Aurisco Pharma is a leading R&D and production platform for small-molecule, polypeptide, and oligonucleotide drugs in China. Starting from active pharmaceutical ingredients (APIs) and intermediates, the Company has gradually expanded into drug preparations, creating a product portfolio covering six major medical fields. The Company boasts leading global market share across its core product categories and has built a diversified product portfolio with high barriers to entry, strong competitiveness, and high growth visibility. We believe that Aurisco Pharma may benefit continuously from increased API demand from generic drugs after the expiration of original drug patents. With new businesses such as preparations and polypeptide/small nucleic acid drugs creating the second and third growth curves, Aurisco Pharma shows high visibility in future earnings growth. To sum up, we give the Company a 2024E target price of Rmb29 and initiate coverage with a "BUY" rating.
A leading R&D and production platform of small-molecule, polypeptide, and small nucleic acid drugs.
Aurisco Pharma has built a product portfolio covering six medical fields, namely, cardiovascular disease, women's health, respiratory system, anti-tumor, nervous system, and anti-infection. Thanks to its three production bases that have passed the inspections of the Food and Drug Administration (FDA), the Company's high-quality products are selling well in overseas market, with offshore revenue accounting for 91.3% of its revenue mix in 2022. Moreover, it has a high-quality and stable customer base as well as close partnerships with multiple multinational corporations (MNCs). On Jun 29, 2023, Aurisco Pharma released a prospectus on issuing convertible corporate bonds to non-specific targets, which estimates that the three projects to be funded by the convertible bond offering will contribute an aggregate sales revenue of more than Rmb1.5bn. Superior product selection, process development, and technical capabilities, and outstanding profitability.
We believe that Aurisco Pharma's existing core varieties are of high quality and the Company has long been in the top tier by gross profit margin (GPM).
Aurisco Pharma's initial public offering (IPO) and convertible bond prospectuses show that its core varieties have maintained a relatively stable GPM, with some varieties achieving relatively high GPMs in the past six years (eg dydrogesterone/fluticasone propionate API/eplerenone API recorded GPMs of 84.1%/83.5%/67.5% in 1H23). Thanks to the growing sales of high-margin products, Aurisco Pharma has achieved a GPM significantly higher than the industry average. We reckon that the high gross profit stems from the Company's excellent product selection capabilities and testifies its outstanding process development skills and the high barriers of its technology platforms.
Second growth curve created by a diversified product portfolio and integrated production of API preparations.
Through years of R&D, innovation and technology accumulation in industrialized production, and relying on its six technology platforms, Aurisco Pharma has maintained and improved its high-barrier characteristic API business and proactively built a presence in the field of polypeptide and oligonucleotide drugs. So far, the Company has built a diversified product matrix featuring high barriers, strong competitiveness, and high growth visibility. Aurisco Pharma's core products have been contributing sustained and stable revenues, and some even boast leading shares in the global market. According to its convertible bond prospectus, eplerenone accounted for 36.69% of the global market and abiraterone accounted for 22.89% in 2022. Apart from many API products in the R&D pipeline, the Company has forayed into the field of preparations via dydrogesterone, which boasts API-based advantages, thus creating a second curve of earnings growth. Comprehensive capacity building opens greater headroom for growth.
In 2021, Aurisco Pharma established Aurisco Biotech to provide one-stop contract research organization (CRO)/contract development and manufacturing organization (CDMO) services for the production of oligonucleotide drugs. Aurisco Pharma is also developing several oligonucleotide API products. According to its 1H23 earnings call, Aurisco Pharma's semaglutide API production facilities will be completed in Mar 2024; the new drug application (NDA) for marketing will be completed by the end of 2024, with revenue streams anticipated in 2025. We believe that the Company's semaglutide API production capacity (semi-fermentation method) is at the forefront in China and has a significant cost advantage. After the production capacity is inaugurated, Aurisco Pharma may benefit from the surging demand for semaglutide APIs brought by the marketing and growing sales of semaglutide generic drugs. Potential risks: Industry policy changes and declining drug prices; drug quality control falling short of expectations; slower-than-expected R&D progress; international trade frictions; and disappointing progress in projects financed by fundraising proceeds. Investment recommendation: Aurisco Pharma is a leading R&D and production platform for small-molecule, polypeptide, and oligonucleotide drugs in China. Starting from APIs and intermediates, the Company has gradually expanded into drug preparations, creating a product portfolio covering six major medical fields, namely, respiratory system, cardiovascular diseases, anti-infection, nervous system, anti-tumor, and women's health. Thanks to its outstanding product selection capabilities and leading technical expertise, the Company boasts superior profit margins and has ventured into the fields of oligonucleotides and polypeptides. It has leading global market share across its core product categories and has built a diversified product portfolio with high barriers to entry, strong competitiveness, and high growth visibility. We believe that Aurisco Pharma may benefit continuously from increased API demand due to growing sales of generic drugs after the expiration of original drug patents.
With new businesses such as preparations and polypeptide/small nucleic acid drugs creating the second and third growth curves, Aurisco Pharma shows high visibility in future earnings growth. We forecast the 2023E/24E/25E operating revenue to be Rmb1,264mn/1,551mn/1,966mn (up 25.3%/22.8%/26.7% YoY) and attributable net profit to be Rmb225mn/301mn/405mn (up 6.7%/33.7%/34.5% YoY). Based on the average valuation multiple of 34x 2024E PE for comparable companies as well as the impact of the Company's incentive expenses and multiple potential blockbusters in the pipeline, we assign a 2024E TP of Rmb29, implying 52x/39x/29x 2023E/24E/25E PE. We initiate coverage with a "BUY" rating.