinical trials for the Group’s various self-developed products (including innovative drugs, biopharmaceutical drugs and generic drugs), which are expected to obtain registration approval by the end of 2023; and the fact that multiple drugs under R&D of Huisheng Biopharm have been completed and have submitted application for registration. The Company’s heavy investment in R&D enters into a turning point.
The Group persevered to maintain strong financial position. During the Period, the Group’s cash and cash equivalents plus wealth management products amounted to approximately RMB4,510.0 million in total, and the Group also persevered to maintain a net cash inflow of RMB28.3 million in terms of its operating cash flow. Banking borrowings to equity ratio was 28.9%, which remained low.
The 3.0 marketing version of upgrading and development led to sales rebound of the medical aesthetic business, which was expected to become a new growth driver.
Since the beginning of 2023, the Group’s medical aesthetic platform Meiyan Space, through its 3.0 marketing version of the business upgrading and development, as well as the implementation of pipeline inventory clearance in the second half of 2022, successfully realizing a light load. During the Period, Meiyan Space optimised its marketing strategy to “direct sales + agent sales” model, enhancing the service capacity to leading medical aesthetic institutions, and through a number of high-quality marketing activities, Meiyan Space has accurately covered the medical aesthetic industry at multiple levels, including doctors, operators, consultants, marketers, and managers in the medical aesthetic industry. The Group strengthened in-depth business cooperation with medical aesthetic institutions in multiple dimensions, including the product side, the medical side and the operation side, thus opening up the 3.0 era of medical aesthetic fine-tuned operation. With the full liberalization of domestic epidemic control and the gradual recovery of consumer demand in 2023, the upgrading and development of the medical aesthetics business segment of the Group has achieved a stage-by-stage success during the Period, with a significant rebound in sales revenue, which has become the second track of the Group’s revenue growth.
At present, Meiyan Space has completed the construction of two domestic manufacture bases with a gross floor area of 16,000 square meters. It has currently planned for 9 production lines equipped with optimized quality management system and is able to implement effective risk management in the whole life cycle of products. Most members in the sales team of Meiyan Space come from multinational medical aesthetics and pharmaceutical enterprises, and work closely with tens of agents, and as of 15 August 2023, the sales network covered 337 cities and over 4,000 medical aesthetics institutions nationwide, and with full coverage of Top 500 medical aesthetic institutions. In addition, at the beginning of the year, the Group successfully completed the signing of annual strategic cooperation agreements with 49 medical aesthetics chain Group’s and 32 regional leading medical aesthetics institutions. These strategic cooperation agreements cover a total of 722 large and medium-sized medical aesthetic hospitals and medical aesthetic chain institutions across the country.
Implementation of innovative transformation achievements led to active progress in development of various products of Xuanzhu Biopharm and Huisheng Biopharm
During the Period, Xuanzhu Biopharm, a leading innovative drug company focusing on oncology drugs, made breakthroughs in the R&D of a number of products. The rapid progress of R&D and new drug application process for several key products of Huisheng Biopharm has further established its leading position in realizing full product coverage in the therapeutic areas of diabetes and its complications. The platforms in the innovative pharmaceuticals and other business segment are making steady progress in accelerating the R&D progress and commercialization of their quality product pipelines, further realizing the Group’s goal of innovation and transformation, and pushing forward the upgrading and development of the Group into an innovative biopharmaceutical company at full speed.
During the Period, a total of three innovative drugs of Xuanzhu Biopharm have obtained IND approval and clinical researches to ensue, including XZP-KM501 (HER2 bispecific antibody ADC), XZP-KM602 (immune CD80 fusion protein), and XZP-6877 (DNA-PK chemotherapeutic sensitization), all of which are leading innovative drugs with no similar products approved for market worldwide; the current clinical phase III data of XZP-3621 for the treatment of ALK positive advanced non-small cell lung cancer patients shows that it is well expected to reach the predetermined clinical endpoint in the interim analysis in Q4 2023, and the certainty of approval for marketing in the future has increased.
Huisheng Biopharm is one of the few companies in China to achieve full product coverage in the therapeutic areas of diabetes and its complications. From the perspective of product pipeline, it covers second-generation insulin, third-generation insulin, new generation insulin (covering basal insulin, premixed insulin, and rapid-acting insulin), oral hypoglycemic drugs, and complication drugs; in terms of innovation, the Company not only leads the R&D progress of multiple core products such as Insulin Degludec, the latest generation of new insulin analogues, but also lays out new targets such as GLP- 1 agonists and SGLT-2 inhibitors.
Huisheng Biopharm promoted the progress of product R&D and commercialization rapidly. During the Period, a total of 3 complication generic drugs has obtained the drug registration approval from the NMPA, including Mecobalamin Tablets, Thioactive Acid Injection, and Sitagliptin Photosphate Tablets, marking a new milestone of Huisheng Biopharm from R&D to commercialization. Drug registration applications of a total of 11 drugs have been accepted, and are progressing steadily. In addition, there are a total of 4 drugs in the mid-to-late clinical stage, and it is expected to apply for Pre- NDA in the second half of this year. Additionally, 1 drugs IND application has been approved. Besides, more than 10 drugs were in pre-clinical, including HSP012C, a double target agonist drug, developed by the Company independently, and GLP- 1 innovative drug, insulin analog, etc.
To ensure the successful launch for the approved products, Huisheng Biopharm has conducted on-site research on the product pipeline and developed product portfolio sales strategies, and has started to establish marketing team, covering functional departments such as marketing, sales, and marketing operations, and has carried out market preparation before the drug is launched.
Huisheng Biopharm is a biopharmaceutical platform that the Group has carefully incubated for nearly nine years, targeting at the huge potential diabetes and its complications market in China. During the Period, Huisheng Biopharm successfully completed its share reform and officially changed its name to Huisheng Biopharm Co., Ltd., preparing for independent development in the capital market in the future.
Significant R&D investment continued to contribute to the increase in corporate value
It’s worth noting that the Group continued to invest heavily in R&D to create a pipeline of over 100 medical aesthetic and biopharmaceutical products. It rapidly promoted the R&D progress of the product pipeline, accelerated the product industrialization and gradually realized value amplification. During the Period, the quantity and quality of the Group’s product R&D pipelines were greatly enhanced, which have contributed to a significant increase in the corporate value, financing capacity and corporate awareness of the Group’s innovative drug platform. Specifically, Xuanzhu Biopharm successfully completed its Round A and Round B financing totaling RMB1.57 billion with a post-investment valuation of RMB7 billion. Besides, Huisheng Biopharm successfully completed its Round A and Round A+ financing totaling RMB1.08 billion with a post-investment valuation of RMB5.58 billion. The successful equity financing of several subsidiaries of the Group fully demonstrated the recognition of the R&D capabilities, product pipelines, management team, future industrialization and commercialization capabilities of the Group’s innovative drug platform from the capital market, as well as proved the high valuation of the product pipelines of the Group’s biopharmaceutical segment.
Generic pharmaceuticals business made significant progress and continued to move forward steadily after optimization and consolidation
In 2023, the Group accelerated the implementation of the optimization and integration of the generic pharmaceuticals business, balanced the development and stability of the generic pharmaceuticals “cash cow” business, and accelerated the implementation of the spin-off and divestment of certain generic pharmaceuticals and other non-core traditional pharmaceuticals or big healthcare businesses and assets that have failed to meet the operating expectations or are not in line with the long-term strategic development objectives.
During the Period, the Group has made multiple significant progresses in the generic pharmaceutical business. Among which, the blockbuster drug Kelinao were successfully removed out from the Key Monitoring Drug List based on its more than one thousand patients’ evidence-based medicine (EBM) results, two Non-PVC solid-liquid double chamber bag drugs and Midazolam Oromucosal Solution were included in the National Reimbursement Drug List (NRDL) in 2022, and several generic drugs have received drug registration approval from the NMPA during the Period. The successful launch of these drugs will provide strong support for the growth of the pharmaceutical business revenue of the Group.
Future prospects
With the recent positive developments in the Group’s generic pharmaceuticals business, it is believed that the approval and launch of these new products will provide strong support for the Group to maintain a healthy cash flow. Meanwhile, with the successful spin-off and divestment of part of the Group’s traditional generic pharmaceuticals business and big healthcare business, which have continued to suffer from low profitability and are subject to strong policy influence, the Group has been able to further focus its management and corporate resources on the medical aesthetic segment with higher growth and higher profit margins, as well as on the biopharmaceutical segment with high growth in value. The Group believes that through the implementation of the “Innovative Pharmaceuticals + Medical Aesthetics” two-wheel drive strategy, the enhancement of resource utilization efficiency, and gradual clearance of financial headwinds, the overall profit structure of the Company will be effectively improved and upgraded, which will help to maximise shareholders value.
Dr. Che Fengsheng, Chairman and Executive Director of Sihuan Pharmaceutical Holdings Group, said: “In 2023, the Group will adhere to, thoroughly implement and accelerate its “Innovative Pharmaceuticals + Medical Aesthetics” two-wheel drive strategy, focusing its management on the high-growth medical aesthetics field and the high-value innovative pharmaceuticals and biopharmaceuticals field, optimising and integrating the generic pharmaceuticals business, and expeditiously divesting itself of some of the generic pharmaceuticals business that has failed to meet the expected performance and other non-core healthcare businesses.
We believe that by accelerating the transformation into medical aesthetics and innovative biopharmaceuticals business, and continuing to optimize and integrate the generic pharmaceuticals business, etc., the Group’s efficiency in the allocation of resources and its medium- to long-term financial performance will be further enhanced, and the Company’s overall value and its ability to withstand the cyclical risks of the industry will also be significantly increased in the future.”
Looking forward into 2023, for medical aesthetics business, the Group will continue to implement its medical aesthetics marketing version 3.0, consolidate the results of product sales, and continue to expand the distribution of products and sales network in the medical aesthetics field, and actively look for quality bidders for mergers and acquisitions, consolidation or introduction of product agents both domestically and internationally, as well as speed up the research and development, registration, and the product launching of medical aesthetics products, so as to rapidly achieve the upgrading and development of the medical aesthetics business, and to realise a simultaneous upgrade in terms of size and quality, and build a new engine of cash flow for the Group. The Group will ensure the synchronized growth of its revenue scale, profitability, team and sales network coverage, and continue to move towards the strategic goal of “becoming a leading medical aesthetics enterprise in China that can serve the life-cycle needs of aesthetics seekers with a full range of product coverage”.
In respect of the pharmaceutical business, the Group will further consolidate the results of its transformation and upgrading to an innovative biopharmaceutical enterprise, fast-track the progress of research and development of its innovative biopharmaceutical product pipeline, accelerate the progress of both product registration and product commercialisation, and progressively complete the spin-off and independent listing of its research and development business sub-segment, so as to ensure the rapid development and the realisation of the high valuation of its business.
In respect of the generic pharmaceuticals business, the Group will continue its business restructuring and ensure the steady development of its “Cash Cow” business, and gradually divest generic pharmaceuticals, APIs and other non-core healthcare businesses that do not meet the Group’s expectations, and turn them into cash to be utilized for the Group’s future business operations, acquisitions or dividend payouts.
The Group believes that through the implementation of the dual organizational structure strategy, focusing the management on the high-growth medical and aesthetic field and the high- value innovative drugs and biopharmaceuticals field, further focusing the management on the development of the medical and aesthetic business and business expansion, as well as stimulating and encouraging the development and growth of the biopharmaceuticals segment and its independent financing, it will continue to consolidate and expand the Group’s achievements in its strategic transformation into a leading medical and aesthetic and biopharmaceutical company in China. Through the continuous and efficient implementation of the two-wheel drive strategy of “Innovative Pharmaceuticals + Medical Aesthetics”, Sihuan Pharmaceutical will promote the further unlocking of its corporate value and realize the strategic goal of becoming a leading medical aesthetics and biopharmaceuticals company in China. It will also bring more and better investment returns to the shareholders and investors who have been steadfastly believing in and supporting the Group.
About Sihuan Pharmaceutical Holdings Group Ltd.
Founded in 2001 and listed on the Main Board of The Stock Exchange of Hong Kong Limited in 2010, Sihuan Pharmaceutical Holdings Group Ltd. (“Sihuan Pharmaceutical” or the “Company”, together with its subsidiaries, the “Group”) (HKEx stock code: 0460) is an international medical aesthetic and biopharmaceutical company led and driven by innovation, with a leading independent production, and R&D technology platform, a rich global product pipeline and a mature and excellent sales system. Focusing on high-growth therapeutic areas such as medical aesthetics, oncology, metabolism, diabetes, cardiovascular and cerebrovascular, modern Chinese medicine and industrial hemp, it adheres to its overall strategic objective of “Adhering to the full-speed promotion of a two-wheeled strategy of Sihuan medical aesthetics and biopharmaceuticals” to build a leading medical aesthetics and biopharmaceutical company in China.
For more information about Sihuan Pharmaceutical, please visit the company website https://www.sihuanpharm.com/