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China Watch P258:Position for incoming positive catalysts

类型:投资策略  机构:德意志银行   研究员:Jack Hu  日期:2017-05-19
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Several positive catalysts not factored in street consensus.

    We anticipate the following three positive catalysts in the near term, includingPRDL revision, accelerated approval of new drugs, and increasing out-licensingactivities. We do not believe upside from these catalysts has been reflected inthe stock price. In addition, we believe expectation of incremental benefit fromNRDL inclusion remains on the conservative side as robust new data pointshave emerged recently. Collectively, we would actively position bellwetherssuch as Hengrui, Sino Biopharm, and 3SBio to capture the imminent stockupside.

    Consensus underestimated NRDL benefit, no expectation for PRDL.

    The rationale resides in the magnitude of growth acceleration for Rituxan,Herceptin and Avastin, which exceeded our expectation. We previouslyhighlighted the growth acceleration of these three oncology compounds in thepast two years after numerous PRDL inclusions, in our thematic report,Biological drugs and mAbs in China. As of 1Q17, growth of Rituxan, Herceptin,and Avastin reached 30%, 32% and 30%, vs. 22%, 25%, 21% in 2016 and 9%,14%, 15% in 2015, respectively. For PRDL, the street has not modeled anypositive impact as we await the release of the lists in 3Q/4Q17. We highlightthat Byetta from 3SBio and a few newly acquired drugs from Sihuan could bemeaningful beneficiaries.

    Regulatory approval time might be shortened by half.

    Executives from the China operations of global companies indicated that it islikely CFDA will shorten the approval time for innovative drugs by 50%. Theview has been confirmed by the accelerated approval of a few MNC drugs in1Q17. Based on the data we track, Tagrisso from Astrazeneca and Daklinzaand Sunvepra from BMS acquired CFDA marketing approval after 49 days, 5.4months, and 5.4 months, respectively. These represent significant accelerationvs. 1-2 years of waiting time before. Additionally, we highlight that there are211 drug applications on 16 priority review lists (PRL), a new initiative fromCFDA. We highlight that Hengrui and SBP have 8/7 drug applications on PRLat present. We expect surprises on the approval timeline for these bellwethers.

    More in-licensing opportunities for domestic companies.

    While we expect significant changes on treatment algorithms, due to theavailability of innovative therapeutics from global companies, we believeMNCs would have increasing incentives to out-license more existingblockbusters. Notable deals in the past few years include Plendil (AZN toCMS), Miacalcic (NVS to NT Pharma), Seroquel (AZN to HCM), andByetta/Bydureon (AZN to 3SBio). However, we expect bigger drugs with highersales would be on the table. To position for the opportunities on this front, wehighlight acquisitive companies, including 3SBio and CMS. We also highlightthat the recent deal for Humulin between 3SBio and Eli Lilly confirmed ourexpectation of more in-licensing opportunities.

    Valuation and risks.

    We mainly use a P/E multiple-based approach as the basis for the valuation forour coverage universe. Key downside risks include further price erosion andvolume pressure from reimbursement funding control. Upside risks includetermination of the anti-bribery campaign and less price cuts than expected.

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