In 2023, revenue was RMB6.6bn (+4.8% YoY) and net profit was RMB715m (-23.2% YoY), largely in line with our expectation. Revenue from innovative drugs further increased to 72.0% in 2023. During the earnings results presentation, the management provided guidance of 10-15% /30%+ growth in topline/bottom line, which we find a little bit conservative and might be due to slowed sale growth momentum in Sanbexin, as we see the peak sales of Sanbexin and Sanbexin sublingual tablet are guided down by the management as well. We fine tune our TP to HK$9.2 and maintain BUY.
Key Factors for Rating
2023 results largely in line: Simcere announced 2023 results with revenue up 4.8% YoY to RMB6.6bn and net profit down 23.2% YoY to RMB715m, in line with previous profit alert (revenue of RMB6.578-6.638bn and earnings of RMB685m-745m). The soft topline growth was due to (i) price cut on Sanbexin (-32.8%) and (ii) decreased prescription of Sanbexin, Enweida, Cosela amid industry rectification activities in 2H23 (topline dropped 11% YoY in 2H23). Revenue from innovative drugs was RMB4.8bn (+15.2% YoY), accounting for 72.0% of total revenue (vs.65% in 2022). While gross margin decreased by 4ppts to 75% due to low gross margins of Cosela and Xiannuoxin, the management shared that gross margins of other innovative drugs stayed at c.90%. The total R&D expenditure amounted to RMB1.96bn (+1.2% YoY), of which RMB1.56bn was R&D costs (vs. RMB1.72bn in 2022), leading to 4ppts decline in R&D expenses ratio. Core profit increased by 12.3% to RMB757m. During the conference call, the management provided guidance of 10%-15% growth in top line and at least 30% growth in recurring net profits in 2024.
Updates on core products: in 2023, sales of Sanbexin dropped 13% YoY, with sales volume up +25% but price cut of 32.4%. As of December 2023, Sanbexin has been admitted to 3,800 hospitals (+800 hospitals YoY), and Sanbexin is expected to be admitted to an additional 800 hospitals in 2024. Besides, Sanbexin sublingual tablet is expected to be approved in 2H24. In February 2024, the supplemental application of transiting to regular approval of Xiannuoxin was accepted by NMPA and Xiannuoxin has been admitted to 2,000+ hospital. Cosela delivered closed to RMB100m of sales in 2023 and Iremod recorded a YoY increase of c.21%.
Updates on peaks sales expectation: During the conference call, the management updated peak sales expectation of its innovative drugs, including Sanbexin (RMB4bn), Iremod (RMB1.5bn), Xiannuoxin (RMB1bn), Endostar (RMB1.5bn), Enweida (PD-L1, RMB1bn), Sanbexin sublingual tablet (RMB1.5bn), Rademikibart (IL-4R, RMB1bn), ADC189 (RMB1bn), CMAB009(EGFR mAb, RMB1.5-2bn), Suvemcitug (VEGF mAb, RMB1bn), Daridorexant (RMB1bn), and LNK01001 (JAK1 inhibitor, RMB700m-1bn). We see Simcere guide down peak sale expectation, especially for Sanbexin, Sanbexin sublingual tablet, and Enweida.
Key Risks for Rating
(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, we lower 2024/25 sales estimates by 5%/7%, respectively, to factor in the weaker-than-expected ramp up of innovative drugs amid the rectification movement and management’s conservative guidance. Also, we slightly nudge down R&D expenses ratio as the company aims to control the R&D cost at 20% of sales in the long term. Given the lowered peak sales guidance from the management, we trim our TP to HK$9.2 (WACC of 10.5% and terminal growth rate of 2.0% unchanged). Maintain BUY.