Pharmaceutical and Biological Industry: Small Nucleic Acid Technology, Large Market Space

RNAi is a groundbreaking gene level therapy technology:

RNAi technology can specifically eliminate or shut down the expression of specific genes, and therefore can be used to explore gene function and the field of gene therapy for infectious diseases and malignant tumors. It is known as the top ten technologies in 2002, and siRNA technology targeting RNAi has also won the Nobel Prize in Physiology or Medicine. Compared to monoclonal drug protein expression, RNAi truly achieves a fundamental effect at the genetic level.

The global market is on the eve of an explosion after experiencing silence:

① RNAi drugs were first used in HIV research and were awarded the Breakthrough of the Year by Science in 2002. Around 2005, the industry fell silent after blind research and irrational investment due to unsatisfactory clinical outcomes With the continuous advancement of gene sequencing and targeted delivery technology, the industry is steadily developing on the eve of an outbreak, and multiple companies worldwide have applied for dozens of clinical trials.

Favored by the market, leading enterprises have suffered losses of 360 million yuan and a market value of billions of dollars:

① Highly sought after in the market, Sanofi acquired a 12% stake in small nucleic acid drug company Anyam for $700 million in 2014. Roche reached a $392 million RNAi drug deal with Isis in early 2013, and paid $450 million in early 2014 to acquire Santaris, a Danish RNAi research company Compared to other biotechnology industries, the capital market favors RNAi companies more. Anyam has risen 14 times in three years, with a market value of 9.567 billion US dollars despite a loss of 360 million US dollars, significantly higher than Juno's 5.461 billion and Geron's 643 million.

The domestic market is starting to make efforts:

① Due to the large population base in China and the high incidence rate of hepatitis and tumor, the potential users of this drug are very broad. It is conservatively estimated that the market space is 30 billion yuan, and it keeps growing. ② There are already multiple domestic companies providing reagents and services for small nucleic acid interference drugs, and listed companies such as Shutai Shen and Xiangxue have also begun to engage in related product development, with broad prospects.

Beneficial companies:

Shu Taishen: Sannuo Jiayi is a wholly-owned subsidiary of Shu Taishen. We expect that in 2015, we will declare the clinical application of three innovative drugs: gene drugs for retinal pigmentation, small nucleic acid gene drugs for hepatitis B, and small nucleic acid gene drugs for AIDS. Expected EPS for the years 15-17 are 0.72 yuan, 0.85 yuan, and 1.05 yuan respectively, corresponding to PE of 51/44/35.

Xiangxue Pharmaceutical: The company has established a good cooperative relationship with Suzhou Shengruo, and both parties have jointly submitted a clinical application for the innovative drug injection of Kotranib. The declared clinical indications are: scar removal and healing of skin wounds and treatment of hypertrophic scars. In addition, Xiangxue Pharmaceutical also has a research project on broad-spectrum antiviral agents containing unique sequences of small nucleic acids. We expect EPS to be 0.40 yuan, 0.60 yuan, and 0.79 yuan in 14-16, corresponding to PE of 46/35/35.

Risk Warning: The risk of R&D progress falling below expectations; National policy risks.