Research published by Blue Lotus Research on October 24, 2022

 

(13 Pages, 8 graphs and tables)
Listen to analyst’s audio summary

• Innovent’s single product is facing declining sales and increase competition. Its next product, a PCSK9 Inhibitor, works in a niche market, in our view;
• Yet Innovent’s R&D and sales seem to be benchmarking against BeiGene. Innovent might suffer from low profit margin in the long run;
• We initiate Innovent with a SELL rating and TP of HK$17.

Innovent is falling behind in the domestic PD-1/L1 war
Innovent’s Sintilimab (TYVVT) was the 2nd approved domestic PD-1 drug and achieved the 2nd highest sales among domestic in 2020 and 2021. But it fell behind BeiGene’s Tisleilizumab in C1H22 to become No.3. We estimate Sintilimab’s C1H22 sales declined 27% YoY and 22% HoH.
 
Signs of comprehensive but patched pipeline
Despite these setbacks, Innovent is building out its sales force. In C1H22 Innovent’s salesforce increased in headcount which we deem unnecessary. Innovent is backing up this expansion with a late-stage pipeline of biosimilars and license-in’s, which in our view, will move Innovent more towards a generic, instead of innovative drug maker. Such transformation will result in a distorted operational focus, in our view. Innovent’s pipeline remains comprehensive, but is increasingly relying on collaboration with local biotech’s.
 
Biosimilar strategy picked the right target
According to Roche and AbbVie, Avastin and Rituxan experienced sharp YoY declines while Humira was stable, thanks to biosimilar competition. Innovent makes biosimilars BYVASDA, HALPRYZA and SULINNO targeting these three drugs and these three contributed Rmb879mn, or 39% of revenues in C1H22, growing 94% YoY. Growth might continue in C2H22.
 
The DCF end game requires scale and profit margin
Our DCF exercise suggests that to justify the current valuation of biotech’s, ultimate revenue size and profit margin are both important. In-house developed global blockbusters are the best vehicle to achieve this end result. We doubt Innovent’s diffused focus, reliance on biosimilars and short-circuited sales of in-house drug can reach that end result.

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