Good News on Listing | Frost & Sullivan Assists Qilian International Holdings Group Co., Ltd. in Successfully Going Public on the US Stock Market (NASDAQ:QLI)

Qilian International Holdings Group Co., Ltd. (hereinafter referred to as 'Qilian International') successfully listed on January 12, 2021, issuing 5 million ordinary shares (ADS). Calculated at the highest issue price of $7 per share, the raised funds amounted to approximately $35 million. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for Qilian International's listing, and we hereby extend our warmest congratulations on its successful listing.

During the process of listing in the US this time, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important chapters), helping the company communicate with the US Securities and Exchange Commission (SEC) and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the company in completing feedback on various industry-related issues from the SEC.

Definition and Classification

Active Pharmaceutical Ingredients (API), also known as active pharmaceutical components, are powders, crystals, extracts, etc., prepared through chemical synthesis, plant extraction, or biotechnology. They are the raw materials for producing pharmaceutical preparations. After adding excipients and processing, these can be used as drugs and cannot be directly used in clinical practice.

According to the source, active pharmaceutical ingredients (APIs) can be divided into chemically synthesized drugs and naturally synthesized drugs, with chemically synthesized drugs being the most predominant type. Among them, chemically synthesized drugs are obtained through synthetic techniques using chemical products and can be further subdivided into inorganic and organic synthesized drugs. Naturally synthesized drugs are derived from advanced intermediates of animal and plant tissues in nature and obtained through synthetic and structural optimization techniques; naturally synthesized drugs can be subdivided into biochemical drugs and phytochemicals.

A preparation, also known as a pharmaceutical formulation, is a drug product made according to certain dosage form requirements to meet therapeutic or preventive needs. Depending on the dosage form, preparations include various types such as tablets, granules, emulsions, powders, drops, and patches.

Industrial chain

The upstream of the pharmaceutical raw material industry chain in China consists of raw material suppliers, mainly including enterprises in the chemical industry, agriculture, and animal husbandry; as well as pharmaceutical raw material manufacturers. Pharmaceutical preparation companies and distributors, as midstream enterprises in the industry chain, produce and distribute final pharmaceutical products to downstream consumers. Downstream pharmaceutical consumers can purchase final products from healthcare service providers (including hospitals, clinics, pharmacies, etc.).

On October 25, 2016, the State Council of the People's Republic of China issued the "Healthy China 2030" Plan Outline as a guide for the Chinese government's establishment of universal healthcare insurance. China's total production of chemical drugs increased from 3.034 million tons in 2014 to 3.554 million tons in 2017, and then decreased by two years to reach 2.523 million tons by the end of 2019. The main reason for the decline was due to increasingly strict regulations on environmental protection and pollution management. Looking ahead, driven by a series of supportive government policies (including the "Belt and Road" initiative), the COVID-19 pandemic, and rising demand for drugs due to population aging, it is expected that China's total production of chemical drugs will grow from 2.854 million tons in 2020 to 3.797 million tons in 2024, with a compound annual growth rate of about 7.4%.

China's pharmaceutical market is beginning to play an increasingly significant role in global market supply, especially in the area of bulk drugs. Due to low cost structures for rent, labor, materials, and equipment, as well as the easy availability of various intermediates and chemicals, China's bulk drug market has grown significantly over the past five years. According to data from the Ministry of Industry and Information Technology of China, from 2014 to 2019, revenue from bulk drug production increased from 424.04 billion yuan in 2014 to 669.44 billion yuan in 2019, with a compound annual growth rate of about 9.6%. With the increasing demand from downstream chemical drug manufacturers, it is expected that revenue from bulk drug production will grow from 737.04 billion yuan to 1074.85 billion yuan from 2020 to 2024, with a compound annual growth rate of about 9.9%.

Tetracycline derivative oxytetracycline (C22H24N2O9), produced by Streptomyces oxytetracyclini, is a broad-spectrum antibiotic that prevents infections caused by bacterial invasion into the human body. It is widely used in human and veterinary medicine. Oxytetracycline can be used as an antibacterial drug for human diseases to treat a variety of bacterial infections, including acute otitis media, pharyngitis, pneumonia, skin infections, trachoma, etc. In animal husbandry, oxytetracycline is used to prevent and control bacterial pathogens including Gram-positive and Gram-negative bacteria, red algae, chlamydia, mycoplasma, rickettsia, spirochetes, amoeba, malaria parasites, etc. At the same time, by-products produced during the fermentation process of oxytetracycline can also be used as raw materials for producing organic fertilizers.

The increase in the population over 65 years old and the end of the one-child policy in 2016 stimulated China's market demand for oxytetracycline products. Oxytetracycline production increased from 25,000 tons in 2014 to 29,000 tons in 2019, with a compound annual growth rate of about 2.3%. Given the low price of oxytetracycline products, their effectiveness in enhancing disease resistance and preventing pathogens, as well as their use as an environmentally friendly raw material for organic fertilizers, it is expected that the demand for oxytetracycline products will increase, thereby driving a stable growth in oxytetracycline production. China's oxytetracycline production is expected to grow from 29,000 tons in 2020 to 33,000 tons in 2024, with a compound annual growth rate of about 2.8%.

Heparin is one of the most widely used anticoagulants for the prevention and treatment of thrombosis, commonly used to treat heart disease and unstable angina. Standard heparin has been widely used for the prevention and treatment of venous thromboembolism (VTE). Various heparin products are produced and sold in China, including heparin calcium and heparin sodium. Among all heparin products, heparin sodium is used for the prevention of coagulation-related diseases and is widely used worldwide.

Medicinal-grade heparin is usually obtained from mucosal tissues such as pig intestines and cattle lungs. Currently, pig intestinal mucosa is the most accepted or only approved raw material in the production of heparin in most parts of the world. China is one of the largest producers and consumers of live pigs. According to data from the National Bureau of Statistics, the total number of slaughtered pigs and live pig stocks in 2019 reached 540 million and 310 million respectively. Thanks to the large supply of raw materials required for heparin production in China, the overall Chinese heparin market will maintain stable growth in the future.

The manufacturing process of crude heparin sodium can be roughly divided into five stages, as shown in the following figure.

● Rising healthcare awareness:Due to the continuous economic growth and the issue of population aging, Chinese consumers are paying more and more attention to healthcare and products. With the increase in total healthcare expenditure in China and the continuous improvement in drug efficacy and quality, China's pharmaceutical market has continued to expand over the past few years. In addition, with the implementation of healthcare reforms and the '13th Five-Year Plan', it is expected that healthcare spending in China will continue to grow in the next five years.

● Government Support Policies:  The implementation of government supportive policies has been stimulating sales growth in China's pharmaceutical market. As stated in the 'Opinions of the State Council on Integrating the Basic Medical Insurance Systems for Urban and Rural Residents' in 2016, the number of drugs reimbursable by rural public medical insurance plans will reach the level of urban public medical insurance plans in 2017. The compensation provided by the Chinese government is expected to support the future development of the pharmaceutical market. In addition, the 'Outline for the Development Strategy of Traditional Chinese Medicine (2016-2030)' and the 'Outline of the 13th Five-Year Plan for National Economic and Social Development of the People's Republic of China' emphasize the importance of chemical drugs and traditional Chinese medicine, supporting the continued growth of oxytetracycline products and compound licorice production.

●Population Aging Issue:According to data from the National Bureau of Statistics of China, from 2013 to 2017, China entered an aging society, with a compound annual growth rate of about 4.7% for the elderly population. The elderly population will bring higher market demand for medical services and products because they usually have weaker immune systems and a higher likelihood of getting sick. The growing demand will promote steady growth in the pharmaceutical market over the next five years, as well as the production and sales of oxytetracycline products and compound licorice.

●The regulatory system is complete:Since 2016, with the release of the 'Notice of the State Council on Printing and Distributing the Pilot Program for the Drug Marketing Authorization Holder System', the Chinese government has been working hard to improve the regulatory system of China's pharmaceutical market. In 2019, the release of the 'Notice of the General Office of the State Council on Printing and Distributing the National Pilot Program for Centralized Drug Procurement and Use' is expected to deepen the reform of China's pharmaceutical and healthcare system, improve the pricing mechanism for pharmaceutical products, and support the sustainable development of China's pharmaceutical market.

Frost & Sullivan, integrating nearly 60 years of global consulting experience, has been serving the booming Chinese market with dedication for 23 years. With a global perspective, it helps clients accelerate their business growth and achieve benchmark positions in industry growth, innovation, and leadership. The healthcare industry is one of the core areas of focus for Frost & Sullivan. Over the past sixteen years, the Frost & Sullivan healthcare team has provided services such as financing and financial advisory, IPO industry advisory, strategic consulting, and management consulting for hundreds of outstanding domestic and international biopharmaceuticals, medical devices, healthcare services, and internet healthcare companies. Successful listings include: RuiLi Medical Beauty (2135.HK), Jiake Pharmaceutical (1167.HK), Hepalink (2142.HK), JD Health (6618.HK), Deqi Pharmaceutical (6996.HK), Rongchang Biotech (9995.HK), WuXi AppTec (2126.HK), Sino Biologics (2096.HK), Yunding Newray (1952.HK), Zai Ding Medicine (9688.HK), OcularVista (1477.HK), Hapreya (9989.HK), Kexing Pharmaceutical (9939.HK), Peking Union Medical College Hospital (9996.HK), Kangfang Biotech (9926.HK), Novogene (9969.HK), Tianjing Biotech (IMAB.NASDAQ), Kanglong Chemical (3759.HK), China Antibody (3681.HK), Dongyao Pharmaceutical (1875.HK), Fosun Pharma (2696.HK), Hengsen Pharmaceutical (3692.HK), Mabtech (2181.HK), Founder Holdings (1521.HK), Via Biotech (1873.HK), CStone Pharmaceuticals (2616.HK), Junshi Biosciences (1877.HK), WuXi AppTec (2359.HK), Innovent Biologics (1801.HK), Horizon Pharma (2552.HK), BeiGene (6160.HK), Gilead Sciences (1672.HK), WuXi AppTec (2269.HK), China Resources Pharmaceutical (3320.HK), Johnson & Johnson Research and Development (2633.HK), Henghuang China Medicine (HCM.NASDAQ), (1548.HK), BBI Life Sciences (1035.HK), etc. In terms of the number of filings, the Frost & Sullivan healthcare team maintains an absolute leading position in Hong Kong healthcare IPOs, continuously occupying more than 90% of the market share from 2018 to 2020.

Since the listing of the first batch of companies on the Sci-tech Innovation Board in July 2019, Frost & Sullivan reports have also been widely cited in the prospectuses of leading Sci-tech Innovation Board listed companies in the industry. This includes: Huaxi Biotechnology (688363.SH), Junshi Biosciences (688180.SH), Zhejiang Genomics & Bioinformatics Co., Ltd. (688266.SH), Beiogen Pharmaceuticals (688177.SH), Shenzhou Cells (688520.SH), etc. It is considered one of the most powerful, professional, and influential industry research institutions in the sector. We hope to work with enterprises to gain insights into industry trends, seize development opportunities, jointly promote innovation and upgrading of China's large health industry, and build a healthy future.