中國制藥業(yè)：管理政策之痛-新藥是最好的良方

1、5 June 2020 Equity Research ReportChinaEquitiesPHARMACEUTICALSManaging policy pain: new drugs the best remedyChina PharmaceuticalsSharp rise in sales of new drugs is set to offset steep cuts in the price of genericsDespite policy headwinds, we forecast Chinas pharma market will expand at a CAGR of 5

2、.1% over 2019-23eWith Buys on all stocks we cover, we prefer Sino Biopharm for visibility on growth. Update TPs, forecasts; initiate on HansohPain management. Chinas pharma companies have long been adept at managing policy changes as Beijing has introduced a series of initiatives to enhance the qual

3、ity and affordability of drugs and improve healthcare insurance. The industry faces new challenges in adapting to Chinas Group Purchasing Organisation (GPO) bulk-buying policy, which has led to average price declines of 60% for top-selling generics. The generics market dominates pharma sales in Chin

4、a, accounting for 63% of sales last year. Despite the tough policy environment, we forecast a 5.1% revenue CAGR for the sector over 2019-23e, led by a boom in sales of new drugs. In this report, we also update our target prices and earnings forecasts and assess companies current portfolios and pipel

5、ines as well as the impact of COVID-19 on the industry.This is going to hurt. Past GPO tenders focused on drugs (most taken orally) that accounted for about 10% of revenue in the generics market. But theres more pain to come. More oral drugs are likely to be added to the list, and the GPO programme

6、is expanding to include the huge injectables market. There are more than 150 injectables in the testing pipeline; we estimate they represent 17% of generics revenue. The next GPO tender, at end-2020 or in 1H21, will likely bring further steep price cuts.New horizons. The future lies in developing ne

7、w drugs. We expect oncology drugs to remain the biggest growth driver for the next three years. The leading companies are accelerating their expansion into treatments for other chronic diseases. We estimate that sales of novel drugs will more than double to represent 12% of total pharma sales in 202

8、3e, up from 6% in 2019, a CAGR of 27%. We expect Hengrui to lead the way, doubling the amount of revenue from new drugs to 60% during this period.Preferred stocks. We have Buy ratings on all eight companies we cover. Our pecking order is Sino Biopharm (TP HKD17.10), Hengrui (TP RMB95.20), CSPC (TP H

9、KD20.50), Hansoh (initiate with TP of RMB38.70), Fosun Pharma (TPs RMB42.00 and HKD37.80), Shanghai Pharma (TPs RMB27.20 and HKD20.30), Luye (TP HKD4.60), and Livzon (TPs of RMB47.70/HKD37.00).We like Sino Biopharm, Hengrui and Hansoh for their highly visible growth outlooks, though short-term upsid

10、e could be limited for Hengrui and Hansoh due to their high valuations. We think CSPC can re-rate if it delivers on late-stage pipeline and business development projects. We like Fosun Pharma for its top-line growth and improving operating margin, and Shanghai Pharma for potentially better operating

11、 efficiency after the launch of a stock option plan.With this note, Rachel Yang assumes primary coverage of Hengrui Medicine.Rachel Yang* (Reg no: S1700520030003) Head of China Healthcare Research HSBC Qianhai Securities Limited HYPERLINK mailto:rachel.yang rachel.yang+86 21 6081 3853Steven Sun*, CF

12、A (Reg no: S1700517110003)Head of Research, HSBC Qianhai Securities Limited HSBC Qianhai Securities Limited HYPERLINK mailto:stevensun stevensun+86 755 8898 3158Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Asiamoney Broke

13、rs Poll 2020 Voting opens 1st June 7th AugustIf you value our service and insight, please vote Click here to vote Disclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Issuer of

14、 report: HSBC Qianhai Securities LimitedView HSBC Qianhai Securities at:https:/ HYPERLINK / Key chartsExhibit 1. We expect Chinas drug market to grow at a CAGR of 5.1% over 2019-23e, led by innovative drugs, which should report a revenue CAGR of more than 27% (RMBbn)Total 1,947CAGR 5.1%Total 2,376CA

15、GR 27%Source: National Medical Products Administration, Yaozhi, HSBC Qianhai Securities estimatesExhibit 2. Rise in innovative drug sales should benefit leading pharma companies mostNotes: 1. Hengruis innovative drugs include: Apatinib, 19K, Pyrotinib, CDK4/6, AR inhibitor. PD-1, albumin paclitaxel,

16、 Remazolam,ImrecoxibSino Biopharms innovative drugs include: Anlotinib, Ganmei injection, PD-1, PD-L1, TNFa, HER2, CD20, blood coagulation factor XIIICSPCs innovative drugs include: Duomeisu, Jinyouli, Albumin paclitaxel, CD20, PI3K, RANKL Mitoxantrone hydrochlorideliposome injection, Irinotecan, PD

17、-1, Amphotericin, (NBP not included into CSPCs innovative drug)Hansoh new drugs include: Almonertinib, Erlotinib, c-met, CDK4/6Fosuns Pharma innovative drugs include: CD20, HER2, VEGFR, PD-1Key: Old generics = drugs launched before 2019; new generics = drugs launched since 2019Source: Company data,

18、HSBC Qianhai Securities estimatesExhibit 3. Leading pharmas heavy investment in R&D since 2011 is paying offSource: Company data, HSBC Qianhai Securities (numbers in bubbles represents new drug total revenue in 2023e, in RMBbn, including novel drugs and new generics)Exhibit 4. Leading A-share pharma

19、 names attracting international investors attentionSource: Wind, HSBC Qianhai Securities (figures based on Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect and QFII)Exhibit 5. Number of novel drugs approved by NMPA has increasedSource: National Medical Products Administration, H

20、SBC Qianhai SecuritiesContents HYPERLINK l _TOC_250021 Investment summary 5 HYPERLINK l _TOC_250020 Stock snapshots 6Initiate on Hansoh withBuy and TP of HKD38.70 8 HYPERLINK l _TOC_250019 Preferred stocks 8 HYPERLINK l _TOC_250018 ESG 12 HYPERLINK l _TOC_250017 Industry outlook 13 HYPERLINK l _TOC_

21、250016 Company section 25 HYPERLINK l _TOC_250015 Hengrui 28 HYPERLINK l _TOC_250014 Sino Biopharm 32 HYPERLINK l _TOC_250013 Hansoh 36 HYPERLINK l _TOC_250012 CSPC 39 HYPERLINK l _TOC_250011 Fosun Pharma 43Shanghai Pharma (SHP) 46 HYPERLINK l _TOC_250010 Luye 50 HYPERLINK l _TOC_250009 Livzon 53 HY

22、PERLINK l _TOC_250008 Valuation and risks 58 HYPERLINK l _TOC_250007 Hansoh Pharma (3692 HK) 61 HYPERLINK l _TOC_250006 Introduction 61 HYPERLINK l _TOC_250005 Earnings forecasts 62 HYPERLINK l _TOC_250004 Balance sheet 71 HYPERLINK l _TOC_250003 Valuation and risks 71 HYPERLINK l _TOC_250002 Drug l

23、ist appendix 73Company financials &valuation appendix 81 HYPERLINK l _TOC_250001 Disclosure appendix 93 HYPERLINK l _TOC_250000 Disclaimer 96Investment summaryChinas big pharma companies seek new horizons as they try to reduce their dependency on revenue from genericsWe assess their ability to produ

24、ce/introduce new drugs based on the strength of their R&D and pipelines and business development activitiesWe have Buys on all the stocks, but prefer Sino Biopharm and Hengrui, followed by CSPC, Hansoh, Fosun Pharma and Shanghai PharmaPain managementThe latest challenge has come from GPO, the major

25、bulk-buying programmeIts no surprise that Chinas large pharma companies have long been adept at managing policy changes that affect their business. After all, theyve had plenty of practice. As Chinas population ages and chronic diseases like cancer and diabetes become more prevalent, Beijing has int

26、roduced a range of initiatives in recent years to cut the price of drugs for patients, improve healthcare insurance coverage for the public, and raise drug quality.The latest challenge has come from the major bulk-buying programme by local healtchcare authorities and hospitals, the Group Purchasing

27、Organisation (GPO). It was trialled in 2018 and immediately led to major cuts in the price of generic drugs. The programme has expanded and is clearly going to put a big dent in revenues from generic drugs, which accounted for 63% of drug sales in China in 2019.We think growth in the generics sector

28、 will remain flat, with volume growth offset by price cuts. This means that the future lies in innovative drugs for cancer and chronic diseases such as auto-immune disorders and diabetes, drugs for which there was insufficient market education, limited accessibility or low affordability in the past.

29、 The whole market is benefiting from technological breakthroughs, regulatory reform that has led to a faster approval process for new drugs, and a more active capital market that can provide sufficient financing for biotechs and a pricing system that facilitates new drug development. We forecast tha

30、t sales of innovative drugs will rise to 12% of the overall market in China in 2023e, up from 6% in 2019, with sales of generics declining from 63% of the total to 52%.This report covers a lot of ground. Apart from assessing the policy environment, we also:Refresh our forecasts and target prices for

31、 Hengrui, Sino Biopharm and CSPC.Provide updates on Fosun Pharma, Shanghai Pharma, Luye Pharma and Livzon.Initiate coverage on Hansoh with a Buy rating and target price of HKD38.70.Provide a snapshot of our coverage in terms of pipelines, revenue, profit, cash flow and R&D capabilities.Assess the im

32、pact of COVID-19 on the industry.The next five yearsWe are positive on the long- term growth outlookWe are positive on the long-term growth outlook for Chinas pharma market, the second largest in the world, due to a boom in innovative drug sales, improved affordability, and market consolidation. Des

33、pite the difficult policy environment, we estimate that revenue will increase at a CAGR of 5.1% across the sector over 2019-23e (vs 8.8% in 2014-18). We think leading pharma companies with strong sales forces, R&D and clinical capabilities, robust balance sheets, and proven business development are

34、well positioned to benefit.Impact of COVID-19 appears manageableThe COVID-19 outbreak resulted in hospital shutdowns, materially impacting pharma sales in 1Q20, especially for injectables and surgery-related drugs. But pharma companies think the impact is generally manageable as (1) demand remains s

35、trong in the fast-growing oncology drug market serving cancer patients whose treatment cannot be delayed; (2) doctors issued prescriptions for greater quantities of drugs for chronic diseases to cover the lockdown period; and (3) hospital operations are recovering quickly according to Sino Biopharm,

36、 they recovered to 80% of pre-COVID-19 levels by the end of April, except for Beijing, Hubei, and Jilin.On the R&D front, patient recruitment was delayed in 1Q, but is now resuming. Site inspections by drug regulators were also pushed back by a couple of months; in terms of drug approvals, we estima

37、te this will cause a delay of three months for domestic projects and longer for overseas projects, but the impact differs on a case-by-case basis.Stock snapshotsSino Biopharm (1177 HK), reiterate Buy and raise TP to HKD17.10 (from HKD13.20)We expect 16% top-line growth in 2020e and 2021e, with botto

38、m-line growth recovering to 20%+ starting in 2021e. The revenue proportion of drugs affected by GPO will decline to about 10% in 2020e from 29% in 2019. Meanwhile, the ramp-up of newly launched generics and Anlotinib, a treatment for lung cancer, and the intensive launch of new generics since 2018,

39、should help to ease the revenue pressure of major generics and sustain double-digit bottom-line growth in 2020e. We think the market has priced in these short-term pressures. The stocks current valuation, 35x 2021e PE, is in line with its three-year average and looks attractive given that major pric

40、e cuts related to GPO drugs are factored in, and its pipeline is much stronger than three years ago. We think SBPs current valuation discount versus Hengrui reflects investors hesitation on SBPs growth sustainability where it leverages more on its partners for pipeline sourcing while Hengrui is more

41、 on its own.Hengrui (600276 CH), reiterate Buy and raise TP to RMB95.20 (from RMB79.44)We expect 32%/29% top-line and 28%/29% bottom-line growth over 2020e and 2021e. We think the accelerated ramp-up of new drugs will be slightly offset by the decline of generics due to price competition. GPO tender

42、 on injectables could bring some uncertainty, but the overall impact should be manageable given that (1) part of the generics portfolio had already started to decline in 2019; and (2) new drug launches should offset the pressure on generics. We estimate that novel drugs will generate more than 50% o

43、f revenue in 2022e, up from 27% in 2019. The stock trades at a 48x 2021e PE, and we expect 25% annual earnings growth in 2022e and beyond. Given its strong pipeline and earnings visibility, we think the stock is still attractive for long-term investors looking for steady performance and low volatili

44、ty.CSPC (1093 HK), reiterate Buy and maintain TP of HKD20.50We forecast 20%/22% top line and 18%/25% bottom-line growth in 2020e and 2021e. In our view, long-term market concerns about the earnings of its blockbuster drug NBP will continue to put pressure on its multiples. However, we think the curr

45、ent valuation, at 16x 2021e PE versus 22x for its peers, has already priced in the markets concerns over NBPs coming “generic cliff” (the decline in generic drug prices that it faces as the GPO policy is implemented). We estimate strong short-term growth and expect new drug approvals to support the

46、stock over the next years leading to a dilution in NBPs profit contribution from over 35% in 2019 to close to 30% in 2022e. Longer term, we need to closely watch the R&D and business development progress which is the key to sustaining CSPCs growth after NBP comes down.Fosun Pharma (600196 CH/2196 HK

47、), maintain Buy and increase TPs to RMB42.00/ HKD37.80 (from RMB36.10/HKD36.20)We forecast CAGRs of 17% and 21% for revenue and operating profit over 2019-22e. In our view, the fall in revenue from Fosun Pharmas major adjuvant drugs is largely over and major pipeline launches in 2019-20 should accel

48、erate top-line growth. The operating margin is likely to show a moderate improvement now that its subsidiary, Fosun Henlius, has started to make drug sales (it was previously a cost centre). In addition, the companys stake in Sinopharm has declined significantly, which we think reflects uncertaintie

49、s about the profitability of distributors. The A- and H-shares trade at 2021e P/NOPAT multiples of 16x and 9x, respectively; (for NOPAT, we deduct the contribution of Fosun Henlius to avoid double counting). This is attractive compared with 24x and 11x, respectively, for its tier-2 pharma peers, esp

50、ecially considering an expected accelerated top-line growth (2019-22e CAGR of 17% ) and improving operating margin (from 8% in 2019 to 9.1% in 2022e). We see limited downside risk and think the current valuation does not price in the majority of the improvements the company is making.Shanghai Pharma

51、 (601607 CH/2607 HK), maintain Buy and adjust TPs to RMB27.20/ HKD20.30 (from RMB26.30/HKD23.70)We forecast a 10.8% revenue CAGR over 2019-21e for SHP. Given its diversified drug portfolio, we expect the company to enjoy moderate benefits from market consolidation. Margins should remain stable in th

52、e coming two years. Under its stock option plan, we expect SHP to achieve its annual profit growth target of 10% over 2019-22e. The A- and H-shares are trading at 10 x and 6x 2021e PE, respectively, versus their three-year historical mean of 15x/11x, with a stable growth expected, and we find this v

53、aluation attractive.Livzon (000513 CH/1513HK), maintain Buy and increase TPs to RMB47.70/HKD37.00 (from RMB31.00/HKD23.30)We expect 11%/8% revenue growth and 14%/15% net profit growth in 2020e and 2021e. This should be driven by Leuprolide microsphere and Ilaprazole products, offsetting the adverse

54、impact on adjuvant therapies as a result of policy headwinds. We think the drag from Shenqi Fuzheng and concerns about sales of its leading drug NGF on the bottom line are diminishing. COVID-19 could help Livzons short-term growth due to the incremental revenue from exporting testing kit for corona-

55、virus.Luye (2186 HK), maintain Buy and cut TP to HKD4.60 (from HKD7.30)We expect revenue to stay flat over 2020-21e. The strong growth of BX, which is gaining share from Acarbose as a result of GPO, and XZK, the exclusive TCM to treat hyperlipemia this is being promoted by AstraZeneca, should offset

56、 the pressure on its flagship drug LPS, which is facing strong competition from rival therapy, Albumin Paclitaxel. We expect its new oncology drugs targeting the domestic market (Avastin biosimilar and RANKL similar) to help support a return to growth starting in 2022e.Initiate on Hansoh with Buy an

57、d TP of HKD38.70Hansoh, founded in 1995, is a leading domestic pharma company with a diversified drug portfolio and a rich pipeline. The leading shareholder is Ms Zhong Huijuan, wife of the founder and ex- chairman of Hengrui, Chinas largest privately owned drug company (Financial Times, 14 June 201

58、9). Both companies are based in Lianyungang in eastern China.Hansoh generated 88% of its revenue from generics in 2019, and we expect this to decline to 33% in 2023e, driven by the launch of new drugs, and the decline of existing generics due to GPO. Despite the heavy exposure to generics, its relat

59、ively small existing business and clear drivers, including potential blockbuster drugs, should help it to get through the difficulties caused by GPO. We forecast that revenue and net profit will both rise at a CAGR of 20% over 2019- 23e. Hansoh trades at a 48x 2021e PE, in line with Chinas tier-one

60、healthcare companies average of 46x. With an extensive drug pipeline and a strong management team, we think Hansoh is an attractive investment for long-term investors.Preferred stocksOur pecking order is Sino Biopharm, Hengrui, CSPC, Hansoh, Fosun Pharma, and Shanghai PharmaWe have Buy ratings on al