Incident: The company recently licensed the GLP-1 product portfolio with independent intellectual property rights to Hercules of the United States for a fee. As part of the consideration for the external licensing deal, the company will acquire 19.9% of Hercules's shares and license fees for the GLP-1 product portfolio.
Three GLP-1 pipelines create a product matrix in the field of metabolism. The product portfolio mainly consists of 3 products:
(1) HRS-7535, small molecule GLP-1 receptor agonist. Both of its indications for treatment of type 2 diabetes and weight loss are in the second phase of clinical trials. It is expected that the main endpoint data for weight loss indications (percentage change in body weight compared to baseline after 26 weeks) will be read out in November of this year. Currently, there are no oral small molecule GLP-1R agonists on the market worldwide.
(2) HRS-9531, peptide GLP-1/GIP dual agonist injection and oral products. Weight loss indications entered clinical phase 3 in May this year, and type 2 diabetes is in clinical phase 2. Currently, there are no similar oral products on the market worldwide.
(3) HRS-4729, a next-generation intestinal insulin product, can protect pancreas while increasing insulin secretion and controlling blood sugar by activating multiple targets, and is expected to achieve better weight loss effects and treatment of diseases related to metabolic dysfunction. It is currently in pre-clinical development.
External licensing is speeding up, and innovation continues to benefit overseas. This authorization set a new model and record for the company's external licensing. In the near future, Hengrui will receive an initial payment of US$110 million for the GLP-1 product portfolio and a recent milestone; in the long term, it will receive HRS-7535 cumulative clinical development and regulatory milestones of no more than US$200 million, a cumulative sales milestone of not more than US$5.725 billion for the GLP-1 product portfolio, and a low single-digit to low double-digit sales commission. Notably, in addition to the milestone payments, the terms of the deal also included 19.9% of Hercules's shares. Furthermore, since '23, the company has continued to have good news about external licensing. In '23, a total of 5 external licensing deals have been reached, totaling more than 4 billion US dollars. We believe that the intensive implementation of overseas licenses shows that the company's R&D strength already has global competitiveness, made new breakthroughs in the quality and speed of innovative drug development, and that the internationalization process will accelerate.
We expect EPS to be 0.90/1.03 yuan/1.21 yuan in 2024-26. According to comparable companies, the company was given a price-earnings ratio of 61 times in 2024, and the corresponding target price was 51.90 yuan, maintaining the purchase rating.
Risk warning
The risk of developing innovative drugs falling short of expectations, the risk of sales of innovative drugs falling short of expectations, and the risk of generic drugs entering collection.