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China Pharmaceutical & Healthcare - Hunger Games Part III

作者: Hayden Zhang,Marcella Cheung,Sam HU
时间: 2019年09月11日
重要性: 一般报告
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摘要: Report title:China Pharmaceutical & Healthcare - Hunger Games Part III
Analyst:Hayden Zhang,Marcella Cheung,Sam HU
Report type:Industry
Date:20190911
[Summary]

■ 1H19 results broadly in line. That said, we think the demand side (the NRDL updates and GPO nationwide roll-outs) will continue to weigh on pharma sector, in particular generic space
■ With more innovative candidates advancing into the late stage in China, we expect few players will emerge as winners; owning CRO/CDMO names offers some downside protection
■ Our top picks are Wuxi Apptec, Innovent and Luye

Broad industry price war to continue
Given the spiral downtrend in generic prices, we believe that pharma names with large generic exposure remain under pressure, despite rising market expectation on an easing price concession. Meanwhile, we think some market leaders may struggle to maintain their market shares as the new rule has split the GPO volume to a maximum of three tender winners. In innovative space, price war also heats up due to more rivals at NDA stage (e.g.PD-1/L1, EGFR), and ongoing NRDL negotiation process.
In the innovative pharma, winner picking in final lap
With more candidates advancing into the late clinical stages in China, we expect few players (such as Innovent’s Sintilimab) to stand out from their peers in the innovative competition. We identify that the “decisive battles” in PD-1/L1 are taking place in the treatment of four most prevalent solid tumors, including gastric, lung, esophagus and liver cancer. We would advise investors to closely monitor the progress of these late stage trials (See Figure 11). Meanwhile, we believe some leading CRO/CDMO names (Wuxi Apptec) are worth chasing, thanks to their low exposure to policy risk and positive secular outlook.
Top picks with positive outlook and clear catalyst midterm
Wuxi Apptec (2359 HK, BUY, TP HK$100.7) should sustain 28% earnings CAGR in 2019-20E, thanks to its well-built platform and strong franchises. The stock currently trades at 46x/41x PER in FY19E/20E, below its CRO peers.
Innovent (1801 HK, BUY, TP HK$34.2) should deliver several R&D catalysts in 4Q19E/20E, and we like its leading positon in PD-1/L1 and Biosimilar race over its domestic rivals.
Luye (2186 HK, BUY, TP HK$9.7) has an improving fundamental with a rich late-stage pipeline to be delivered over 20E-21E. We think the risk/reward is attractive at the current valuation of 10x/9x FY19/20E PER.

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