20150904-交银国际证券-绿叶制药-02186.HK-An_expert_in_long-acting_sustained_release_and_liposome_technology_13页_421kb

Summary of Luye Pharma Group (2186.HK)

Core Content

Luye Pharma Group (LPG) is a leading pharmaceutical company in China, specializing in long-acting sustained release and liposome technologies. The company is positioned in rapidly growing segments of the pharmaceutical industry, including oncology, cardiovascular, and central nervous system drugs. It has a strong product pipeline and a diversified portfolio of key drugs that are expected to drive future growth.

Main Points

1. Company Overview

• Stock Information:

  • Last Closing: HK$6.52
  • Upside: +21.8%
  • Target Price: HK$7.94
  • Market Cap: HK$21,586.98m
  • 52-week High: HK$11.54
  • 52-week Low: HK$5.65
  • 1-month change: -19.75%
  • YTD change: -34.93%
  • 50-day MA: HK$7.80
  • 200-day MA: HK$8.91
  • 14-day RSI: 32.8

• Initiation of Coverage:

  • Initiated at LT Buy with a target price of HK$7.94, implying a 21.8% upside from the last closing price.
  • Intrinsic value estimated at HK$26.4bn using a DCF model, corresponding to P/E ratios of 23.6x and 20.2x for FY16E and FY17E respectively.

2. Key Drugs and Market Segments

LPG focuses on five key drugs and several pipeline products:

• Oncology Drugs:

  • Lipusu: Proprietary paclitaxel formulation using liposome technology, used for lung, breast, and uterine cancers. Market share increased from 27.4% in 2011 to 42.6% in 2014.
  • CMNa: Sodium glycididazole injection, used as a radiosensitizer for solid tumors. Only product in China for this indication, listed in the National Medical Insurance Catalogue.
  • Pipeline: Gemcitabine hydrochloride for injection, Vincristine sulphate liposome for injection, and others.

• Cardiovascular Drugs:

  • Xuezhikang: Proprietary Chinese medicine derived from red yeast rice, used for hypercholesterolaemia. Marketed in 25 provinces and over 7000 hospitals. Listed in the National List of Essential Drugs and Medical Insurance Catalogue.
  • Maitongna: Sodium aescinate injection, used for vascular protection and treating traumatic brain injury. Best-selling vasoprotective drug with 31.0% market share.
  • Pipeline: Rotigotine extended release microspheres for injection, Risperidone extended release microspheres for injection, and others.

• Alimentary Tract and Metabolism Drugs:

  • Bei Xi: Acarbose capsule for diabetes management, ranked third in the market in 2014. Listed in the National List of Essential Drugs and Medical Insurance Catalogue.
  • Pipeline: Evogliptin tartrate tablets, Exenatide extended release microspheres for injection, Thiocic acid tablets, and others.

3. R&D Capabilities and Technology Platforms

• R&D Platforms:
  • Long-acting and extended release technology
  • Liposome and targeted drug delivery technology
  • New compounds development
• R&D Team:
  • As of Jun 2015, 285 employees, including 35 Ph.D. holders and 133 M.Sc. holders.
• Patents:
  • 277 granted patents and 55 pending applications in China
  • 102 granted patents and 79 pending applications overseas

4. Pipeline Products

• Oncology:

  • Gemcitabine hydrochloride for injection (2015)
  • Vincristine sulphate liposome for injection (2016)
  • Doxorubicin hydrochloride liposome injection (2017)
  • Triptorelin acetate extended release microspheres for injection (2017)
  • Goserelin acetate extended release microspheres for injection (2019)
  • Irinotecan hydrochloride liposome injection (2020)
  • Fulvestrant long acting injection (2020)

• Central Nervous System:

  • Jinyukang capsules (2015)
  • Hyperzine A sustained release tablets (2016)
  • Hyperzine A sustained release microspheres for injection (2020)
  • Rotigotine extended release microspheres for injection (2017)
  • Risperidone extended release microspheres for injection (2017)
  • Anofaxine hydrochloride extended release tablets (2018)
  • Laxymig (valproate semisodium extended release tablets) (2016)
  • Ufree (levetiracetam sustained release tablets) (2017)
  • Pramipexole dihydrochloride tablets (2016)
  • Pramipexole dihydrochloride extended release tablets (2018)

• Alimentary Tract and Metabolism:

  • Reduced glutathione enteric capsules (2015)
  • Evogliptin tartrate tablets (2019)
  • Exenatide extended release microspheres for injection (2017)
  • Thiocic acid tablets (2017)

5. 1H15 Financial Performance

• Revenue: RMB1,750.7m, up 13.1% YoY
• Gross Profit: RMB1,488.3m, up 14.7% YoY
• Gross Margin: 85% (up from 83.8% in 1H14)
• Profit Attributable to Shareholders: RMB385.4m, up 37.1% YoY
• Product Structure Optimization:
  • Revenue from oncology drugs increased to 50% (from 45.3% in 1H14)
  • Revenue from other generic drugs decreased to 3.3% (from 6.2% in 1H14)

6. Why We Like LPG

• High Revenue Exposure to Key Drugs:
  • From 2011 to 2014, key drugs accounted for 94.8% of total revenue, significantly higher than its peers (76.0% for SINO Biopharmaceutical, 61.3% for CSPC Pharmaceutical Group).
• Sales Strategy:
  • The strategy of expanding sales volume to offset price cuts is still effective.
• Experienced Management:
  • Key executives have extensive experience in the pharmaceutical industry and have played a crucial role in the company's growth and strategic implementation.

7. Valuation and Financial Model

• DCF Model Assumptions:
  • Equity/Total assets: 83.5%
  • Debt/Total assets: 16.5%
  • Risk-free premium: 3.0%
  • Market premium: 7.0%
  • Beta: 1.07
  • Cost of equity: 10.5%
  • Cost of debt: 5.0%
  • Tax shield: 85.0%
  • WACC: 9.5%
  • Terminal growth rate: 4.0%
• Intrinsic Value:
  • Estimated at HK$26.4bn, representing a P/E of 23.6x for FY16E and 20.2x for FY17E.

Key Information

• LPG is an expert in long-acting sustained release and liposome technologies.
• The company has a strong product pipeline with several new drugs targeted for launch in 2015–2016.
• Its key drugs are in rapidly growing therapeutic areas with high CAGR from 2008 to 2013.
• The company's management team is experienced and has driven growth through strategic acquisitions.
• The DCF model is used to estimate intrinsic value, with a target price of HK$7.94.
• The company is expected to maintain profitability despite pricing pressures.