20171206-信达国际控股-绿叶制药-02186.HK-Improved_pipeline_story_+_business_development_31页_862kb

Luye Pharma (2186 HK) Summary

Core Content

Luye Pharma is a Chinese pharmaceutical company with a diversified product portfolio and a growing pipeline of innovative drug candidates. The company has a strong current business, including Lipusu (a paclitaxel liposome) and Bei Xi (an acarbose capsule), and is expanding its presence in the CNS and oncology markets through pipeline development and strategic acquisitions.

Key Financial Metrics

Pipeline Overview

Luye's pipeline includes several promising drug candidates, each with different development stages, market potential, and valuation assumptions.

Key Pipeline Products

• LY03004 (Risperidone ER microspheres for injection)

  • Development Status: Preparing NDA (US), Phase II (China)
  • FDA Approval Pathway: 505(b)(2)
  • Launch Year: 2019
  • Peak Sales (US$mn): 100
  • Peak Sales (RMB mn): NA
  • Probability of Success (%): 90%
  • rNPV per Share (HK$): 0.29
  • Key Assumptions: 2.3% YoY growth in atypical antipsychotic-treated patients, 10% YoY growth in LAI patients, 10% LAI patients use risperidone, 30% price discount vs. average LAI, peaks at 40% of risperidone market, WACC: 9.0%

• LY03003 (Rotigotine ER microspheres depot for injection)

  • Development Status: Phase II (US), Phase II (China)
  • FDA Approval Pathway: 505(b)(2)
  • Launch Year: 2020
  • Peak Sales (US$mn): 100
  • Peak Sales (RMB mn): NA
  • Probability of Success (%): 35%
  • rNPV per Share (HK$): 0.13
  • Key Assumptions: Peak sales referenced to Neupro, 505(b)(2) pathway

• LY03005 (Ansofaxine HCL ER tablets)

  • Development Status: Phase II (China), Completed Phase I (US)
  • FDA Approval Pathway: 505(b)(1)
  • Launch Year: 2021
  • Peak Sales (US$mn): 336
  • Peak Sales (RMB mn): NA
  • Probability of Success (%): 35%
  • rNPV per Share (HK$): 0.38
  • Key Assumptions: 1.2% YoY growth in MDD patient population, 6 months average duration, 30% price discount vs. Pristiq, market share of 2% of MDD patients

• LY01008 (Avastin biosimilar)

  • Development Status: Phase II (China)
  • FDA Approval Pathway: NA
  • Launch Year: 2021
  • Peak Sales (US$mn): NA
  • Peak Sales (RMB mn): 402
  • Probability of Success (%): 50%
  • rNPV per Share (HK$): 0.09
  • Key Assumptions: First Avastin biosimilar to launch in China in 2019, 50% market share by volume in 5 years, 30% price discount to originator, peaks at 10% of Avastin

• LY06006 (Prolia biosimilar)

  • Development Status: Phase I (China)
  • FDA Approval Pathway: NA
  • Launch Year: 2022
  • Peak Sales (US$mn): NA
  • Peak Sales (RMB mn): NA
  • Probability of Success (%): NA
  • rNPV per Share (HK$): NA

Current Business Highlights

• Lipusu (力撲素)

  • Launch Year: 2003
  • Peak Sales (US$mn): 4,284
  • Probability of Success (%): 100%
  • rNPV per Share (HK$): 1.52
  • Key Assumptions: +6%/-1%/-2% growth in FY17/18/19E, 0% volume growth and 5% price cut annually during 2020-2026, terminal growth of -3%

• Bei Xi (貝希)

  • Launch Year: 2002
  • Peak Sales (US$mn): 2,470
  • Probability of Success (%): 100%
  • rNPV per Share (HK$): 0.87
  • Key Assumptions: 40%/30%/25% YoY growth in FY17/18/19E, transition period in 2020-26E with rapid slowdown, terminal growth of 1%

• Other Inline Products

  • Launch Year: NA
  • Peak Sales (US$mn): 7,206
  • Probability of Success (%): 100%
  • rNPV per Share (HK$): 2.55
  • Key Assumptions: 34.6%/6.7%/6.3% YoY growth in FY17/18/19E, 3% YoY growth during 2020-26E, terminal growth of 0%

Key Pipeline Events

• LY03004 (Risperidone ER microspheres for injection)

  • NDA Submission: Expected in 3Q18
  • Production Capacities: M1 (50,000 vials), M2 (0.8 million vials)
  • Catalysts: US NDA submission in 3Q18

• LY03005 (Ansofaxine HCL ER tablets)

  • Phase II Readout: Expected in 2Q18
  • License Out: Talks with MNCs for global rights (ex-China)
  • Catalysts: Phase II readout in 2Q18, license out in 2Q-3Q18

Valuation and Target Price

• rNPV per Share (HK$): 0.95
• Current Business Valuation (RMB mn): 14.0bn
• Pipeline Valuation (RMB mn): 2.7bn
• Target Price (HK$): 6.10
• Valuation Rationale: Based on a risk-adjusted NPV model incorporating pipeline assets and current business

Risks

• Policy and Competition Risk: On Lipusu due to its exclusion from the new NDRL and competition from Abraxane and its generics
• Pipeline Risk: Delays or failures in drug development
• Integration Risk: Post-acquisition integration challenges

Strategic Acquisitions

• Acino's TDS Business (Nov 2016)
  • Acquisition Value: €245mn (US$274mn)
  • Key Products: Rivastigmine, Buprenorphine, Fentanyl, and fertility control patches
  • Implications: Enhanced capabilities in CNS, pain, and hormone drug delivery systems

Revenue Projections

• FY17E Revenue Growth: 22.0%
• FY18E Revenue Growth: 5.8%
• FY19E Revenue Growth: 5.5%
• Revenue Mix by Therapeutic Area (FY19E):
  • Oncology: 41%
  • Cardiovascular: 18%
  • Alimentary tract and metabolism: 23%
  • CNS: 15%
  • Others: 3%

Margin and Expense Analysis

• Gross Profit Margin (GPM):
  • FY15/16: 81.4% / 81.7%
  • FY17E: 77.1%
  • FY18E: 79.2%
  • FY19E: 79.1%
• SG&A Ratio:
  • FY17E-FY19E: 46.0% - 46.5%
• R&D Ratio:
  • FY17E: 7.0%
  • FY18E: 7.5%
  • FY19E: 7.8%

Conclusion

Luye Pharma is positioned to benefit from its strong current business and a promising pipeline of innovative CNS and oncology products. The company's valuation is based on a comprehensive rNPV model, which includes both its established products and future pipeline potential. Key catalysts for growth include the NDA submission for LY03004 and the licensing out of LY03005. Despite the challenges posed by policy changes and competition, the company remains optimistic about its future growth and is actively expanding its global presence through M&A and R&D initiatives.