【Company Research】Shanghai Henlius Biotech, Inc. (2696 HK) – Rich R&D progress

• FY19 earnings miss. Henlius reported FY19 revenue of RMB91m, below our estimate of RMB167m. Attributable revenue from Hanlikang (Rituxan biosimilar) was RMB79m in FY19, below our estimate of RMB141m. Retail sales of Hanlikang was around RMB190m in FY19. Meanwhile, Henlius recorded RMB 875m net loss in FY19, which missed our forecast of RMB319mn net loss in FY19. The difference was mainly due to larger-than-expected R&D costs and administrative expenses.

 

• Sales of Hanlikang to ramp up thanks to the release of capacity bottleneck. Currently Henlius has 2,000L manufacturing capacity and will soon add 12,000L new capacity which will expand the total capacity to 14,000L. Thanks to the expansion of capacity, we expect sales of Hanlikang to pick up significantly from 2Q20E and forecast RMB264mn attributable revenue from Hanlikang in 2020E.

 

• Rich R&D progress. In 2019, Henlius has filed NDA for HLX02 to NMPA and EMA and filed NDA for HLX03 to NMPA. The Company also accelerated clinical development for HLX10 and has initiated 5 phase III trials and 4 phase II trials for HLX10 mono and combo therapies. Trials of HLX10 cover large indications such as NSCLC, SCLC, GC, HNSCC, HCC, ESCC, cervical cancer and HBV. Henlius also further expanded its novel biological drug pipelines by initiating phase I trials of HLX22 (innovative anti-HER2 mAb) and HLX12 (ramucirumab biosimilar) and obtaining IND approvals for HLX55 (innovative anti-c-MET mAb) in mainland China and Taiwan.

 

• Expect multiple significant milestones in 2020E. We expect HLX02 (Herceptin biosimilar) to receive approvals from NMPA and EMA in 2020E, and HLX03 (Humira biosimilar) to obtain NMPA’s approval in 2020E. We believe Henlius may also file the NDA for HLX10 (PD-1 antibody) to NMPA for treatment of MSI-H solid tumors, and the NDA for HLX04 (Avastin biosimilar) to the NMPA by end-20E.

 

• We trimmed TP from HK$61.12 to HK$57.21 to reflect weak sales from Hanlikang and large R&D spending.  We expect risk-adjusted revenue to be RMB615m in FY20E and RMB1,461m in FY21E, driven by sales ramp-up of HLX01~04. TP of H$57.21 was based on 11-year risk-adjusted DCF valuation (WACC: 10.03%, terminal growth rate: 3.0%). We like Henlius given its rich biological pipeline and strong inhouse R&D capability.

 

• Catalysts: 1) Earlier-than-expected launch of products in pipeline, 2) stronger-than-expected sales from newly launched product, 3) positive outcome of clinical trial data.