Preannounced net profit slightly exceeds our estimate
　　SciClone Pharmaceuticals Holdings （SciClone） released a positive profit alert. The firm estimates that its net profit reached Rmb915mn in FY2021. The preannounced net profit slightly exceeds our previous estimate, as the firm's projected full-year expenses are lower than our forecast.
　　Trends to watch
　　2021 earnings preannouncement slightly exceed our estimate; sales of cash cow products increase steadily. Thymalfasin injections were listed in the catalog for China's fifth batch of volume-based procurement （VBP） in 4Q21. SciClone participated in the fifth batch of VBP for thymalfasin injections with Zadaxin, but this product did not win the bid. However, we believe the company’s pressure from VBP has been eased, thanks to direct-to-patient pharmacies and Zadaxin's new indications deriving from real world studies and clinical trials after it came to market. According to corporate filings, sales of Zadaxin remained solid in 2021. We think the pressure from VBP was relatively mild. In addition, we believe Zadaxin will continue to expand indications, as studies on COVID-19 vaccination, sepsis and tumor immunology continue.
　　SciClone launches naxitamab on a pilot basis in Bo'ao; watch approval for selling this drug. The company in December 2020 began to cooperate with T-mabs on the development, registration and commercialization of naxitamab and omburtamab in China, expanding these drugs for treatment of central nervous system-related rare diseases. Naxitamab in November 2020 received approval to begin selling in the US. SciClone is propelling the pilot launch of this product in Bo'ao, Hainan. The company has obtained a few orders from patients. In addition, SciClone has applied to sell naxitamab. We expect the drug to receive approval for selling in China in 2Q22. According to the Y-mabs website, the company plans to submit the marketing application of omburtamab to the US Food and Drug Administration in 1Q22. We think in 2022 SciClone will apply to sell this product in China.
　　Products in the pipeline are starting clinical trials; keep an eye on these projects. SciClone has announced a strong product pipeline composed of five late-stage drug candidates and three early-stage ones. Among these, Nuomike was approved for sale in China in January 2021, and SciClone launched the product in China in 3Q21. We think the enrollment of patients for the domestic Phase III research on RRx-001 will start in 1H22, and the domestic investigational new drug （INR） application of PEN-866 will be completed in 2022. SciClone will gradually shift towards innovative products as their pipeline begins to hit the market, in our view.
　　Valuation and recommendation
　　We raise our attributable net profit forecast by 3.7% to Rmb915mn for 2021, as preannounced full-year expenses are lower than our previous forecast. We leave our 2022 earnings forecast unchanged, and introduce our 2023 attributable net profit forecast at Rmb1.11bn. The stock is trading at 4.5x 2022e and 4.1x 2023e P/E. We maintain an OUTPERFORM rating and a target price of HK$15. Our TP implies 8.6x 2022e and 7.8x 2023e P/E, offering 91% upside.
　　Risks
　　Product portfolio disappoints; centralized purchase of drugs with expired patents; drug R&D disappoints