20210105-招银国际-先声药业-02096.HK-Transitioning_from_generic_to_innovative_50页_1mb

Simcere Pharmaceutical Group (2096 HK) Summary

Core Content

Simcere Pharmaceutical Group is a China-based pharmaceutical company with a global presence, listed on the NYSE in 2007 and privatized in 2013. The company is rapidly transitioning from a generic drug manufacturer to an innovation and R&D-driven pharmaceutical company, leveraging its strong manufacturing and commercialization capabilities.

Main Points

Diversified Product Portfolio

Simcere offers a wide range of pharmaceutical products across multiple therapeutic areas, including:

• Oncology: 5 products (e.g., Endostar, Jepaso, Jiebaili, Sinofuan)
• Central Nervous System (CNS): 3 products (e.g., Bicun, Sanbexin, Y-2)
• Autoimmune Diseases: 5 products (e.g., Iremod, Yingtaiqing, Orecia)
• Cardiovascular Diseases: 3 products (e.g., Softan)
• Anti-infectives: 16 products (e.g., Newanti, ZAILIN)
• Other Diseases: Several products

The company's core innovative products include Endostar (an anti-angiogenic drug) and Iremod (a small molecule DMARD), both of which are category I innovative pharmaceuticals.

Rich Innovative Drug Pipeline

Simcere has established three R&D centers in Nanjing, Shanghai, and Boston (US). As of 30 Jun 2020, the R&D department had 756 full-time employees, including 331 with master's degrees and 116 with Ph.D. degrees. The company has nearly 50 innovative drug candidates in various stages of development, with over 10 in clinical trials and some having submitted or obtained NDA (New Drug Application) for market launch.

Key product candidates include:

• KN035 (Envafolimab): A subcutaneously injectable anti-PD-L1 monoclonal antibody, potentially the first of its kind globally.
• Sanbexin: A combination of edaravone and dexamethasone, approved in 2020 for the treatment of ischemic stroke.
• Orencia (Abatacept injection): An imported innovative drug for rheumatoid arthritis, launched in 2020.

Financial Performance

Simcere's financials show strong growth:

• Revenue increased from RMB4,514mn in FY18A to RMB8,164mn in FY22E, with a CAGR of 14.1%.
• Net profit grew from RMB734mn in FY18A to RMB1,453mn in FY22E, with a CAGR of 69.2%.
• EPS rose from N/A in FY18A to RMB0.56 in FY22E.
• P/E ratio dropped from N/A in FY18A to 13.7 in FY22E.

The company is currently trading at HK$8.70, with a target price (TP) of HK$13.84 and a potential upside of +59.07%. This TP is derived from a 10-year DCF model with a WACC of 10.4% and a terminal growth rate of 2.0%.

Investment Thesis

• Simcere is transitioning to an innovation and R&D-driven company.
• The company has a diversified product portfolio across key therapeutic areas.
• With a robust R&D pipeline, Simcere is expected to drive future growth.
• The company is initiated at BUY with a target price of HK$13.84.

Key Information

Strategic Focus

• The company focuses on oncology, CNS, and autoimmune diseases, which together account for 24.7% of China's pharmaceutical market in 2019.
• These areas are expected to continue growing faster than the overall market.

Commercialization Capabilities

• Simcere has a nationwide sales and distribution network, covering over 2,100 Class III hospitals, 17,000 other hospitals, and more than 200 pharmacy chains.
• It has secured entry into the NRDL (National Reimbursement Drug List) for many of its products, including Endostar, Iremod, and Sanbexin.
• The company also uses third-party promoters to cover lower-tier markets, selecting them based on qualifications, reputation, and hospital coverage.

R&D Investment

• R&D expenses accounted for 5.5% to 14.2% of total revenue in 2017–2019.
• The company has collaborations with major pharmaceutical and biotech firms, including Jiangsu Alphamab, 3D Medicines, Immunochina, and others.

Investment Risks

1. Regulatory risk: If products are removed from the NRDL, sales and profitability could be affected.
2. Price competition: Prices of some products may decrease due to regulation or market competition.
3. R&D uncertainty: Development of new drugs is time-consuming and costly, with uncertain outcomes.

Share Performance

• Current price: HK$8.70
• 52-week high/low: HK$11.68 / HK$7.65
• Market cap: HK$22,695 million
• Shareholding structure:
  • Simcere Pharmaceutical Holding: 45.85%
  • Arting Global: 23.26%
  • Fortune Fountain Investment: 4.64%
  • Premier Praise: 4.41%
  • Excel Good Group: 4.30%
  • King View Development International: 2.25%
  • Excel Management: 2.13%
  • Free float: 13.16%

Conclusion

Simcere is well-positioned to benefit from the growing demand for innovative drugs in China, with a strong foundation in both manufacturing and commercialization. Its diversified portfolio, robust R&D pipeline, and strategic collaborations make it a promising player in the pharmaceutical industry. The BUY rating and target price reflect the company's potential for future growth and value creation.