China Securities Co., Ltd.: Continued increase in borosilicate pharmaceutical packaging, optimistic about the long-term development of industry leaders.

China Securities Co., Ltd. released a research report stating that in recent years, with the continuous promotion of the three major policies of consistency evaluation policy, related approval system, and normalized operation of centralized procurement, the proportion of injection bottles in centralized procurement has begun to increase, driving the increase in demand for borosilicate glass. Furthermore, due to the complex production process and high investment in a single production line of molded bottles, there are fewer players in the industry. Currently, only 10 companies are involved in the production of borosilicate molded bottles, with only 6 of them having completed the transition to A-share status, including two foreign enterprises and four domestic enterprises. The main points of China Securities Co., Ltd. are as follows: The three major policies are driving the increase in demand for borosilicate glass, and the industry upgrade is timely. Currently, sodium-calcium glass is still the main pharmaceutical glass in China, which is different from the international mainstream borosilicate glass. Due to the good chemical stability of borosilicate glass, it is not easy for drugs to react with it, so many international pharmaceutical companies use borosilicate glass as pharmaceutical packaging. The continuous promotion of the "three major policies" since February 2016 (especially the consistency evaluation policy for generic drugs in May 2020), the related approval system in August 2016, and the normalized promotion of centralized procurement in January 2021 have continuously driven the increase in the proportion of injection bottles in centralized procurement, leading to an increase in demand for borosilicate glass. According to our statistics, the proportion of injection bottles in centralized procurement has been continuously increasing since the second batch of procurement, reaching 47.6% in the ninth batch. According to our analysis of the procurement data, ampoules and controlled bottles (injection bottles <50ml) have shown a significant increase in volume since the fifth batch (August 2021). The sixth batch mainly consisted of pre-filled insulin pens and cartridge-type controlled bottles, and from the seventh batch starting in October 2022, borosilicate molded bottles have begun to appear stably in the procurement variety, although the current proportion is still not high, this is consistent with the rapid growth of sales of borosilicate molded bottles disclosed by Shandong Pharmaceutical Glass for 2023. Under policy constraints, the industry competition pattern presents a situation of the strong becoming stronger, and the competition pattern for molded bottles is more favorable. For pharmaceutical manufacturing companies, changing pharmaceutical packaging materials means they need to reapply for related approvals, which can take more than 6 months and involve significant uncertainties. Therefore, once the application is successful, the probability of changing is small, and pharmaceutical companies tend to cooperate with leading players in the industry in the long term. Currently, the molded bottle and controlled bottle industries face different competition patterns: molded bottles require a one-time molding process, with investments ranging from 50 million to 100 million RMB per ton. Currently, only 10 companies are involved in the production of borosilicate molded bottles, with only 6 having completed the transition to A-share status, including two foreign enterprises and four domestic enterprises. Among the domestic enterprises, only Shandong Pharmaceutical Glass is able to supply in volume, currently holding a market share of around 90% in the borosilicate molded bottle market. The production of controlled bottles can be divided into two steps: drawing the tube and forming the bottle. Due to the low yield of domestic players in drawing the tube, and the fierce competition with small investments in forming the bottle, the controlled bottle industry is still in a state of oversupply. As of now, a total of 91 companies have registered on CDE, with 30 companies having completed the transition to A-share status.