【Company Research】Simcere Pharmaceutical Group (2096 HK) – Increasing contribution from innovative products

14. FY20 results were largely in line. Simcere reported FY20 revenue/ attributable net profit of RMB4,509mn/ RMB670mn, decreasing by 10.5% / 33.3% YoY, which was largely in line with our estimates. Innovative drugs, mainly Edostar, Sanbexin, Iremod and Orencia, were major growth drivers. Sales from innovative drugs grew 22.7% YoY to RMB2,033mn in 2020, accounting for 45.1% of the total revenue (vs 32.9% in 2019). We estimate sales of Bicun (edaravone injection) dropped by approximately 60% YoY in 2020, accounting for 8% of the total revenue, because the drug has been excluded from the NRDL from Jan 2020. Meanwhile, R&D expenses increased significantly by 59.4% YoY to RMB1,142mn in 2020 due to increased spending in innovative drug pipelines.

 

14. Building rich innovative drug pipelines. Supported by strong R&D investment, Simcere has established a comprehensive innovative portfolio with nearly 50 candidates in different stages of development. In 2020, the Company has launched two innovative drugs, Orencia (abatacept injection) and Sanbexin (edaravone and dexborneol concentrated solution for injection). Sanbexin was added into the NRDL, effective from Mar 2021. In addition, KN035, a potentially first-to-market subcutaneously injectable anti-PD-L1 monoclonal antibody worldwide, filed NDA in China for MSI-H solid tumors in Dec 2020, and was granted priority review in Jan 2021. Furthermore, on 12 Feb 2021, Simcere’s partner G1 Therapeutics (GTHX US) announced that the US FDA has approved COSELA (trilaciclib) for chemotherapy-induced myelosuppression in ES-SCLC patients who were prior treated by chemotherapy, which made trilaciclib the first and only therapy for chemotherapy-induced myelosuppression. In Jan 2021, Simcere has obtained the IND approval from the NMPA to conduct a Phase I clinical trial of trilaciclib in China. In the US, trilaciclib is also being studied in a phase II trial for metastatic TNBC in combination with chemotherapy.

 

14. Maintain BUY. We revise down our FY21E/22E revenue forecasts by 3% / 4% respectively and trim our FY21E/22E attributable net profit forecasts by 10% / 7%. We roll over our price target to 2021E and trim our TP to HK$13.73 based on a 10-year DCF valuation (WACC: 10.4%, terminal growth rate: 2.0%).

 

14. Risks: Lower-than-expected sales from key products, slower-than-expected R&D progress of innovative drugs.