Incident: On May 16, 2024, Hengrui Pharmaceutical issued an announcement. The company and Hercules reached an agreement to license overseas rights in the three GLP-1 product portfolios developed by themselves to the latter, and obtained licensing fees and 19.9% of Hercules's shares. The details are as follows:
Hercules will receive three products currently being developed by Hengrui Pharmaceutical: 1) HRS7535 (an oral small molecule GLP1R agonist, currently undergoing phase II clinical trials for weight loss and diabetes in China); 2) HRS9531 (GIPR/GLP1R dual-target agonist and oral tablets, currently undergoing phase III clinical trials for domestic weight loss, and phase II clinical trials for indications such as diabetes and polycystic ovary syndrome); 3) HRS4729 (next-generation enterostimulant insulin, currently in pre-clinical stage);
Hengrui Pharmaceutical will receive an initial payment of 100 million US dollars and a technology transfer fee of 10 million US dollars from Hercules, followed by a clinical development milestone of no more than 200 million US dollars, a sales milestone of no more than 5.725 billion US dollars, and a sales share from a low number of units to a low double digit. Hengrui Pharmaceuticals will also acquire 19.9% of Hercules's shares.
Hercules is a biotechnology company founded in May 2024. It was founded by Bain Capital, RTW, Atlas Ventures, and Sino Investments with investments of US$225 million, US$110 million, US$50 million, and US$15 million respectively. After this transaction, the shares of each company were 39.4%, 19.3%, 8.8%, and 2.6%, respectively, for a total of 70.1%. The remaining 29.9% of shares are 19.9% of Hengrui Pharmaceutical's shares and the 10% employee shareholding plan reserved by Hercules.
Comment: We believe that this transaction shows Hengrui Pharmaceutical's milestones in improving its internationalization capabilities in recent years, and also opens up a new model for innovative Chinese drugs to go overseas.
Profit forecasting and investment advice. We forecast the company's net profit for 2024-2026 to be $57.98, 68.26, and 7.955 billion yuan, respectively, up 34.8%, 17.7%, and 16.5% year-on-year, while EPS was 0.91, 1.07, and 1.25 yuan respectively. Considering that the company is a leader in the field of innovative pharmaceuticals in China, using the PEG valuation method, we gave it a rating of “superior to the market” by 46-58 times PE in 2024, corresponding to a reasonable value range of 42.00-52.50 yuan.
Risk warning: R&D innovation falls short of expectations; industry policy risks; market competition increases risk;