Core views
The company's revenue for the full year of 2022 was 3,015 million yuan, an increase of 8.73% over the previous year, and achieved net profit of 96 million yuan after deducting non-return to the mother, an increase of 171.42% over the previous year. The first quarter of 2023 achieved total revenue of 624 million yuan, an increase of 10.97% over the previous year; net profit after deducting non-return to the mother was 26 million yuan, an increase of 45.1% over the previous year. With the implementation and battery life of anesthesia pipelines, stable basic business, and outstanding core competitive advantages in R&D, sales, and quality of innovative drugs in various fields, the company has gradually entered a positive cycle of business development.
occurrences
Recently, Hisco (002653.SZ) released its 2022 annual report and financial report for the first quarter of 2023. The company's revenue for the full year of 2022 was 3,015 million yuan, an increase of 8.73% over the previous year, and achieved net profit of 96 million yuan after deducting non-return to the mother, an increase of 171.42% over the previous year. The first quarter of 2023 achieved total revenue of 624 million yuan, an increase of 10.97% over the previous year; net profit after deducting non-return to the mother was 26 million yuan, an increase of 45.1% over the previous year.
Brief review
The performance is in line with expectations, and the product structure is continuously optimized
The company achieved revenue of 3,015 million yuan in 2022, an increase of 8.73% over the previous year; achieved net profit of 277 million yuan, a decrease of 19.72% over the previous year; achieved net profit of 96 million yuan after deduction of the mother, an increase of 171.42% over the previous year; and the company's operating income was reversed, in line with our expectations. The company's performance growth in 2022 was mainly driven by the recovery of cyclopofol releases and dorasetron sales from price cuts in 2021.
On a quarterly basis, the company achieved revenue of 562 million yuan, 685 million yuan, 849 million yuan and 919 million yuan respectively in Q1, Q2, Q3, and 919 million yuan respectively, with year-on-year growth rates of -22.881%, 25.04%, 33.75% and 6.55% respectively; the company achieved net profit of 26 million yuan, Q2, Q3 and 174 million yuan respectively in 2022. The year-on-year growth rates were -90.88%, 32.15%, 173.57 million yuan, respectively. %, 148.65% In 2022, because dorasetron's product classification management strategy began to bear fruit, compounded by the amount of cyclopofol released, the company's sales gradually improved in the second half of the year after starting to bottom out in the first half of 2022, driving positive growth in the company's performance.
In addition, the company's revenue in Q1 2023 reached 624 million yuan, an increase of 10.97% over the previous year; realized net profit of 29 million yuan, an increase of 9.72% over the previous year, and achieved net profit of 26 million yuan after deducting non-return mother's net profit of 26 million yuan, an increase of 45.1% over the previous year. The increase in the company's Q1 2023 performance also reflects the continued growth in cyclopropenol sales and the stabilization of the underlying business. Along with medical treatment and rehabilitation, the company's performance is expected to pick up at an accelerated pace in 2023.
The innovative drug cyclopofol was released quickly, opening a new chapter in anesthesia layout
Cyclopofol injection is the first class 1 intravenous narcotic drug with independent intellectual property rights developed by the company in China. It was approved for marketing in December 2020, and was officially included in the “National Medical Insurance Drug Catalogue (2021 Edition)” through the fifth batch of national medical insurance drug negotiations in November 2021. The main indications include “sedation and anesthesia during surgery/operation other than endotracheal intubation, induction and maintenance of general anesthesia, sedation during intensive care”, and additional indications “induction and maintenance of general anesthesia”, “sedation during intensive care”, and “sedation and anesthesia in gynecological outpatient surgery”. Compared with propofol, cyclopofol has the clinical advantage of “two fast and four less”. The specific symptoms are that it works quickly, wakes up quickly, uses fewer doses, less respiratory depression, fewer adverse cardiovascular events, and less injection pain.
At present, the company has covered about 1,300 hospitals in China, with sales of cyclopofol exceeding 400 million yuan in 2022. Driven by cyclopofol, the company's revenue from narcotic products reached 437 million yuan in 2022, an increase of 626.84% over the previous year; gross profit reached 403 million yuan, an increase of 604.63% over the previous year. Furthermore, the company tried to expand sales channels and coverage by exploring more cyclopropenol indications. Among them, phase III clinical enrollment in the US for induction indications of total anesthesia is progressing smoothly. Considering the factors of the resumption of diagnosis and treatment in 2023, demand for hospital surgeries will rise sharply. Cyclopofol clarifies ICU product positioning in the critical care field and establishes a critical care specialist system, which is expected to achieve a sharp year-on-year increase. It is planned to achieve a sales target of more than 10 million units throughout the year.
The advantages of exclusive generic drugs are obvious. The core product has fully returned to the self-operated model dorasetron mesylate injection (Lipifu), which is a basic drug for the prevention and treatment of CINV and PONV for children and adults aged 2 and above. It is an exclusive product of Hisco. It is a Class B national health insurance negotiation product in 2022. After the national negotiations were renewed, the health insurance suffix was abolished, and CINV and PONV indications can be reimbursed.
According to data from Mi Intranet, its market share has increased by 1% from MS in 2022 compared to MS in 2021, and it is believed that the market share will increase further in the future.
Furthermore, judging from the data for the first quarter of 2022, dorasetron's share in the antiemetic field reached 10.02%, ranking 4th; Lipifu ranked 3rd in the anti-emetic field product ranking and 1st in the field of antiemetic products.
Doenphosphatidylcholine injections are mainly used for the treatment of various types of liver diseases, such as drug-induced liver damage, perioperative liver damage, cholestatic liver damage, and cirrhosis. It is a Class B product of national health insurance and has been jointly recommended by more than 40 authoritative guidelines. According to H1 meter intranet data in 2022, doenophosphatidylcholine injections had a 9.42% market share of injectable drugs to treat hepatobiliary diseases, and the product ranked second.
In the context of the dominance of the company's core generic drug products, the withdrawal of dorasetron mesylate and doenphosphatidylcholine from a distribution model to a fully self-operated sales model gave the company more initiative in exclusive generic drug sales and further explored market potential. Two exclusive generic drug core products give the company steady subsequent growth strength, help the company achieve steady sales growth, and provide a stable guarantee for the company's R&D and marketing of innovative drugs.
The launch of HSK7653 and HSK16149 is imminent. Multi-pipeline research and development is progressing smoothly. The company continues to deploy new drug R&D pipelines in various fields, and has rich pipeline reserves. Among them, the company's long-acting hypoglycemic drug HSK7653 and the neuralgia treatment drug HSK16149 have already submitted NDA applications and are in preparation for marketing. At the same time, the “post-herpetic neuralgia” indications of HSK16149 are undergoing clinical phase III clinical trials, “adjuvant analgesia” clinical phase II clinical trials, and the clinical phase III studies of the HSK21542 indications “postoperative analgesia” and “chronic kidney disease itching” are progressing smoothly. Exploring multiple indications can help companies extend market coverage and improve overall penetration.
Other clinical-stage drugs, including respiratory drugs (HSK31858), cardiovascular drugs (HSK31679), and antithrombotic drugs (injectable HSK36273), are in phase II clinical phase in China. Oncology drugs (HSK29116, HSK40118, HSK38008) phase I clinical trials in China are progressing smoothly. In addition, the company has about 30 projects in the screening stage, involving treatment fields such as oncology, autoimmune systems, respiratory systems, and ophthalmology, and it is expected that several projects will be declared for IND in 2023.
Financial analysis: continuous investment in R&D, good cost control
In the first quarter of 2023, the company's sales expenses were 227 million yuan, up 14.84% year on year, sales expenses rate 36.34%; management expenses were 87 million yuan, up 20% year on year, management expenses were 13.94%; R&D expenses were 902 million yuan, up 6.51% year on year, R&D expenses were 14.67%; financial expenses were 0.1 million yuan, down 15.11% year on year, and financial expenses were 1.63%.
In 2022 as a whole, the company's sales expenses were 1,136 million yuan, an increase of 16.37% over the previous year, with a sales expense ratio of 37.68%; management expenses of 328 million yuan, a decrease of 6.84% over the previous year, with a management expenses rate of 10.87%; R&D expenses of 448 million yuan, an increase of 3.16% over the previous year, with an R&D expense ratio of 14.58%; financial expenses of 43 million yuan, an increase of 84.62% over the previous year, and a financial expense ratio of 1.43%.
Looking at Q4 2022 alone, sales expenses were 354 million yuan, up 21.04% year on year, sales expenses rate 38.56%; management expenses were 95 million yuan, up 1.73% year on year, management expenses were 10.3%; R&D expenses were 170 million yuan, up 13.2% year on year, R&D expenses rate 18.56%; financial expenses were 15 million yuan, up 54.44% year on year, and financial expenses rate 1.63%.
Based on the company's financial situation in the first quarter of 2023 and 2022, with business expansion and company development, sales expenses, R&D expenses, and financial expenses all increased to varying degrees. Management expenses for the first quarter of 2023 increased compared to the first quarter of 2022, but overall management expenses for the whole of 2022 decreased. Furthermore, the increase in financial expenses in 2022 was mainly due to the increase in current loans and the increase in the cost of interest on special loans after the consolidation of projects under construction.
The company's investment highlights and main catalytic factors:
(1) In terms of innovative drugs:
a) Cyclopofol injections continued to be released. After the first quarter of 2023, with the resumption of diagnosis and treatment, demand for surgery increased, and sales of cyclopofol increased further.
b) HSK7653 and HSK16149 have filed NDAs, and commercialization is imminent. Among them, HSK16149 is expected to submit a post-shingles chronic neuralgia NDA in 2023 H1.
c) HSK21542 is progressing in clinical phase III, and it is expected that H1 will submit an NDA in 2023.
d) Targets such as BTK-PROTAC and THRβ are expected to enter Phase II this year.
(2) Generic drug aspects;
Treatment with dorasetron and doenphosphatidylcholine injections has significant advantages. As the number of inpatient surgeries rises, sales in the parenteral nutrition sector will reverse the sluggish trend during the pandemic and achieve significant growth.
(3) In terms of internationalization:
The first US phase III clinical trial of the narcotic drug cyclopofol (HSK3486) indication anesthetic induction (IGA) conducted by “HiCisco International” in the US has reached the pre-set main endpoint development. The second phase III clinical trial is being conducted in the US. Currently, the trial is progressing smoothly. The company plans to conduct phase III clinical trials of HSK3486 simultaneously in the US and Europe this year. Overseas clinical trials of HSK3486 and HSK29116 will continue to be steadily promoted in 2023, seeking a breakthrough in foreign cooperation authorization for innovative drugs.
Profit Forecast and Valuation:
We assume that (1) the company's innovative drug cyclopofol injection will continue to be released in 2023; (2) the company's generic drug sales will resume an upward trend as diagnosis and treatment resumed and the number of hospital surgeries increased; (3) Assuming that the company's narcotic HSK3486 phase III trial progressed smoothly in the US, product internationalization would stimulate further growth in future revenue while increasing international recognition; (4) Assuming that the company's NDA declared the drugs HSK7653 and HSK16149 were successfully approved, thereby further enriching the product pipeline and expanding revenue sources in 2022. The revenue for 2023 and 2024 was 3.740, 45.08, and 5.382 billion yuan respectively, and net profit was 361, 469, and 608 million yuan respectively. The corresponding growth rates were 30.26%, 30.04%, and 29.63% respectively. The corresponding PE was 81.67 times, 62.81 times, and 48.45 times, respectively, giving a “buy” rating.
Risk analysis
Industry policy risks: Risks such as changes in research and design requirements, price changes, volume procurement policy changes, and changes in the scope and proportion of medical insurance reimbursement due to industry policy adjustments.
Risk of falling short of expectations: In the process of developing new drugs, there are risks such as uncertain clinical enrollment progress and uncertain efficacy results and safety results data.
Risk that approval falls short of expectations: The company's new drugs HSK7653 and HSK16149 are in the NDA approval stage. During the approval process, there are risks such as data additions and extended approval cycles due to factors such as data additions and changes in the approval process.
Risk that sales fell short of expectations: In the company's revenue in 2022, parenteral nutritional and narcotic products accounted for 35.77% of total revenue. After the drug is marketed, the sales process will be affected by scattered epidemics, increased competition pattern, insufficient logistics capacity, insufficient production capacity, etc., and there is a risk that the growth rate in 2023 will fall short of expectations.
Risk of health insurance negotiations: There is a risk of uncertainty about the decline brought about by health insurance negotiations.
Sensitivity analysis: Higher raw material prices and medical insurance renewal prices falling short of expectations may affect net profit levels. In 2023-2025, the net profit of the mother may fall below the 29% growth rate. Surgical repair falls short of expectations, scattered diagnosis and treatment has stagnated, and progress in the marketing of new anesthesia products is limited, which may affect the sales growth rate of anesthesia lines. There is a risk that the 2023-2025 revenue growth rate will fall below 19%.