This report first reviews Japanese pharmaceutical companies and confirms through specific cases that the revenue and potential share ratio of overseas markets under the license out model is an important source of revenue and profit elasticity for pharmaceutical companies. Since then, it has returned to Hengrui Pharmaceutical. Many of the company's products have already gone overseas. We tried to explore in the research pipeline which projects can be expected to go overseas, which has become an important source of flexibility for the company's future growth.
Reviewing Japanese pharmaceutical companies: Under the license out model, overseas markets are an important source of revenue elasticity. Japanese pharmaceutical companies with a relatively more mature license out model: Daiichi Sankyo, Astellas, and Eisai; Daiichi Sanko's blockbuster product ENHERTU (HER2 ADC) was licensed to AstraZeneca, with sales of US$1.07 billion in the US in FY2022, compared with the total net profit of US$810 million in FY2022; Astellas cooperated with Pfizer to conduct international sales of XTANDI (enzalutamide) and PADCEV (Nectin-4ADC), FY2022 XTANDI and PADCEV sold 3.29 billion US dollars, and Astellas had net profit of 740 million US dollars in the same year; Eisai mainly sold Lenvima (lenvatinib) in the US, cooperated with MSD to develop and commercialize it globally. Lenvima had US sales of 1.19 billion US dollars in fiscal year 2022, and Eisai's net profit for the same year. Overseas product sales share is an important part of the profits of various pharmaceutical companies and an important component of future growth elasticity.
Dig deeper into the Hengrui pipeline: Good news about going overseas spread frequently to explore the expectations of potential varieties going overseas. We applied the perspective of a multinational pharmaceutical company to analyze the key varieties (TSLP antibody, PARP1, Claudin18.2 ADC, GLP-1 product portfolio) that Hengrui has already gone overseas and verified the above framework by considering the three factors of the scale of indications, the potential for targeted drug development, and the progress of the same target development. Further, sorting out Hengrui's pipeline has potential to go overseas, which is expected to become an important flexible product for Hengrui's future growth:
The quality of the ADC technology platform has been verified, the CD79b ADC is progressing globally, and the types of toxins in the new generation HER2 ADC are differentiated;
The PVRIG x TIGIT dual antibody is expected to make further breakthroughs in the field of antitumor, and the target competition pattern between small-molecule CDK4 inhibitors and KRAS G12D inhibitors is good;
The pharmacogenicity of FXia antibody targets has been verified, and the market space for novel anticoagulants is huge.
Give it a “Highly Recommended” investment rating. As a leading innovative Pharma company, considering the down payment already brought from the external authorized project, we expect the net profit to be 70.6, 62.9, and 7.47 billion yuan respectively in 2024-2026, +64%, -11%, and +19%, corresponding PE is 40x, 45x, and 38x respectively. Considering Hengrui Pharma's competitiveness and growth, we give it a “Highly Recommended” investment rating.
Risk warning: Risk of R&D falling short of expectations, risk of commercialization falling short of expectations, risk of changes in payment policies, increased risk of competition, risk of failure to establish assumptions, risk of unforeseen travel time and results.