Chief Pharmaceutical Analyst Yang Jing restored coverage and Wong Pharmaceuticals (HCM.US/13.HK), maintaining a “buy” rating, with a target price of $25/HK$39. The company has been deeply involved in the pharmaceutical industry for more than 20 years and has now established an integrated platform for research and commercialization of new drugs. We believe that with the release of fruquintinib overseas and the approval of new innovative drugs such as solepinib, the company's development is expected to reach a new level.
Solepinib is expected to be approved as soon as this year: On January 11, 2024, the company announced that the China Drug Administration has accepted the marketing application for solepinib (Syk inhibitor) for the treatment of second-line immune thrombocytopenia (ITP) and prioritized review. We expect solepinib to be approved as soon as 2024. We expect this indication to contribute to sales spikes of around RMB 600 million. According to our communication with the company, Huhuang Pharmaceutical will gradually build a commercial team during the year to prepare for the launch of solepinib. The size of the commercialization team is expected to be around 100 people in the initial year.
Specific data on fruquintinib second-line gastric cancer was in line with expectations, and China's approval is still uncertain: On February 6, 2024, fruquintinib second-line gastric cancer phase III data was published in the American Society of Clinical Oncology General Conference Series (N=703). The median progression-free survival (PFS) of patients receiving a combination of fruquintinib and paclitaxel was 5.6 months (vs. 2.7 months [n=352], p<0.0001) for patients receiving paclitaxel monotherapy, which was statistically significant. However, overall survival (OS) was not statistically significant (median OS was 9.6 vs. 8.4 months). The summary attributed the lack of statistical significance of OS to an imbalance in the proportion of patients receiving subsequent antitumor treatment between the two groups. 52.7% of the furoquintinib plus paclitaxel group was 72.2%, compared to 72.2% of the paclitaxel monotherapy group. This specific data reading is consistent with previous announcements and is in line with expectations. Considering that CDE has gradually increased approval requirements in recent years, we believe that the approval of furoquintinib for second-line gastric cancer in China may still have some degree of uncertainty.
The main catalysts for 2024 include: 1) specific data reading of solepinib (Syk inhibitor) phase 3 second-line immune thrombocytopenia, China's approval and potential overseas authorization; 2) furoquintinib second-line gastric cancer approval in China, third-line colorectal cancer approval in Europe, Japan, and US sales exceeding expectations; 3) reading out of SAVANNAH data for phase II of andiliset (PI3K inhibitor) third-line follicular lymphoma (FL) and submission of application for marketing.
Valuation: We forecast revenue for Yellow 2023-25E of $850 million/$790 million/$980 million, respectively, corresponding to 32% 2023-25E CAGR (based on 2022). We valued the company based on the POS-adjusted revenue forecast and DCF valuation model. Assuming WACC and a sustainable growth rate of 9.1% and 3.0%, respectively, we obtained the company's target price of $25/HK$39, corresponding to a market value of US$4.3 billion.
Investment risk: Sales of commercial products fall short of expectations, poor clinical data for pipeline products.