Investment highlight
For the first time, Deqi Pharmaceutical-B (06996) rated the outperforming industry with a target price of HK $23.00, corresponding to a target market capitalization of HK $15.4 billion by the end of 2021. The reasons are as follows: medical demand has led to a substantial growth in the market for oncology drugs. In recent years, due to the expansion of patient pool, increased regulatory approval and the emergence of advanced treatment programs, global sales of oncology drugs have grown steadily. Considering that China has a large population and the number of cancer patients is still increasing, we believe that there is great growth potential in the domestic antineoplastic drug market.
Efficient executive power empowers the introduction of business models. Deqi Pharmaceutical has signed long-term strategic cooperation agreements with the world's leading biopharmaceutical companies for new drugs in multiple clinical stages. Based on the rich industry experience of the management team, the company adopts a joint and complementary development strategy to maximize the clinical and commercial value of licensed drugs.
In the research pipeline to focus on similar innovative (first-in-class) varieties, the core products have the potential of joint use. 1) ATG-010 is the first and best (best-in-class) selective nuclear output inhibitor (SINE) targeting XOP1. It has been approved by FDA for the treatment of relapsed / refractory multiple myeloma (MM) and diffuse large B-cell lymphoma (DLBCL). We expect ATG-010 to be listed in China in 2022, and sales in China and other APAC regions are expected to reach a risk-adjusted peak of 5 billion yuan in 2032, of which the domestic risk-adjusted sales peak is 3.9 billion yuan. 2) ATG-008 is expected to become the first dual inhibitor of mTORC1/2 in the same kind. We expect ATG-008 to be listed in China in 2024, and risk-adjusted sales are expected to reach a peak of 1.9 billion yuan in 2033.
What is the biggest difference between us and the market? We believe that ATG-010, as the only drug of its kind (only-in-class), will become a unique scheme for the treatment of MM and DLBCL.
Potential catalyst: ATG-010 has been approved in a number of Asia-Pacific countries and regions; other progress has been made in drug development.
Profit forecast and valuation
We estimate that the EPS of the company in 2021 and 2022 will be-1.22 yuan and-1.26 yuan respectively. Based on the discounted cash flow valuation, we cover Deqi Pharmaceuticals for the first time with an outperform industry rating and target price of HK $23.00, corresponding to 43% upside space.
Risk
Clinical trials and progress of drugs under development are lower than expected; sales are lower than expected; and price pressure from regulators and competitors.