CSPC reported soft 1Q results, with revenue down 22% YoY to RMB 7.0bn and net profit declining 8.4% YoY to RMB1.5bn. Although centralised procurement and price cuts continued to weigh on quarterly drug sales in CNS, oncology, and cardiovascular, other finished drug segments, along with vitamin C, antibiotics, and caffeine, saw QoQ growth in 1Q25. The management acknowledged the difficulty to achieve the guidance of positive revenue growth due to stricter prescription environment. Notably, apart from the potential outlicense of its SYS6010 (EGFR-ADC), the management expects to achieve another two BD collaborations in 2025 with deal size of each exceeding US$5bn. Post results, we revised up our TP to HK$6.6, mainly on the clinical progress of drugs candidates like SYS6010 (EGFR-ADC), KN026 (HER2/HER2), GLP-1 portfolio. Maintain HOLD.
Key Factors for Rating
1Q25 results remained soft while finished drug segment as well as API saw QoQ growth: CSPC reported soft 1Q results, with revenue down 22% YoY to RMB7.0bn and net profit declining 8.4% YoY to RMB1.5bn. Despite RMB718m collaboration revenue in 1Q25, the high base in 1Q24, combined with negative impacts from centralised procurement and price cuts on key products, led to a 27% YoY revenue decline in finished drugs. Performance by drug category was as follows: CNS (-30% YoY), oncology (-66% YoY), anti-infectives (-32% YoY), cardiovascular (-43% YoY), respiratory system (-30% YoY), digestion & metabolism (-5% YoY), and other drugs (-7% YoY). Although centralised procurement and price cuts continued to weigh on drug sales in CNS (-21% QoQ), oncology (-7% QoQ), and cardiovascular (-8% QoQ), other finished drug segments, along with vitamin C (+15% QoQ), antibiotics (+49% QoQ), and caffeine (+12% QoQ), saw QoQ growth in 1Q25.
Price cuts pressured gross margin, while the centralised procurement of Jinyouli and Duomeisu drove a significant reduction in selling expenses. Gross margin fell 5ppts YoY and 1ppt QoQ to 67.1%. Excluding collaboration revenue, drug margin actually declined 8ppts YoY and 5ppts QoQ to 63.3%. Selling expenses dropped 44% YoY (and 19% QoQ) to RMB 1.66bn, accounting for 23.7% of total revenue. R&D expenses grew 11% YoY to RMB1.3bn, representing 18.6% of total revenue, reflecting CSPC’s devotion to R&D. The management expects R&D expenses of at least RMB5.5bn in 2025.
Guided down 2025 guidance: the management acknowledged the difficulty to achieve the guidance of positive growth in revenue provided in the annual result meeting due to challenging hospital environment, e.g. stricter compliance on off-label prescription, shorter patient hospitalisation period (particularly impacting sales of NBP) due to DRG/DIP implementation, and prescription control toward out-of-pocket patients in hospitals. In addition, the management toned down the sale increment from new products (previously guided RMB1.5bn). Despite that, the management expects quarterly improvement for the rest of year and positive growth in NBP in spite of the price cut implemented from January 2025, and was upbeat on the RMB1bn sales of Mingfule in 2025.
Eyes on 3 potential giant BD deals this year: Since last October, CSPC has completed 4 out-licensing deals. It booked collaboration revenue of RMB718m in 1Q25 and expects to book at least RMB1bn more from collaboration revenue in the rest of 2025. Apart from the potential out-license of SYS6010 (EGFR-ADC), management expects to achieve another 2 BD collaborations in 2025, each exceeding US$5bn, with one expected in June 2025.
Clinical progress of SYS6010 (EGFR-ADC): as one of the assets with strong out-licensing expectation, the investors are paying attention to the clinical progress of SYS6010. In China, CSPC has initiated a phase III study of SYS6010 in 2L EGFRmut NSCLC, which is expected to be approved in 2027. In addition, CSPC initiated phase Ib/III trial of SYS6010+osimertinib vs. osimertinib in 1L EGFRmut NSCLC, with phase III study expected to be initiated by YE25 or early 2026. Simultaneously, CSPC is also exploring the efficacy of SYS6010 in NPC, ESCC, +SYH2051 (atm inhibitor) in gastrointestinal cancer (2025 ASCO poster), and EGFR-expressing BC, etc. In overseas market, CSPC has initiated MRTC 3L EGFRmut NSCLC. In addition, it will communicate will FDA about the clinical design of SYS6010 in 2L wide-type NSCLC on 13 June.
Key Risks for Rating
Upside: (i) Better-than-expected product sales; and (ii) more BD collaboration achieved. Downside: (i) Slower-than-expected ramp-up of newly launched drugs; (ii) failure of R&D; and (iii) price cut on core drugs.
Valuation
Post-results forecast revisions: Post results, we revised down our 2025/26 revenue forecasts by 4.5%/2.8%. This was mainly due to softer-than-expected 1Q25 results and stricter prescription compliance leading to slower new product sales ramp-up, partially offset by improved API product performance. We also revised down gross margin due to price cuts on key drugs and lower contributions from finished drugs. We increased the long-term sales contribution projections for products like SYS6010 (expected approval in 2027), KN026 (HER2/HER2, expected approval in 2026), and the GLP-1 portfolio (early-stage oral GLP-1 data readout in 2025, NDA submission for TG103 in August- September this year, and NDA submission for semaglutide in early 2026), etc., as a result of positive data readouts and potential NDA submissions. We revised up our TP to HK$6.6 and maintained our HOLD rating. We believe the current 16x 2025 P/E (including c.RMB2bn collaboration revenue) already reflects the potential out-license of the EGFR-ADC. Keep an eye on upcoming BD collaboration announcements.