We cover Yasheng Pharmaceutical for the first time, with a "buy" rating for the first time, with a target price of HK $28.1.
The co-founder of the company has focused on the research on the mechanism of apoptosis for many years, and the apoptotic compounds have been acquired by well-known pharmaceutical companies such as Sanofi and Debiao in Switzerland, and the company also ploughs the apoptosis pathway with great potential. Orebatinib, the first commercial product, is expected to be sold quickly.
Highly differentiated small molecule pipeline focusing on apoptosis pathway: Yasheng's current pipeline has seven small molecule targeted drugs in the clinical stage, covering tumors, viral hepatitis, ophthalmology and other diseases that do not meet medical needs. Unlike many of its peers, Yasheng focuses more on multiple potential targets under the mechanism of apoptosis in pipeline development, and has developed products with the same kind of pioneering / best potential. We believe that this strategy will help the company to maximize its advantages in the field of apoptosis (such as the successful experience of the founder) and maximize its return on investment with limited R & D resources.
Heavy cooperation helps commercialization and confirms R & D strength: Orebatinib, the company's first commercial product, is the first third-generation BCR-ABL/KIT inhibitor listed in China. In July last year, the company and INNOVENT BIO reached a cooperative development agreement to jointly develop and commercialize Orebatini in Greater China and share half of the profits of the cooperation. Cinda has a relatively perfect layout in the commercialization of oncology drugs and has achieved excellent results in the past (the annual sales of PD-1 has been close to 3 billion yuan three years after its listing). We believe that Orebatinib is expected to have a good commercial synergistic effect with Cinda's PD-1, rituximab and nearly commercial hematoma products such as BCMA CAR-T and PI3K δ. The company's other partners are no shortage of multinational pharmaceutical companies such as AstraZeneca PLC, Pfizer Inc, Merck & Co Inc and Sanofi, which proves the strong R & D strength of the company.
Excellent clinical data: the efficacy of Orebatinib on T315I mutation CML was significantly better than that of its competitors; the phase I data of Bcl-2 inhibitor APG-2575 showed better efficacy and safety than venetoclax. Potentially important catalysts for 2H22/1H23 include:
1) fully approved NDA submission by Orebatinib, disclosure of relevant data on GIST, and progress in critical phase II trials in the United States; 2) multiple data readout and cohort progress of APG-2575 and MDM2-p53 inhibitor APG-115 on hematoma.
Valuation: we expect Yasheng 2022-24e revenue of RMB 200 million / 430 million / 900 million, corresponding to 219% 2021-24e CAGR, mainly driven by Orebatinib sales volume. We value the company based on the POS-adjusted revenue forecast and the DCF valuation model, with an assumption of 11.1% for WACC and 2.0% for sustainable growth, respectively, resulting in a target price of HK $28.1, corresponding to a market capitalization of HK $7.4 billion.
Investment risk: sales of Orebatinib are not as expected, and follow-up clinical development is blocked.