Henlius recorded RMB5.4bn revenue in 2023, 4% above BOCIe, mainly driven by the strong growth of HANQUYOU (RMB2.74bn, +58% YoY) and HANSIZHUANG (RMB1.1bn, +230% YoY). The robust momentum of HANSIZHUANG is attributable to Henlius’s differentiation strategy to tackle unmet clinical demands. Net profit realised a turnaround to RMB546m in 2023 from a net loss of RMB695m in 2022, in line with previous profit alert. We eye on the data readout of mCRC and perioperative GC of PD-1 while remaining conservative on the sales contribution from overseas foray, and complicated landscape and GPO risk of trastuzumab. Raise our TP to HK$15.6 and maintain HOLD.
Key Factors for Rating
Positive full year profits: Henlius announced 2023 results with revenue up 67.8% YoY to RMB5.4bn, 4% above BOCI estimate, driven by strong growth of HANQUYOU (trastuzumab, RMB2.74bn, +58% YoY) and HANSIZHUANG (serplulimab, RMB1.1bn, +230%) and collaboration revenue. Annual sales per capita of HANQUYOU and HANSIZHUANG were greater than RMB5m and RMB2m, with c.600 and c.580 salespersons, respectively. HANSIZHUANG’s impressive commercialisation performance amid fierce competitive landscape of PD-(L)1i was owing to Henlius’s differentiation strategy to tackle unmet clinical demands. Besides, HANLIKANG (rituximab), HANDAYUAN (adalimumab) and HANBEITAI (bevacizumab) recognised revenue of RMB541m (-6% YoY), RMB59m (+14%YoY) and RMB119m (first year commercialisation), respectively. R&D related investment decreased from RMB2.5bn in 2022 to RMB2.1bn in 2023, among which R&D expense decreased from RMB1.4bn in 2022 to RMB1.1Bbn in 2023, lowering R&D expense ratio by 23ppts, partly due to more spending recorded as cost of services on statement. In 2023, Henlius realised a net profit of RMB546m from a net loss of RMB695m in 2022, in line with previous positive profit alert of more than RMB500m.
Key catalysts in 2024: potential NDA approval: HLX10 (serplulimab) in the EU and HLX02 (trastuzumab) in the US; NDA submission: HLX11 (pertuzumab) and HLX14 (denosumab) in the EU and US, and HLX04-O (VEGF) in China; Pivotal data readout: HLX10 in 1L ES-SCLC (bridging trial in US); POC data readout: HLX10+HLX04 (bevacizumab) in 1L mCRC and HLX22 (HER2 mAb) +HLX02 in 1L GC.
Valuation
HANSIZHUANG demonstrated growth potential amid fierce competition among PD-(L)1i thanks to its differentiated indication, and we eye on the its PoC data readout in mCRC in 2024 and phase III data readout in perioperative GC in 1H25. Although Henlius is tapping overseas marketing with its PD-1 and biosimilar drugs, at current stage we remain conservative on their revenue contribution due to strong overseas commercialisation capability required. At the same time, the competition of trastuzumab has become complicated and GPO risk on biologics still overhangs market sentiment.
Post results, we revised up our 2024 revenue forecast by 4% thanks to the strong momentum and indication expansion of PD-1 while cutting 2025E sales by 4% on potential GPO risk and fiercer competition on biosimilars. We nudged up our GPM forecasts for 2024/25 by 3ppts/1ppt given the lean operations and refined supply chain yet projected GPM to decline YoY in 2025 on the potential price cut of trastuzumab amid competition. Raise our TP to HK$15.6 and maintain HOLD (WACC: 10.7%, terminal growth rate: 3.0% unchanged).
Key Risks for Rating
Downside risk: 1) Price cut from GPO on biosimilar drugs; 2) slower-than- expected sales ramp of new drugs; and 3) failure of major clinical trials.
Upsides risk: 1) faster-than-expected pipeline progress, and (ii) better-than- expected sale ramp of HANQUYOU and HANSIZHUANG.