We cover Fuhong Hanlin for the first time, with a "hold" rating for the first time and a target price of HK $19.0.
We believe that the current valuation level of the company is reasonable; although the company faces certain competition, policy and price reduction risks in the short term, the operating cash flow has become positive, the risk of follow-up pipeline development can be controlled, and there are considerable opportunities for co-use and R & D coordination among PD-1, bioanalogues and innovative antibody drugs in the long run.
In the short term, there is great competitive pressure on key products: the company's current listed products include PD-1 Srueli monoclonal antibody (Hans-shaped) and similar drugs such as rituximab, trazol, Adamu and bevacizu. We believe that these products are facing greater competitive pressure in China, and there are still many uncertainties in the sales performance in the short term. For example, Hans-like faces more than ten PD-1/PD-L1 monoclonal antibody competitions in China, and the price competition pressure is great under the background of medical insurance control fee; while the company's four biosimilar drugs also face more than ten similar products on the market / clinical stage, and have begun to be included in the regional alliance collection, which has a greater risk of price reduction in the short term.
Efficient implementation of Hans-like differentiation competition strategy: although domestic PD-1/PD-L1 competition is becoming increasingly fierce, we think that Hans-like differentiation among similar varieties is expected to win a place for it, mainly reflected in: 1) in the layout of indications, Hans-shaped specialization specializes in indications with less coverage, such as MSI-H/dMMR solid tumor and SCLC, and the survival benefit data on SCLC is higher than that of MNC. 2) in the combination therapy strategy, the company's unique bioanalogue and innovative antibody drug pipeline can provide Hans-like opportunities for joint use and further improvement; 3) in the commercial strategy, the company will pry the target market segment through a relatively small team. We estimate that Hans-shaped peak sales are expected to reach 1.5 billion yuan.
The long-term value of the pipeline is to be realized: the company's current clinical pipeline is composed of at least 15 biological drugs under development (including improved dosage form products), accounting for about half of biological analogues and innovative antibody drugs. We believe that this combination strategy has the following advantages: 1) most of the original products of similar biological drugs are global blockbuster drugs, the domestic potential competition is limited, the market space is considerable, and there are opportunities to be combined with PD-1 and innovative products; 2) there is no lack of double resistance and high potential targets such as LAG-3 and CD73 in innovative products. We estimate that the current clinical pipeline will contribute 7.96 billion yuan in sales revenue by 2033.
Valuation: we predict that Fuhong Hanlin 2022-24e income is 2.85 billion / 3.51 billion / 2.94 billion yuan respectively, corresponding to 20% 2021-24e CAGR, mainly driven by Hans-shaped and sales volume. We value the company based on the POS-adjusted revenue forecast and the DCF valuation model, assuming WACC and sustainable growth of 10.0% and 2.0%, respectively, resulting in a target price of HK $19.0, corresponding to a market capitalization of HK $10.3 billion.
Investment risk: sales of PD-1 and bioanalogues are not as expected, and follow-up clinical development is blocked.