Hansoh Pharma reported strong 1H25 results, with revenue and net profit up 14.3% and 15.0% YoY respectively, driven by a 24% YoY growth in core innovative drug sales and continued collaboration revenue. Management raised its 2025 revenue guidance to high- double-digit growth, forecasting ≥ RMB10bn from innovative drugs (led by Ameile's RMB6bn) and c.RMB2.5bn from generic drugs, given the prolonged generic drug headwinds till 2026. Key assets like B7H3/B7H4 ADCs and GLP-1 candidates are expected to advance in global trials in late 2025 and 2026. Following the results and inclusion of Regeneron's US$80m upfront payment, we maintain a BUY rating with a 12-month target price of HK$41.3, citing recurring BD potential and a robust pipeline.
　　Key Factors for Rating
　　1H25 results beat expectations with strong growth in innovative drugs: 1H25 results exceeded market expectations with revenue up 14.3% YoY to RMB7.4bn and net profit up 15.0% YoY to RMB3.1bn, thanks to robust growth of innovative drugs and continued collaboration revenue (RMB1.66bn vs.
　　RMB1.4bn in 1H24). Excluding the impact of collaboration revenue, sales of innovative drugs reached RMB4.5bn, representing YoY growth of 24% and accounting for 78% of drug sales. This demonstrates Hansoh’s successful transition towards an innovative drug company. Conversely, generic drugs sales fell 13% YoY to RMB1.3bn. Gross margin remained stable at 91.1%. R&D expenses increased by 20% YoY to RMB1.4bn (including license-in expenses of RMB191m), accounting for 19% of total revenue (vs. 18% in 1H24).
　　Raised 2025 guidance: Management raised its 2025 top-line growth guidance from double-digit to high-double-digit growth. This reflects expectations of at least RMB10bn in sales from innovative drugs (+28% YoY), with Ameile projected to generate RMB6bn. Furthermore, due to a delay in implementing the 11th batch of the national generic drug procurement programme, the negative impact on Ameining is now expected to be postponed until March 2026.
　　Consequently, management anticipates generic drug sales of RMB2.5bn this year, gradually declining to RMB2bn in the long term. With key assets like B7H3 ADC, B7H4 ADC, and TYK2 inhibitor entering pivotal trials, management forecasts a 30% YoY increase in R&D expenses for the year, alongside capitalised R&D investment of approximately RMB200m. Administrative expenses are projected at RMB700-800m and selling expenses are expected to account for ~35% of drug sales. Long-term, management targets to launch at least 20 innovative drug candidates by 2030, covering 40+ indications across its four core therapeutic areas.
　　Updates on key assets: (i) Ameile: Management maintains its 2025 sales guidance of RMB6bn and peak sales target of RMB8bn for Ameile. For the upcoming NRDL negotiation, Hansoh anticipates a mild price cut, noting that Osimertinib faced no price cut when its adjuvant therapy indication was included into NRDL. Ameile benefits from first-mover advantages and has a new indication (+chemo in 1L NSCLC) expected for approval in 2H25. It is also undergoing pivotal trials for combination therapy with the EGFR/c-Met bispecific antibody and exploring combinations with ADC/c-Met small molecule for 2L/3L indications. (ii) BD projects in overseas market: Key timelines include: HS-20093 (B7H3 ADC, partnered with GSK) Phase III trial initiation expected in 4Q25; HS-20089 (B7H4 ADC, partnered with GSK) Phase III trial initiation in 2026; GLP-1 small molecule (partnered with MSD) clinical trial initiation in 2025; and GLP-1/GIP (partnered with Regeneron) Phase III trial initiation in 2026.
　　Valuation
　　Post results, we fine-turned drug sales forecasts for 2025-27, incorporated the upfront payment from Regeneron (US$80m) in 2025, lowered our SG&A forecasts and raise our R&D expenses. Beyond one-time revenue, Hansoh's track record in out-licensing deals suggests its business development (BD) revenue could become recurring. Therefore, we also factor in potential BD revenue from 2026 onwards. Therefore, we factor in potential revenue from 2026 and beyond.
　　Assets like Hansoh’s EGFR/c-Met ADC, CDH6 ADC, and CDH17 ADC show significant BD potential. We have decreased our risk-free rate and market risk premium assumptions to 3.3% and 6.7%, respectively. Rolling forward our DCF model (WACC: 9.5%, terminal growth rate: 3.0%) yields a 12-month target price of HK$41.3. We maintain our BUY rating.
　　Key Risks for Rating
　　(i) Lower-than-expected price cut on GPO and NRDL inclusion, (ii) slower-than expected sales ramp-up of innovative drugs, (iii) failure in key clinical trial.