20221115-招银国际-诺诚健华-B-09969.HK-Strong_sales_of_orelabrutinib_in_3Q22_6页_1mb

InnoCare Pharma (9969 HK) Summary

Core Content and Key Information

InnoCare Pharma reported strong sales performance for orelabrutinib in the third quarter of 2022 (3Q22), with total revenue reaching RMB196 million. Orelabrutinib sales amounted to RMB183 million, reflecting a +64% quarter-over-quarter (QoQ) increase and a +147% year-over-year (YoY) growth. Cumulative sales of orelabrutinib for the first nine months of 2022 (9M22) reached RMB400 million, a +129% YoY increase, primarily driven by the NRDL inclusion since January 2022, enhanced commercial efforts, and the easing of the COVID-19 impact.

The company improved its cost efficiency in 3Q22, with selling, R&D, and admin costs as a percentage of product sales dropping to 57% / 108% / 23%, compared to 86% / 126% / 36% in 1H22. R&D expenses for 9M22 totaled RMB475 million, showing a +30% YoY growth after excluding the upfront payment to Incyte for tafasitamab.

Despite the strong sales, InnoCare reported a net loss of RMB444 million in 9M22, after excluding foreign exchange impact, which is flat compared to RMB414 million in 9M21. An unrealized loss of RMB399 million was recorded due to foreign exchange fluctuations.

In September 2022, InnoCare successfully listed on the STAR Board and raised RMB2.8 billion net cash in its IPO. As of September 2022, the company holds RMB7.7 billion in net cash, sufficient to support multiple years of R&D and operations.

Key Developments

• Orelabrutinib:

  • Strong sales growth in 3Q22: +64% QoQ and +147% YoY.
  • Multiple late-stage trials on track in China, including 1L CLL/SLL, 1L DLBCL-MCD, and 1L MCL.
  • Filed BLA for r/r CLL/SLL and r/r MCL in Singapore.
  • Ph2b trial for SLE in China with ~200 patients and a 48-week treatment period.
  • Global Ph2 trial for MS with Biogen, data expected in 3Q23E.
  • Pivotal single-arm Ph2 trial for r/r MCL in the US, with BLA filing expected by end-2023E and Ph3 discussions with the US FDA.

• Tafasitamab:

  • Bridging study in mainland China started in 1H22, with 20% of targeted patients enrolled by November 2022.
  • BLA for tafasitamab in mainland China expected by end-2023E.
  • BLA in Hong Kong was accepted in 1H22, with approval expected in the next few months.
  • Plans to file in Macau and Taiwan in 2023E.

Financial Highlights

• Revenue (RMB mn):

  • FY20A: 1
  • FY21A: 1,043
  • FY22E: 655
  • FY23E: 1,416
  • FY24E: 2,065

• Net profit (RMB mn):

  • FY20A: (391)
  • FY21A: (65)
  • FY22E: (960)
  • FY23E: (167)
  • FY24E: 240

• EPS (Reported) (RMB):

  • FY20A: (0.40)
  • FY21A: (0.05)
  • FY22E: (0.54)
  • FY23E: (0.09)
  • FY24E: 0.14

• R&D expenses (RMB mn):

  • FY20A: (403)
  • FY21A: (722)
  • FY22E: (600)
  • FY23E: (600)
  • FY24E: (600)

• Admin expenses (RMB mn):

  • FY20A: (140)
  • FY21A: (164)
  • FY22E: (311)
  • FY23E: (392)

• Cash & Equivalents (RMB mn):

  • As of 31 Dec 2022: RMB6,571 million

• Total Net Cash (RMB mn):

  • As of 31 Dec 2022: RMB7.7 billion

• Target Price (HK$):

  • HK$20.14 (up from HK$19.11)

• 12-month price performance:

  • 33.3% (Absolute)
  • 26.1% (Relative)

• Market Cap (HK$ mn):

  • 21,911 million

• Average 3-month total return (HK$ mn):

  • 18.47

• 52-week high/low (HK$):

  • 22.30 / 7.20

• Total issued shares (mn):

  • 1,764 million

Analyst Ratings and Valuation

• Rating: BUY (Maintained)

• Target Price: HK$20.14

• DCF Valuation (RMB mn):

  • 2022E: 23,622
  • 2023E: (232)
  • 2024E: 207
  • 2025E: 599
  • 2026E: 963
  • 2027E: 1,649
  • 2028E: 2,039
  • 2029E: 2,747
  • 2030E: 45,907

• Terminal value: Not specified

• Terminal growth rate: 3.00%

• WACC: 10.11%

• Cost of Equity: 12.8%

• Cost of Debt: 4.50%

• Equity Beta: 0.90

• Risk-free rate: 2.00%

• Market risk premium: 12.00%

Sensitivity Analysis

• Terminal growth rate impact on TP (HK$):
  • 4.00%: 27.15
  • 3.50%: 25.31
  • 3.00%: 23.78
  • 2.50%: 22.47
  • 2.00%: 21.35

Shareholding Structure

• Hillhouse Capital: 11.8%
• King Bridge Investments: 9.2%

Conclusion

InnoCare Pharma is experiencing strong growth in orelabrutinib sales, driven by regulatory inclusion, commercial reinforcement, and improved cost efficiency. The company has a robust cash position, sufficient to support R&D and operations for multiple years, and is advancing its pipeline with multiple registrational trials and BLA filings in various markets. The BUY rating is maintained, with an increased target price of HK$20.14, reflecting optimism about the company's future performance.