Core views
China Biopharmaceutical announced its 2023 annual results announcement. Net profit for the full year of 2023 was 26.20 billion yuan, up 0.7% year on year; net profit to mother was 2.33 billion yuan, down 8.3% year on year. Adjusted net profit from non-Hong Kong Financial Reporting Standards was 2.59 billion yuan, up 1.5% year on year. The company's revenue from innovative products was 9.89 billion yuan, which increased to 37.8%.
In 2024, the anti-PD-L1, ALK, and ROS1 cancer segments of the company are expected to be approved in 2024H1, and KRAS and others are expected to be approved in 2024Q4-2025Q1. In addition, anlotinib, KRAS, and CD40 agonists will be disclosed at AACR in April, and FS222 is expected to be disclosed by ASCO in June; the liver disease sector is expected to complete MASH enrollment in 2024; IL4R in the respiratory sector is expected to read data within 2024; and loxoprofen sodium gel patch for the surgical analgesia segment is expected to be approved for H2. The company's innovation has entered a harvest period, and four major fields continue to advance.
occurrences
On March 28, 2024, China Biopharmaceutical (1177.HK) released its 2023 annual report. Revenue for the full year of 2023 was 26.20 billion yuan, up 0.7% year on year; net profit attributable to mother was 2.33 billion yuan, down 8.3% year on year. Adjusted net profit attributable to mother was 2.59 billion yuan, up 1.5% year on year.
Brief review
1. The performance was basically in line with expectations. Innovative products drove revenue growth of 26.20 billion yuan for the full year of 2023, up 0.7% year on year, of which revenue from innovative products was 9.89 billion yuan, accounting for 37.8%, up 13.3% year on year. The company achieved net profit of 2.33 billion yuan for the year, a year-on-year decrease of 8.3%. Adjusted net profit attributable to mother was 2.59 billion yuan, an increase of 1.5% over the previous year.
In terms of specific treatment areas, anti-tumor drugs achieved revenue of 8.80 billion yuan (-4.2%), accounting for 33.6%; liver disease medication achieved revenue of 3.82 billion yuan (-0.4%), accounting for 14.6%, mainly benefiting from the rapid increase in sales volume of Tianqing Ganmei; respiratory medication achieved revenue of 2.97 billion yuan (+1.4%), accounting for 11.3%, mainly due to the significant increase in sales volume of Tianqingsu; surgery/analgesics achieved revenue of 3.75 billion yuan (+9.0%), accounting for 14.3%, mainly due to the rapid increase in sales of the product Zepus; Cardiovascular drug use achieved revenue of 2.75 billion yuan (+2.5%), accounting for 10.5%.
2. Innovation and transformation have entered a harvest period, and R&D investment has reached a new high
Innovative products are developing rapidly, and their share of revenue is rising. In 2023, the company launched a total of 6 innovative products. Revenue from innovative products for the full year of 2023 was 9.89 billion yuan, accounting for 37.8%, an increase of 13.3% over the previous year. In the field of oncology, the world's first third-generation G-CSF drug, was approved by NMPA for marketing in May 2023 to treat and prevent neutropenia in cancer patients after receiving chemotherapy. In November 2023, the product was approved for marketing by the FDA and successfully included in national health insurance in December, and is expected to be rapidly released in 2024; in addition, Ambes (bevacizumab injection), delituil (rituximab injection), and ceturizumab (injectable trastuzumab) received N in February, May, and July 2023, respectively MPA Approved for listing. In the field of surgery/analgesia, limaprost tablets were approved for marketing in February 2023, filling the market gap for lumbar spinal canal stenosis. An Hengji (injectable recombinant human coagulation factor VIII) was approved for marketing by the NMPA in August 2023.
The share of R&D investment continues to rise, and investment in innovative products continues to increase. In 2023, the company invested 4.7 billion yuan in R&D, accounting for 18.0% of revenue. Of these, R&D investment for innovative products accounted for more than 77%, and the investment amount increased by about 10% over the same period last year. The company previously acquired three internationally advanced technology platforms through the overseas platform Invox — F-Star Dual Antibody Technology Platform, PhiON's mRNA Delivery Platform, and Softhale's Soft Mist Inhalation Platform to achieve the strategic layout of multiple R&D centers around the world.
3. Oncology field: Combinations of anlotinib can be developed, and biosimilar drugs are marketed in batches. In the field of tumor treatment, the company has built a product matrix with anlotinib as the core and PD-1/PD-L1 as the support. In January 2023, a marketing application was submitted for marketing of anlotinib and bemosubizumab (anti-PD-L1) for first-line small cell lung cancer. Anlotinib has now been approved for 5 indications and is under medical insurance. Another 10 new indications have entered phase III clinical trials, including various treatment plans such as anlotinib in combination with piamprimab, anlotinib in combination with bemosubimab, and anrotinib in combination with chemotherapy. It is expected that marketing applications will be gradually submitted within the next 1 to 2 years.
Irishu was approved for marketing by the NMPA in May 2023 to prevent or treat neutropenia in cancer patients after chemotherapy, and was included in national health insurance in December, and is expected to be accelerated in 2024. In addition, Elishu was approved for listing by the US FDA in November 2023. In 2024, Brightener will play an important role in supporting and driving the company's performance growth.
Bemosubimab (anti-PD-L1) was submitted for first-line treatment of small cell lung cancer in combination with anlotinib in January 2023. In February 2024, an application for new indications for endometrial cancer was submitted.
Biosimilar drugs have also entered the harvest period, and three biosimilar drugs, bevacizumab, rituximab, and trastuzumab, have been approved for marketing. These biosimilars are expected to increase rapidly in 2024, increasing the Group's revenue growth.
By the end of the reporting period, a total of 43 innovative drug candidates in the field of oncology were in clinical or above development. Among them, 5 products were in the marketing application stage and 4 products were in clinical phase III; 17 biosimilar or generic drugs were in clinical or higher development. Of these, 7 were in the marketing application stage, and 2 products were in key clinical trials. Seven innovative products and nine generic/biosimilar drugs are expected to be launched in 2024-2026.
4. The field of liver disease: Tianqing Ganmei quickly released, and the NASH field had a comprehensive layout in the field of liver disease. The sales volume of Tianqing Ganmei grew rapidly, and was recommended by the “Chinese Medicinal Liver Injury Diagnosis and Treatment Guidelines (2023 Edition)”. Ranilano (pan-PPAR agonist), as a potential global BIC and Chinese FIC NASH oral drug, was included in the CDE's breakthrough treatment list in July 2023. It is currently undergoing phase III clinical trials globally. The first patient was enrolled in phase III clinical trials in China in August, and is expected to fill the gap in the Chinese NASH market in the future. TQA2225 (FGF21 long-acting fusion protein) has entered clinical phase II and is a potential Chinese FIC.
By the end of the reporting period, 6 innovative drug candidates in the field of liver disease were currently in clinical or higher development, including 1 phase III, 4 phase II, and 1 phase I. There are also 3 generic drugs in development, and it is expected that 2 biosimilars or generic drugs will be marketed in 2024-2026.
5. Respiratory field: Laying out multiple cutting-edge targets, showing huge market potential. The already marketed products Tianqing Suchang (budesonide suspension) and Tianyun (polymyxin E for injection) quickly seized market share and achieved rapid sales growth. In addition, the company has laid out cutting-edge targets such as ROCK2, P2X3, and TSLP, and the development progress is leading in the country. TDI01 (ROCK2 high-choice inhibitor) is currently in clinical phase II. The indications under development include pneumoconiosis, pulmonary fibrosis, etc.; IPF clinical phase II will be launched in China in April 2023. TCR1672 (a highly selective P2X3 inhibitor for chronic cough) is the fastest developed in China, the top 3 varieties in the world, and is undergoing phase I/II clinical trials. TQC2731 (TSLP monoclonal antibody) is in clinical phase II. More than half of the clinical trials for asthma indications have been enrolled. It is progressing the fastest among Chinese companies. The alternative end point has shown obvious efficacy, and is expected to become a first-in-class TSLP product in China. TQC3721 is the fastest domestically produced PDE3/4 dual inhibitor developed in China. It is currently undergoing clinical phase II in China to treat moderate to severe chronic obstructive pulmonary disease. TQC2722 is a humanized monoclonal antibody targeting IL-4Rα. It is currently undergoing clinical phase II in China. The indications are atopic dermatitis and chronic sinusitis with or without nasal polyps. Among them, the Phase II study on indicative atopic dermatitis has completed patient enrollment, and the study results are expected to be announced in 2024.
At the end of the reporting period, there are currently 8 innovative drug candidates in the field of liver disease in clinical or higher development, including 1 NDA, 4 phase II, and 3 phase I. There are also 23 generic drugs in development, and it is expected that 1 innovative product, 11 biosimilar drugs, or generic drugs will be launched in 2024-2026.
6. In the field of surgical analgesia: Technical platform upgrade+improved new drugs, building leading positions for transdermal preparations in the field of surgery/analgesia. Flurbiprofen gel patches and lidocaine gel patches strengthen sinking development, and multi-department expansion is progressing well. Sales of Zephyr (flurbiprofen) gel patches have continued to grow rapidly. Anhengji (injectable recombinant human coagulation factor VIII) was approved for marketing by NMPA in August 2023. In June 2023, the marketing application for loxoprofen sodium gel patch submitted by Beijing Tide Pharmaceutical was accepted. In addition, the company has successfully built a number of innovative patch technology platforms. In 2027, it will build one of the largest pipelines for topical pharmaceutical products in China. It is expected to launch 2 innovative products and 10 new biosimilar or generic drug products in the next 3 years.
6. Financial analysis: Sales management cost rate control is good, and the share of R&D investment continues to increase. In terms of cost rate control, the company has ensured transparency and traceability of cost management, achieved effective cost control, and further reduced the sales management expense ratio through scientific division and refined management of the sales team and business focus on core assets. For the full year of 2023, the company's sales and management expenses (SG&A) were $111 billion, and the cost ratio fell to 42.2%, a decrease of 3.8 percentage points compared to the same period last year. Since 2018, the cumulative decrease of nearly 7 percentage points fully reflects the continuous improvement of the company's operating efficiency.
The company's total R&D expenditure for the full year of 2023 was 4.4 billion yuan, up about 13.3% year on year, accounting for 16.8% of revenue, compared to 16.0% in the same period last year.
Among them, innovative product R&D investment accounted for 77%, and generic drug R&D investment accounted for 23%. The continued increase in R&D investment is expected to accelerate the implementation of the company's innovation and transformation strategy, optimize the company's revenue structure, and promote the company's long-term performance growth.
7. Company investment highlights and subsequent catalytic factors
Tumor sector: (1) anti-PD-L1 is expected to be approved in 2024H1; (2) TQ-B3139 (Alk/cMet) is expected to be approved in 2024H1; (3) TQ-B3101 (Ros1/Alk/c-Met) inhibitors are expected to be approved in 2024H1; (4) D-1553 (KRAS G12C) will be approved domestically from 2024Q4-2025Q1; in addition, anlotinib, KRAS, and CD40 agonists will be disclosed at AACR in April. FS222 is expected to disclose data in 2024 ASCO and advance potential BD within 2024.
Liver disease sector: Lanifibranor has initiated phase III clinical trials in China and the US. It is the first MASH oral drug to enter clinical phase III in China. Inventia resumed international phase III enrollment on March 7, and it is expected that all enrollment will be completed in 2024.
Respiratory sector: The Phase II study of TQC2722 (IL-4R) indicative atopic dermatitis has completed patient enrollment, and the study results are expected to be announced in 2024.
Surgery/analgesia: Loxoprofen sodium gel patch has been NDA, and it is expected that 2024H2 will be approved for marketing.
8. Profit Forecast
We expect the company's total revenue from 2024 to 2026 to be 29.657 billion yuan, 34.240 billion yuan, and 40.628 billion yuan respectively, with year-on-year growth rates of 13.20%, 15.46% and 18.66% respectively. Net profit attributable to mother was RMB 2,686 billion, RMB 3.134 billion, and RMB 3,749 billion, with year-on-year growth rates of 15.18%, 16.69%, and 19.62%, respectively. The corresponding PE is 21.14x/18.12x/15.15x respectively, and we maintain the “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 of approval falling short of expectations: In the process of approval of innovative products, there are risks such as extended approval cycles due to factors such as data additions and changes in the approval process.
Risk of sales falling short of expectations: After the drug is marketed, there are risks such as increased competition, insufficient logistics capacity, and insufficient production capacity during the sales process, and there is a risk that the growth rate will fall short of expectations. At the same time, there is a risk that the speed of entry will fall short of expectations, and due to the sequential order of policy implementation, there may be different performance in segmented tracks and local regional sales.
Risk of health insurance negotiations: There is a risk of uncertainty about the decline brought about by health insurance negotiations.