Henlius announced 2021 revenue of Rmb1.68bn (+186% YoY) and net loss of Rmb984m (vs our forecast with revenue of Rmb1.40bn and net loss of Rmb726m), beating our expectation. Considering the potential GPO policy risks on biosimilars, we lower our diluted EPS forecasts from Rmb0.04 to Rmb0.03 in 22E, from Rmb0.92 to Rmb0.59 in 23E and forecast Rmb1.14 in 24E. Based on the DCF model, we lower our target price from HK$36.00 to HK$25.40. With 19% upside, we maintain outperform rating.
　　Commercialisation of key products. Henlius has launched four biosimilars in China, including Hanlikang (rituximab biosimilar), Hanquyou (trastuzumab biosimilar, Zercepac), Handayuan (adalimumab biosimilar) and Hanbeitai (bevacizumab biosimilar). Sales of Hanlikang, Hanquyou and Handayuan reached Rmb542m (+88% YoY), Rmb930m (Rmb41m in overseas market, +584% YoY) and Rmb22m in 2021, respectively. In terms of promotion of Hanquyou in China, the company has established a c.500 people sales team covering c.3,000 hospitals. Hanquyou is the first domestic biosimilar approved in Europe and the company cooperated with Accord, to expand sales of Zercepac to Europe.
　　Expecting the approval of serplulimab (PD-1). Henlius filed the NDA for serplulimab (PD-1)’s monotherapy for the treatment of MSI-H/dMMR solid tumors in April 2021, which is expected to receive the NMPA’s approval in 2Q22E. In addition, the company submitted the NDA for serplulimab’s combo therapy with chemo for treatment of sqNSCLC in September 2021, which is expected to receive the NMPA’s approval in 2H22E. In addition, the drug is under clinical trials for combo therapies with chemo, Hanbeitai (VEGF) and HLX07 (EGFR), for NSCLC, HCC, and GC, etc.
　　R&D and capacity updates. Its total R&D expenses reached Rmb1.76bn (+3.1% YoY) in 2021, including expensed R&D cost of Rmb1.02bn and capitalized R&D costs of Rmb740m. The percentage of R&D expenses on innovative drugs is further increased from 75% in 2020 to 82% in 2021. In terms of the BD, Henlius further reached an agreement with Accord in January 2021 to develop and commercialize Hanquyou in the US and Canada. In addition, in March 2021, the company licensed in HLX208 (BRAF V600E inhibitor) in China from NeuPharma to further expand to small-molecule filed. Recently, the company license out commercial rights of Handayuan in Pakistan, Philippines, Vietnam and other regions to Getz Pharma. As for the capacity bottleneck, the additional capacity of 24,000L from Songjiang Facility 1 will be launched in mid-2022E. In addition, the designed production capacity for Phase I project of Songjiang Facility 2 has been increased from 36,000L to 96,000L, providing sufficient capacity in the long-term.
　　Maintain Outperform. Considering the potential GPO policy risks on biosimilars, we lower our diluted EPS forecasts from Rmb0.04 to Rmb0.03 in 22E, from Rmb0.92 to Rmb0.59 in 23E and forecast Rmb1.14 in 24E. Based on the DCF model, we lower our target price from HK$36.00 to HK$25.40. With 19% upside, we maintain outperform rating.
　　Risks: potential GPO policy risks on biosimilars; lower-than-expected sales ramp-up of key products.