CICC Maintains 'Outperform Market' Rating on Hansoh Pharmaceutical (03692.HK), Raises Target Price to HK$21.12

According to Zhisheng Finance APP, CICC issued a research report stating that due to the increase in upfront payments from collaborations boosting performance, it has raised Hansoh Pharma's (03692) profit forecast for 2024 by 30.5% to RMB 4.472 billion and increased the 2025 profit forecast by 17.8% to RMB 4.190 billion. It maintains an "Outperform" rating and, based on the SOTP valuation method, considering the upward revision of the profit forecast and temporary pressure on the company’s generic drug segment, raised the target price by 18.6% to HKD 21.12. The company's revenue during the period was RMB 6.506 billion, a year-on-year increase of 44.2%; net profit attributable to shareholders was RMB 2.726 billion, a year-on-year increase of 111.5%, surpassing the bank’s expectations mainly due to the accounting of upfront payments from product licensing.

CICC's main points of view are as follows:

The Proportion of Innovative Drug Revenue Continues to Increase

In 1H24, Hansoh Pharma's revenue from innovative drugs and collaboration products reached RMB 5.032 billion, increasing by 80.6% year-over-year (YoY), accounting for 77.4% (+15.6pct YoY). Among this, revenue from collaboration products was approximately RMB 1.3 billion, primarily from the upfront payment of licensing B7H3 ADC to GSK. Excluding this upfront payment, the company's revenue was approximately RMB 5.2 billion, with a YoY growth of around 15%. By segment: 1) Oncology business revenue was RMB 4.475 billion (+75.2% YoY), with an estimated 20% YoY growth for Almonertinib in 1H24; 2) Anti-infective business revenue was RMB 701 million (+16.8% YoY); CNS business revenue was RMB 730 million (+4.6% YoY); other businesses revenue was RMB 597 million. In 1H24, sales expenses were RMB 1.72 billion (+3.1% YoY), administrative expenses were RMB 350 million (+3.1% YoY), and R&D expenses were RMB 1.2 billion (+28.7% YoY).

Rapid Progress in R&D Pipeline

Hansoh Pharma's core product, Amelotinib, has had two new indications for NDA accepted for adjuvant treatment of NSCLC and maintenance therapy for stage III inoperable NSCLC patients following concurrent chemoradiotherapy. The company’s GLP-1/GIP dual agonist has reported positive Phase IIa results, with the initiation of a Phase III trial anticipated in 2H24. In terms of early-stage projects, the company has received clinical approval for four key innovative drugs: HS-10501 (Type 2 Diabetes and Adult Obesity), HS-10398 (IgA Nephropathy and Membranous Nephropathy), HS-10504 (Advanced NSCLC), and HS-20137 (Psoriasis). Regarding external collaborations, in 2024, the company expanded its EGFRxcMET bispecific antibody collaboration with Premas Biotech, and acquired Greater China rights for non-oncology indications of HS-20137 from Allgens Biotherapeutics and LP-168 (BTK inhibitor) from Lu Peng Pharmaceuticals.

Focus on the Further Expansion of Innovative Drugs in 2024 and Early Clinical Pipeline Data Readouts

In 23 years, all seven of the company's approved innovative drugs have been included in the National Medical Insurance Catalog. The company expects that the revenue share of innovative drugs will reach over 70% in 24 years. The bank believes that, on the basis of maintaining the existing commercial team in 24 years, the company is expected to continuously improve per capita efficiency. The company has a rich pipeline of innovative drugs to support future continuous revenue growth. The core products in the oncology sector are still in the stage of indication expansion. GLP-1/GIP dual-target drugs are about to enter Phase III, while the central nervous system and metabolic pipelines are actively advancing. It is recommended to pay attention to clinical data readings.