Under the dilemma of downstream investment in medicine, upstream APIs may become the next investment opportunity

With the influence of quantity procurement and medical insurance negotiation in pharmaceutical industry, Investors have become more cautious about investing in medicines, But as a huge industry with great growth potential, At the same time, it is one of the necessary industries for funds, social security and other institutions. There is no shortage of investment in the pharmaceutical industry. At this time, the pharmaceutical sub-sectors that are not affected by policies or have low policy uncertainty deserve special attention. Among them, the upstream of medicine may be favored by investors because it does not have a direct business relationship with consumers and is less affected by policies.

Here, I will introduce to you a pharmaceutical upstream API company-Qilian International Holding Group Holding Group Co., Ltd., http://qilianinternational.com/

Qilian International Holding Group is a global producer, manufacturer and supplier of oxytetracycline, and also an important manufacturer of heparin sodium API. The company plans long-term capacity growth, which has high attention value.

In January this year, Qilian International Holding Group (QLI) was successfully listed in NASDAQ, USA, and became the first company listed in US stocks in Gansu Province. Up to now, the company's business development has covered six categories of products, such as oxytetracycline products, licorice products, heparin products, Chinese medicine derivatives (TCMD), casing and organic fertilizer. From the perspective of income structure, oxytetracycline and heparin products contributed most of the company's income. According to the mid-year report of 2021, Qilian International Holding Group achieved revenue of US $29.94 million, up 8% year-on-year, and net profit of US $2.25 million, down 46% year-on-year, mainly due to the falling price of licorice products and the rising cost on the supply side.

At present, the company has a production capacity of 4,000 tons of oxytetracycline raw materials, 3 billion tablets of oxytetracycline, 1,000 tons of licorice extract and liquid extract, 5 tons of crude heparin sodium, 4 million casing and 30,000 tons of organic fertilizer. According to the company's plan, Qilian International Holding Group will promote the annual production and sales of oxytetracycline of 10,000 tons, heparin sodium of 10 tons and organic fertilizer of 100,000 tons in the next three to five years.

Qilian International Holding Group, as the global producer, manufacturer and supplier of oxytetracycline, has reached the USP standard of the United States, and its technical indicators have been in the forefront of the industry for a long time, occupying more than 35% of the domestic market share. Oxytetracycline is a natural antibiotic, which can be used to treat respiratory tract, urethra, skin and soft tissue infections in dogs and cats. It was discovered by Pfizer Company of the United States and approved by drug regulatory authorities of various countries. Oxytetracycline is widely used in human and mammals markets because of its remarkable effect and low price. In addition, oxytetracycline can obviously promote the growth of animals and birds, and can also be used as a feed additive, which is in great demand. In addition to Qilian International Holding Group's oxytetracycline products meet NMPA certification, other domestic competitors have only obtained veterinary use certification from the Ministry of Agriculture, which is the unique advantage of the company.

According to Jost Sullivan's data, the domestic oxytetracycline market is in a single-digit growth trend, which is expected to reach 41,600 tons by 2023, with a compound annual growth rate of 4.6% from 2019 to 2023.

In addition to the domestic market, Qilian International Holding Group has also successfully developed overseas markets. According to the company's announcement, the oxytetracycline API produced by Qilian Mountain Pharmaceutical Co., Ltd., a subsidiary of Qilian International Holding Group, obtained the drug export sales certificate on September 14, 2021. The exporting country is Egypt, and it can be sold in the Chinese market without export restrictions. The approval of the export license marks the smooth opening of the process of direct export of the company's products to overseas markets, and lays a foundation for further export expansion in the future.

Chengdu Qilian Mountain Biotechnology Co., Ltd., a holding subsidiary of Qilian International Holding Group, mainly produces crude heparin sodium, which is the largest producer of crude heparin sodium in western China. Heparin sodium is a macromolecular polysaccharide anticoagulant that cannot be synthesized artificially. It can interfere with many links of blood coagulation process and has anticoagulant effect in vivo and in vitro. It is one of the most widely used and effective anticoagulant and antithrombotic drugs in clinic. In addition, the clinical application scope of heparin is expanding, which can be used in anti-tumor field and is also an essential drug for treating novel coronavirus pneumonia. The demand is very wide and its raw material supply is in short supply.

Heparin sodium is the sodium salt of glucosamine sulfate extracted from intestinal mucosa of pigs, cattle and sheep. China is a big country in pig breeding, and the pig production accounts for 50% of the world. Therefore, China is also a major supplier of heparin sodium raw materials in the world, accounting for 50% of the global demand. At present, the competition of heparin sodium API is very scattered and the market concentration is very low, so the company is expected to achieve rapid volume growth through capacity expansion.

Moreover, influenced by COVID-19 pandemic and the application of heparin in the treatment of COVID-19, the export price of heparin sodium API is also soaring. In June 2021, the export price of heparin sodium API increased by 269% year-on-year, and the company will obviously benefit from this price increase trend.

In addition to the above-mentioned oxytetracycline raw materials and heparin sodium raw materials, the company's products also include licorice products, traditional Chinese medicine derivatives (TCMD), casings and fertilizers, etc., all of which have potential for growth. Among them, according to the company's announcement, the company's two varieties of "Qilian Mountain Oxytetracycline" and "Gandixin Compound Licorice Buccal Tablets (Exclusive Dosage Form)" were listed in the Catalogue of Cultivating Large Brands of Long Medicine. For products listed in the Catalogue of Cultivating Large Varieties, the Gansu Provincial government will all be included in the province's urban and rural medical insurance catalogue, and also support LongLarge varieties of drugs enter the National Essential Drugs Catalogue and Medical Insurance Catalogue, which will greatly increase the sales volume of products and bring great increment to the company's performance.

As for the fertilizer business, the "Moshangfa" brand bio-organic fertilizer developed and produced by the Company is deeply trusted by farmers because of its unique advantages such as lasting fertilizer efficiency, preventing root rot, promoting rooting and increasing crop income, and has been sold in large quantities to five northwestern provinces such as Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang, and Sichuan, Shanxi, Tibet and Inner Mongolia. According to the latest news, the Company announced in October that the first phase of the newly-built organic fertilizer production facilities of the Company has been completed, and the installation and commissioning of production equipment and the construction of supporting facilities have been completed and put into production. The project has been established and started construction since September 2020, with an annual production capacity of 50,000 tons of series organic fertilizers. The completion of the first phase of the project will make the production capacity of various organic fertilizers of the Company reach more than 30,000 tons within one year, greatly enhance the market competitiveness of the Company, and drive the growth of the Company's income after the production capacity is put into production.

In addition, the company also started to develop a new drug for preventing gastric cancer-vitamin, which is currently in the process of breeding strains and is expected to be on the market within three years. Vitamin is mainly used for treating chronic gastritis, atrophic gastritis, superficial gastritis, esophagitis, esophageal epithelial cell proliferation and preventing canceration caused by cell proliferation. It is also used for adjuvant treatment of various hepatitis types and treatment of riboflavin deficiency and other diseases. Due to the universality of gastritis, the market demand for related drugs is huge, and the new drugs in Qilian International Holding Group will further drive the company's performance growth after being put on the market.

On the whole, Qilian International Holding Group, as a leading manufacturer of oxytetracycline and heparin sodium raw materials in the upstream of medicine, can achieve sustained growth through capacity expansion, thus gaining the preference of pharmaceutical investors. The company's Gandixin ® Compound Licorice Buccal Tablets will be included in the Catalogue of Urban and Rural Medical Insurance in Gansu Province, and the completion of the first phase of organic fertilizer project will also bring new performance increments.

$Qilian International Holding Group(QLI)$$Moderna, Inc.(MRNA)$$Pfizer(PFE)$

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Disclaimer: The above content represents only the personal views of the poster and does not constitute investment advice on this platform.

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