20180124-招商证券_香港_-绿叶制药-02186.HK-Quantifying_Ansofaxine_s_blockbuster_potential_9页_1mb

Luye Pharma (2186 HK) - Company Report Summary

Core Content and Overview

This report from China Merchants Securities (HK) Co., Ltd. provides an analysis of Luye Pharma (2186 HK), focusing on the blockbuster potential of Ansofaxine (LY03005), a new drug in the treatment of Major Depressive Disorder (MDD). The report outlines the drug's phase II trial results, market potential, and financial implications for the company.

Key Findings

Phase II Trial Results

• Ansofaxine showed promising results in its phase II trial with 260 patients, meeting both the primary endpoint (reduction in HAMD17 score at week 6) and secondary endpoint (mean change in MADRS at week 6), all statistically significant compared to placebo $(p < 0.05)$.
• The drug was safe and well-tolerated, with mild to moderate AEs such as nausea and dizziness.

Market Potential

• Ansofaxine is expected to be the first Triple Reuptake Inhibitor (SNDRI) to launch globally.
• It is anticipated to establish superiority over venlafaxine/desvenlafaxine in the second-line setting of MDD.
• US peak sales are estimated at US$355 million, with a launch probability of 50%, assuming non-inferiority results with Pristiq.
• China peak sales are estimated at RMB 1 billion, assuming a 15% market share in the second-line MDD treatment, with a launch probability of 50%.

Valuation and Investment Recommendation

• The Target Price (TP) has been updated to HK$7.69, reflecting higher launch probability and a 20% M&A premium to SOTP.
• The report recommends a BUY rating, with a 12-month target price of HK$7.69 (+8%), up from the previous HK$7.12.

Financial Highlights

• The company is expected to benefit from the launch of Ansofaxine, which could make it the third most valuable asset after Lipusu and Arcabose.
• The adjusted net profit margin has remained relatively stable, ranging from 27.7% to 32.0%.
• The ROE has ranged between 12.7% to 13.9%, indicating strong returns on equity.

Competitive Landscape

• In the US market, the venlafaxine/desvenlafaxine market has seen numerous generic entries since 2010 and 2017, respectively.
• Nine Chinese companies have launched generic venlafaxine in China, but Ansofaxine is expected to stand out due to its faster onset (as low as 2 hours) and reduced sexual dysfunction compared to SNRIs.
• Pristiq has not been approved in China, providing Ansofaxine with a potential competitive advantage.

Market Estimates and Revenue Breakdown

US Market

• Ansofaxine is estimated to capture 10%–40% of patients treated with Effexor ER and Pristiq, with US$355 million in peak sales.

China Market

• Ansofaxine is projected to capture 15% market share in the second-line MDD treatment with RMB 1 billion in peak sales.
• The total treated patients in China are estimated at 50 million, with 5 million treated in 2030, and 1.25 million expected to be treated with second-line drugs.

Pipeline and Valuation

• Ansofaxine is a key asset in Luye's pipeline, with high potential to become a blockbuster.
• The total pipeline value is estimated at RMB 4,844 million, with Ansofaxine contributing RMB 2,234 million.
• SOTP (Sum of the Parts) valuation is RMB 17,811 million, with a 20% M&A premium leading to a total equity value of RMB 21,373 million.

Shareholding and Financials

• Luye Pharmaceutical Investment holds 45.7% of the shares.
• Ping An Asset holds 16.5%.
• CITIC holds 5.9%.
• Free float is 31.9%.
• Balance Sheet and Cash Flow show consistent growth and positive net profit.

Investment Rating

• Industry Rating: OVERWEIGHT – the sector is expected to outperform the market.
• Company Rating: BUY – the stock is expected to generate 10%+ return over the next 12 months.

Conclusion

The report highlights Ansofaxine's potential to become a blockbuster drug in both US and China markets, with positive trial results and competitive advantages over existing SNRIs. The updated Target Price reflects optimistic expectations for the drug's launch and market share. Luye Pharma is positioned to benefit significantly from the successful commercialization of Ansofaxine, making it a key investment opportunity in the pharmaceutical sector.