20170616-申万宏源研究_香港_-绿叶制药-02186.HK-寻找预期差_12页_770kb

Luye Pharma Group Ltd (2186 HK) Summary

Core Content

Luye Pharma Group Ltd (2186 HK) is a Hong Kong-listed pharmaceutical company specializing in oncology, cardio-cerebral vascular (CCV) diseases, and digestive and metabolic disorders. Its key products include Lipusu (paclitaxel liposome injection), Beixi (acarbose capsule), and Xuezhikang (cholesterol-lowering drug). The company has a strong focus on innovation and R&D, with a pipeline of multiple products in various stages of development across China and the US.

Main Points

• Market Leadership: Lipusu is a patent drug and a leading product in the Chinese paclitaxel market, with a 62% revenue market share in 2016. It has fewer hypersensitivity reactions and longer duration of action compared to conventional paclitaxel (Taxol).
• Competitive Landscape: The company faces potential competition from Abraxane (albumin-bound paclitaxel), which is also a CrEL-free formulation. However, the cost of Abraxane is significantly higher, and the entry of domestic generics is expected to take time. The anticipated price cut for Lipusu during the upcoming National Reimbursement Drug List (NRDL) negotiations is estimated at 30%, but the market is over-concerned about the impact.
• Financial Performance: In Q1 2017, Lipusu grew by 19%, Beixi by 30%, and Xuezhikang by 6%. The acquisition of Acino, a European transdermal delivery system company, is expected to contribute Rmb50-60m in profit for 2017 and boost the company's earnings growth.
• Valuation: Luye Pharma is currently trading at 12x 17E PE and 11x 18E PE, which are at historical lows since its 2014 listing. This valuation is significantly lower than its Hong Kong and A-share peers, which trade at 20x-25x 18E PE.
• Cash Position: As of end-2016, the company had Rmb1.6bn in net cash, which provides a solid foundation for potential M&A activities to expand its product portfolio.

Key Information

Product Overview

• Lipusu: Injection of paclitaxel liposome, patent drug. Lower hypersensitivity risk, longer duration, and selective tumor accumulation.
• Beixi: Capsule of acarbose, used for diabetes. Grew by 30% in Q1 2017.
• Xuezhikang: Cholesterol-lowering drug. Grew by 6% in Q1 2017.
• Acino: European TDS company, acquired in 2016. Expected to contribute Rmb50-60m in profit for 2017.

R&D Pipeline

• Risperidone microsphere: For schizophrenia and bipolar disorder. In NDA review in the US, expected to be approved by end-2019.
• Vincristine liposome: For acute lymphoblastic leukemia. In phase-III trials in China, expected to be approved by end-2019.
• Rotigotine microsphere: For Parkinson's disease. In phase-II trials, expected to be approved by end-2020.
• Goserelin microsphere: For prostate and breast cancer. In phase-I trials, expected to be approved by 2021.

Price Negotiations

• Lipusu is currently undergoing price negotiations for inclusion in the NRDL. Historical price cuts for similar drugs (e.g., Viread, Iressa, Conmana) ranged from 54% to 67%, but the company expects a 30% price cut to be reasonable.
• The average selling price of Lipusu is Rmb944 per dose, with a cost per treatment cycle of Rmb7,552. Domestic Abraxane generics are expected to be priced at 50% of the original, but still 50% higher than Lipusu.
• If Lipusu is included in the NRDL, its out-of-pocket cost will drop to Rmb1,500 per treatment cycle, only 6% of Abraxane’s cost.

Market Share

• Revenue-based market share: Lipusu at 62%, Abraxane at 11%, conventional paclitaxel at remaining 27%.
• Volume-based market share: Lipusu at 25%, conventional paclitaxel at 74%, and Abraxane at 1%.

Financial Highlights

• Revenue: Increased from Rmb2,515m (2013) to Rmb2,918m (2016), with 13.8% YoY growth in 2016.
• Net Income: Grew from Rmb310m (2013) to Rmb892m (2016), with 18.2% YoY growth in 2016.
• ROE: Ranged from 14.3% to 14.7% in 2015-2016.
• Free Cash Flow per Share: Increased from Rmb0.06 (2013) to Rmb0.12 (2016).

Conclusion

Luye Pharma Group Ltd is a well-established player in the pharmaceutical industry, with a strong product portfolio and a robust R&D pipeline. Despite concerns over potential price cuts, the company is well-positioned to maintain its market leadership, especially with the potential inclusion of Lipusu in the NRDL, which could significantly enhance its market share and affordability. Its current valuation is at a historical low, suggesting potential for value appreciation. The company’s Rmb1.6bn in net cash and strategic M&A focus further support its growth prospects.