New Stock Outlook | Demand for oral COVID-19 drugs declines, Wangshanwangshui falls into loss dilemma.

As an important component of the economy, the pharmaceutical industry has developed rapidly in recent years. According to data from Zhushi Consultation, the global pharmaceutical market is expected to increase from 12.4 trillion dollars in 2018 to 15.7 trillion dollars in 2023, with a compound annual growth rate of 4.8%. It is projected to reach 24.1 trillion dollars by 2035, with a compound annual growth rate of 3.6% from 2023 to 2035. The market size of China Meheco Group is expected to increase from 1.55 trillion yuan in 2018 to 1.76 trillion yuan in 2023, with a compound annual growth rate of 2.6%. It is projected to reach 3.68 trillion yuan by 2035, with a compound annual growth rate of 6.3% from 2023 to 2035. At the same time, the investment and financing scale of the global pharmaceutical industry has achieved significant growth, with many companies choosing to submit IPO applications on the Hong Kong stock market, indicating the capital market's attention and expectations for this sector. Recently, another biopharmaceutical company has launched an IPO on the Hong Kong Stock Exchange. According to the Hong Kong Stock Exchange's disclosure on January 27th, Suzhou Wangshan Wangshui Biopharmaceutical Co., Ltd. (referred to as "Wangshan Wangshui") has submitted an application for listing on the main board of the Hong Kong Stock Exchange, with CITIC SEC as its exclusive sponsor. Oral COVID-19 drug market demand declines, VV116 sprints towards the RSV track It is worth noting that the company is an integrated biopharmaceutical company dedicated to discovering, developing, and commercializing innovative small molecule drugs. Since its establishment in 2013, the company has built end-to-end capabilities covering the "research-clinical development-manufacturing-commercialization" value chain. Wangshan Wangshui strategically selects and focuses on three therapeutic areas, including viral infections, neurology, psychiatry, and reproductive health. According to data from Zhushi Consultation, the Chinese antiviral drug market, neurology and psychiatry drug market, and reproductive health drug market are expected to increase from 24.9 billion yuan, 107.5 billion yuan, and 34.2 billion yuan in 2023 to 44.9 billion yuan, 137.5 billion yuan, and 39.8 billion yuan in 2035, respectively. It is worth noting that successful therapies in the above therapeutic areas still face significant challenges, and with the growing market demand, innovative treatments have large unmet clinical needs and huge market opportunities. As of now, Wangshan Wangshui has developed a pipeline consisting of nine innovative assets, including three core products VV116, LV232, and TPN171, of which two are in commercialization or close to commercialization, four are in clinical stages, and three are in preclinical stages. The company's core products VV116, LV232, and TPN171 are specifically targeted towards the antiviral drug market, neurology and psychiatry drug market, and reproductive health drug market, respectively. VV116 is an RdRp inhibitor, which has been approved for the treatment of COVID-19 in China and Uzbekistan, with the brand names Mindwei and MINDVY, and is currently in phase II/III clinical development for the treatment of RSV infection in China. It is noted that RSV is a non-segmented negative-sense single-stranded RNA virus, mainly transmitted through hands, contaminated objects, and aerosols, posing a continuous threat to children, the elderly, and immunocompromised individuals. According to data from Zhushi Consultation, there were 25.5 million cases of RSV infection in China in 2023, and 136 million cases globally. Infants and young children are the main victims of RSV infection, with 50 to 70% infected in the first year and 90% in the second year after birth. In China, infants and young children aged 1 to 24 months accounted for 30.6% of the RSV patient population in 2023. Furthermore, although RSV vaccines and prophylactic treatments can reduce the incidence of infection, they do not guarantee complete immunity, and reinfection is common throughout life. The severity of RSV infection can vary from mild to severe, especially in vulnerable populations such as premature infants, the elderly, and individuals with compromised immune function, who may develop severe complications such as bronchiolitis or pneumonia. Therefore, treatment options are crucial for controlling complications, reducing hospitalizations, and preventing deaths. Currently, the development of small molecule antiviral products for RSV treatment is a significant unmet medical need globally. However, there are no approved innovative small molecule antiviral drugs for RSV infection globally. With the first innovative small molecule antiviral therapy expected to be approved in 2026, the global market is projected to reach 67 million dollars by 2026 and significantly increase to 880 million dollars before 2035, with a compound annual growth rate of 72.0% from 2026 to 2035. In China, the market for small molecule antiviral therapies for RSV treatment is expected to reach 46.7 million yuan by 2026 and increase significantly to 1.067 billion yuan before 2035, with a compound annual growth rate of 41.6% from 2026 to 2035. Internationally, six small molecule antiviral candidates for RSV treatment are under development. In China, two small molecule antiviral candidates for RSV treatment are under development. It is worth noting that VV116 is the only clinical stage candidate targeting RdRp for RSV treatment in China. At the same time, VV116 dry suspension is the only dry suspension designed for convenient administration to infants and young children, and it is in the phase II/III clinical trial stage. Another core product of the company, LV232, is a potential first-in-class dual-target 5-HTT/5-HT3 receptor modulator. With its unique mechanism of action, the two targets of LV232 work synergistically to enhance antidepressant effects while reducing the severity of common gastrointestinal side effects (such as nausea and vomiting). The company plans to start a phase II clinical trial for the treatment of depression with LV232 in the first quarter of 2025 in China. In addition, the company's other core product TPN171 is a PDE5 inhibitor that has been successfully approved for the treatment of ED in Uzbekistan. It is noted that the company submitted an NDA for TPN171 for the treatment of ED in China in September 2023, with approval expected in mid-2025.Approved by NDA.However, it should be noted that, although the research and development progress of the company's core products and key products is steadily advancing, besides VV116 and TPN171, several other drugs in the company's pipeline are still in the early stages of development. Wangshan Wangshui also admits that it cannot guarantee the ultimate success of the company in developing and selling its core products or any pipeline products. Revenue decline, performance from profit to loss Whether Wangshan Wangshui can successfully expand into the market for small molecule antiviral therapy for RSV treatment with VV116 is still unknown, but it seems that Wangshan Wangshui's performance is currently unstable. It is worth noting that Wangshan Wangshui's revenue mainly comes from licensing VV116 to external parties, providing CRO services, and selling drugs. In the nine months ended 2023 and 2024 (reporting period), the company's revenue from licensing fees related to selling VV116 in China was 11.8 million yuan and 5.4 million yuan respectively, while revenue from drug sales (including selling generic drugs Daclatasvir in China and selling drugs in Uzbekistan) was 0.7 million yuan and 0.6 million yuan respectively. In 2023, Wangshan Wangshui's revenue was 200 million yuan, achieving a profit of 6.43 million yuan, but in the first nine months of 2024, the company's revenue was only 9.996 million yuan, significantly narrowing compared to over 100 million yuan in revenue the previous year, while also experiencing a loss from profit, with a loss of 156 million yuan during the period. In recent years, in order to continue advancing research and commercialization, Wangshan Wangshui has also spent a lot of financial and material resources. During the reporting period, the company's research and development expenses were 131 million yuan and 101 million yuan respectively, administrative expenses were 51.2 million yuan and 50.9 million yuan, and sales expenses were 1.3 million yuan and 2.9 million yuan. In this context, Wangshan Wangshui's cash flow is clearly not abundant - the prospectus data shows that as of the end of September 2024, the company had cash and cash equivalents of 95.052 million yuan. It is worth mentioning that it is expected that the company's research and development expenses and sales expenses will continue to increase in the future. The company stated that as it progresses these candidate drugs from preclinical research to clinical trials, or further progresses to later-stage clinical trials, and continues to support clinical trials of candidate drugs for other indications, the company's research and development expenses will further increase. At the same time, as the company continues to expand sales of its commercialized drugs and prepare for commercialization of candidate drugs, sales expenses will also increase. This may be the intention behind the company's active pursuit of a Hong Kong IPO. But even if the company successfully goes public, can Wangshan Wangshui be worry-free? Currently, the outlook is not optimistic. As the demand for drugs related to COVID-19 gradually declines, the market demand for the company's VV116 has significantly decreased, and its clinical application scope has not expanded significantly, leading to a significant reduction in the company's main source of revenue. In addition, the market for innovative small molecule antiviral drugs for RSV infections is accompanied by intense competition, and it remains to be seen how much of a share the company can capture. Therefore, even if the company successfully goes public, under the impact of multiple risks, the company's premium space is extremely limited, and there is even significant downward pressure, so cautious observation or good strategies are recommended.