Luye on track submitted LY03005 NDA to FDA; and LY03004 was granted priority review by CDE, likely to be expedited for launch.
We think the upcoming national GPO results on Jan 17th weighs on Lipusu’s outlook but the impact is still manageable
We kept our TP unchanged at HKD9.7 and maintained BUY on attractive valuation and rich pipeline catalysts in 2020-21E
On track to unlock global potential
LY03005 （ansofaxine ER） is a serotonin-norepinephrine-dopamine triple reuptake inhibitor （SNDRI） for depression. Compared to traditional anti- depressants, SNDRI is expected to help preserve patients’ sexual function and achieve improvement in rapid onset and drug efficacy. Co. expects to receive LY03005’s NDA approval from FDA in end-2020E. In addition, Co. reported the manufacturing facility for LY03004 （risperidone ER） has passed the FDA’s pre-approval inspection （PAI） in Nov 2019 with a PDUFA date set for Jan 28. We expect LY03004 to commence sales in 2Q20E and fetch RMB100mn sales in 2020E. We think those R&D efforts starts to bear fruits, and therefore help Luye to unlock its global potential and in part offset the domestic policy headwinds.
Nab-paclitaxel GPO weighs on Lipusu’s outlook but still manageable
The NMPA has included nab-paclitaxel in the second batch national GPO tender on Jan 17th and the following procurement process will become implemented on Apr 1st. Despite NRDL for nab-paclitaxel remains question mark, we still expect a fierce price cut due to unfavorable policy and rising competition, weighing on Lipusu’s outlook. That said, the limited approved indication of nab-paclitaxel should give Luye the leeway to pursue a transformation strategy in 2-3 years. Meanwhile, our sensitivity analysis shows 30% ASP decline in Lipusu will result in c.5% decrease in our FY20E earnings forecast, which implies Co. to trade at 9x 2020PER, still close to the lowest quantile in its historical PER band.
Maintain BUY and SOTP-based TP unchanged at HKD9.7
We kept our earnings forecast unchanged. We believe Luye’s rich late-stage pipeline should support 3-5 new drugs launch each year during 2020E-21E, including Rykindo’s FDA approval in 1Q20E, the Avastin biosimilar （to launch in 2020E） and Rotigotine ER and Paliperidone ER （2021E）， which should have blockbuster potential. The Co. currently trades at an attractive 10x/9x FY19/20E PER. Maintain BUY.