20180607-中国银河国际证券-雅各臣科研制药-02633.HK-On_the_way_from_generics_to_biosimilar_valuation_3页_486kb

Jacobson Pharma Summary

Core Content

Jacobson Pharma (2633.HK) is a Hong Kong-based pharmaceutical company primarily engaged in the development, production, and distribution of generic drugs and proprietary medicines (CTM). The company has a strong presence in the Hong Kong Hospital Authority, holding approximately 30% market share in generics. It also has a diverse product portfolio, offering over 1,000 generic medicines, with about one-third sold to public hospitals and two-thirds to private institutions. In addition, Jacobson has a proprietary medicines segment, which includes high-margin products like Po Chai pills and Ho Chai Kung.

Main Points

• Business Foundation: Jacobson's existing generics and CTM business provides a stable earnings base with potential for growth.
• HLX02 Development: The company is involved in the development of Henlius's HLX02, a biosimilar to HERCEPTIN (Trastuzumab). The Phase III trial is an international, multi-center study with 606 patients, including 406 in China.
• Clinical Trial Design: The trial aims to prove bioequivalence of HLX02 to HERCEPTIN + Docetaxel. It uses the same dosage regimen as HERCEPTIN and has a shorter treatment course (6 courses, ~18 weeks) compared to HERCEPTIN's 52 weeks.
• Market Potential: If HLX02 is launched in 2019 and achieves 25% market share in Hong Kong, it could generate ~HK$300m in revenue by 2020, representing ~15% of 2020E estimated sales.
• Valuation: As of the report, Jacobson is trading at 14.6/12.8/11.3x 2018/19/20 Bloomberg consensus PER, which is considered undemanding given its discount to peers and expected ~16% EPS CAGR in 2017-2020E.
• Financial Projections:
  • Revenue is projected to grow from HK$1,084m in 2016A to HK$1,984m in 2020E.
  • Operating profit is expected to rise from HK$187m in 2016A to HK$432m in 2020E.
  • Adjusted net profit is projected to increase from HK$146m in 2016A to HK$315m in 2020E.
  • Net margin is expected to improve from 13.4% in 2016A to 15.9% in 2020E.
  • EPS Adj+ is forecasted to increase from HK$0.11 in 2017A to HK$0.18 in 2020E.
  • ROE is expected to rise from 13.5% in 2017A to 13.7% in 2020E.
• Re-rating Potential: The successful launch of HLX02 could lead to a re-rating of Jacobson from a generic drug manufacturer to a biosimilar player, enhancing its valuation and offering significant upside potential.
• Risks: The report highlights potential risks such as slower-than-expected growth in generics and CTM segments, and delays in the progress of HLX02.
• Company Overview: Founded in 1998, Jacobson Pharma was listed on the HK Exchange in September 2016. Its largest shareholder is Derek Sum Kwong Yip, who holds 70.58% of the shares.

Key Information

• HLX02: A biosimilar to HERCEPTIN, with a Phase III trial ongoing in 2018, targeting bioequivalence with HERCEPTIN + Docetaxel.
• Market Cap: ~US$472m as of the report.
• Free Float: 23.7%.
• HLX02 Trial Details:
  • 606 patients in total, 406 in China.
  • Dosage: 8mg/kg intravenously followed by 6mg/kg every three weeks.
  • Trial design is considered high standard due to strict patient eligibility (HER2 overexpression IHC 3+).
• Biosimilar Market: Jacobson has exclusive rights to commercialize HLX02 in Hong Kong and Macau for 10 years.
• Market Share Assumption: If HLX02 captures 25% of the HER2 overexpression market in Hong Kong (~4,000 patients), it could generate significant revenue.
• Peer Comparison: Jacobson is compared to other Hong Kong-listed pharmaceutical companies, including CSPC Pharma, Fosun Pharma, and Lee's Pharma, based on PER, PBR, and ROE metrics.

Valuation Metrics

Analysts

• Harry He: harryhe@chinastock.com.hk; Tel: 852 - 3698 6320
• Wong Chi Man, CFA: cmwong@chinastock.com.hk; Tel: (852) 3689 6317

Investment Rating

• BUY: The share price is expected to increase by more than 20% within 12 months.
• HOLD: No clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL.
• SELL: The share price is expected to decrease by more than 20% within 12 months.

Conclusion

Jacobson Pharma has a strong foundation in the generics market and is positioned to benefit significantly from the potential success of its biosimilar HLX02. The company's financial performance is projected to improve, and its market position offers good risk-reward potential for investors. The re-rating from a generic to a biosimilar player could unlock substantial value. However, the company's success will depend on the progress of HLX02 and the growth of its generics and CTM segments.