Deqi Pharmaceutical reached an agreement with Hansoh Pharmaceutical Group on the commercialization of Sereneso in Chinese mainland. On August 11, 2023, Deqi Pharmaceuticals announced the signing of a cooperation agreement with Hansoh Pharmaceutical Group (3692 HK/ unrated) for the commercialization of Serineso and other products including or composed of Serinesol in the Chinese mainland market. According to the agreement, Deqi Pharmaceutical will receive a down payment of up to 200 million yuan (RMB, the same below), of which 100 million yuan will be paid at the time of signing and the rest will be paid when specific conditions are met; and it is possible to get a milestone payment of up to 535 million yuan. Deqi Pharmaceuticals will continue to record revenue from the sales of Chinese mainland and will continue to be responsible for the research and development, regulatory approval, product supply and distribution of Serineso. Hansoh Pharmaceutical Group will be exclusively responsible for the commercialization of products including or composed of Serineso on Chinese mainland, and collect service fees from Deqi Pharmaceuticals. In the future, the two sides will also explore combination therapy based on Sereniso and Hansen pipeline products.
Hansoh Pharmaceutical Group has rich experience in commercializing hematological oncology drugs and negotiating health insurance. Hansen deeply distributes the field of innovative oncology drugs. In 2022, both the tumor sector and innovative drugs account for more than 50% of the total income. Among them, flumatinib, a major innovative drug, and a number of generic drug products are in the field of hematoma. According to the Rubik's cube data, the annual sales income of the company's hematoma product portfolio in the sample hospitals in the past two years is about 600 million yuan to 700 million yuan, and the continuous release of flumatinib effectively resists the pressure of generic drug collection. The sales of 2022/1Q23 flumatinib sample hospitals increased by 96.8% and 58.9% respectively compared with the same period last year. The Hansen commercialization team has more than 6000 people, about half of whom are responsible for tumor line products, covering all levels of hospitals and DTP pharmacies; as of 1H22, flumatinib dedicated line team has about 500 people, we think it will have a good synergy with Serineso. In this year's health insurance negotiations, Deqi will still be the main body of Selineso application, while Hansen, which has six innovative drugs successfully included in the health insurance catalogue, will provide valuable experience.
Serineso important R & D milestone in the next 12 months: the Chinese 2L MM registered clinic has completed patient enrollment in July, and management expects 1H24 to submit sNDA; China relapse refractory DLBCL to sNDA in August 2023. Karypharm, a 1L MF III phase clinical research partner, was launched in June 2023 and the company plans to participate in the Asia-Pacific region, including Chinese mainland.
Raise the target price. We believe that this cooperation will create a strong synergy between Serineso and Hansen's own tumor line, thereby accelerating Cellineso's hospital coverage and market penetration and improving drug accessibility. On the other hand, this cooperation will help the company to save marketing costs, thus further focusing on the clinical promotion of the research pipeline. We have raised the company's revenue forecast for 2023-25e to 410 million / 770 million / 1.05 billion yuan to reflect the new cooperation revenue. We continue to value the company based on the DCF model, get the latest target price of HK $4.60 and maintain the buy rating.
Core risks: the progress of research and development is not as expected, the competition of similar products is intensified, and sales are not as expected.