Hansoh Pharmaceutical Group (Hansoh) reported 1H24 revenue of Rmb6.51bn (+44.2% YoY) and net profit of Rmb2.73bn (+111.5% YoY), beating our expectation. The strong interim result is mainly driven by the sales ramp up of innovative drugs and upfront payment from GSK for the BD collaboration. Its selling expense-to-revenue ratio declined 10.6ppts YoY to 26.5% in 1H24. Hansoh's blended gross margin increased 3.0ppts YoY to 91.1% in 1H24 due to the upfront payment. Considering the sales ramp up of innovative products and the upfront payment from GSK, we raise our EPS forecasts from Rmb0.63 to Rmb0.71 in 24E, from Rmb0.65 to Rmb0.66 in 25E and from Rmb0.73 to Rmb0.79 in 26E. We raise our target price from HK$17.1 to HK$23.4. With 28% upside, we upgrade from Outperform to BUY rating.
Continuous sales ramp up of innovative drugs. Revenue of innovative drugs and collaborative products reached Rmb5.03bn (+81% YoY) in 1H24, accounting for 77% of its total revenue in 1H24 (vs 62% in 1H23). In terms of sales by therapeutic fields, due to the sales ramp up of Ameile and Hansoh Xinfu and upfront payment from GSK, sales of oncology products increased 75% YoY to Rmb4.48bn, representing 69% of its total revenue. In addition, sales of CNS sectors and anti-infective products reached Rmb733m (+5% YoY) and Rmb701m (+17% YoY) in 1H24, together representing 22% of its total revenue. With the sales ramp up of existing innovative drugs and future approval of new indications of key oncology product Ameile, we expect the further sales ramp up of innovative drugs.
Further investments on innovative pipeline. Hansoh's R&D expenses reached Rmb1.20bn (+28.7% YoY), with R&D expense ratio of 18.4% in 1H24. The company currently has over 30 innovative drugs under development, with over 50 clinical trials ongoing, covering oncology and non-oncology fields. As for the non-oncology fields, its pipelines cover autoimmune diseases and nephropathy, including HS-10347 (TYK2), which is under phase II trial for psoriasis and psoriatic arthritis. Meanwhile, HS-20094 (GLP-1/GIP) is under phase II clinical trials for patients with type 2 diabetes and patients with overweight or obese.
Active BD deals to further enrich its pipeline. The company actively participated in license-in and license-out BD opportunities to further enrich its pipeline. Hansoh licensed out the global rights (ex-Greater China) of HS-20089 (B7-H4 ADC) and HS-20093 (B7-H3 ADC) to GSK in 2023. HS-20093 (B7-H3 ADC) is under phase III trial in China for SCLC. In addition, HS-20093's other indications including sarcoma, head and neck cancers and other solid tumors are under phase I and II stage. In addition, GSK recently has received the BTD for GSK5764227 (HS-20093) from the US FDA. In April 2024, the company licensed in QX004N (IL-23p19)'s China rights from Qyuns (02509.HK-N-R), with upfront payments of Rmb75m. QX004N is under phase II trial for psoriasis and phase I trial for Crohn's disease. In addition, Hansoh recently licensed in LP-168 (BTKi)'s China rights from Lupeng Pharma, with upfront payments and potential milestones of up to Rmb729m and tiered royalties up to double-digit on future sales. LP-168 is now under phase II trial for relapsed/refractory mantle cell.
Upgrade to BUY. Considering the sales ramp up of innovative products and the upfront payment from GSK, we raise our EPS forecasts from Rmb0.63 to Rmb0.71 in 24E, from Rmb0.65 to Rmb0.66 in 25E and from Rmb0.73 to Rmb0.79 in 26E. We raise our target price from HK$17.1 to HK$23.4. With 28% upside, we upgrade from Outperform to BUY rating.
Risks: Lower-than-expected product sales; delay of R&D process.