On the evening of April 17, Hengrui Pharmaceutical released its 2023 annual and 24-year first quarter report. In the context of the fading out of the impact of centralized procurement and the continuous growth of the proportion of innovative drugs, Hengrui's overall performance continued to rebound steadily.
In 2023, the company's dividend + repurchase will account for 48.84% of profits, an increase of 12 percentage points from 36.3% in the previous year.
Profit returned to close to 20% growth, and cash flow improved significantly
In 2023, Hengrui's revenue will be 22.820 billion yuan, an increase of 7.26% year-on-year, net profit will be 4.302 billion yuan, an increase of 10.14% year-on-year, non-net profit will be 4.141 billion yuan, an increase of 21.46% year-on-year, and operating cash flow will be 7.644 billion yuan, a year-on-year increase of 504.12%.
In the first quarter of 2024, the revenue was 5.998 billion yuan, an increase of 9.20% year-on-year, the net profit was 1.369 billion yuan, an increase of 10.48% year-on-year, and the non-net profit was 1.440 billion yuan, an increase of 18.06% year-on-year.
It is worth noting that the growth of Hengrui's non-net profit has returned to close to 20%. At the same time, on the basis of a significant improvement in operating cash flow in 23 years, 24Q1 continued to maintain a high growth rate of 486.35%.
Hengrui Pharmaceutical told Wall Street Insight Research that the increase in cash flow was due to the increase in revenue in the reporting period, the acceleration of customer collection, and the increase in cash received from the sale of goods. The significant improvement in operating cash flow also appeared in Huadong Pharmaceutical, which disclosed its annual report on the same day.
In addition, the market is concerned about the down payment, Hengrui also disclosed in the first quarter report that it received a down payment of 160 million euros from Merck, but because the transfer of relevant patents and technologies has not yet been completed, according to accounting standards, this part of the down payment cannot be recognized as current income for the time being, so it is not reflected in the revenue data of the first quarterly report.
According to the analysis of industry insiders, the technology transfer involved in the external licensing of pharmaceutical companies usually requires a certain period, and it is common for there to be a difference between the time point of collection of license fees and the time point of revenue recognition, which does not affect the normal progress of the transaction.
Innovative drug revenue accounted for 47%, and R&D revenue accounted for 27%
In 2023, Hengrui's innovative drug revenue will reach 10.637 billion yuan (excluding external licensing revenue), accounting for 47% of revenue, although it is affected by factors such as changes in the external environment, product price reductions and access difficulties, it still achieved a year-on-year growth of 22.1%.
In 2023, the company will invest a total of 6.150 billion yuan in R&D, and in the first quarter of 2024, the R&D expenses will be 1.220 billion yuan.
Considering the R&D capitalization rate of about 20%, after adding back the capitalized part, Hengrui's R&D expenditure in 2023 will total 6.15 billion, and the proportion of R&D to revenue will be 26.95%.
In 2023, Hengrui will have a total of 7 innovative drugs approved for marketing, including 3 Category 1 innovative drugs and 4 Category 2 new drugs. Including the launch of Class 1 innovative drugs such as adebelimab, repagliptin phosphate, and otecoconazole. It is worth mentioning that camrelizumab combined with apatinib, a "double AI combination", was approved for the first-line treatment of advanced liver cancer, which further consolidated Hengrui's leading position in the field of tumor immunotherapy.
Since 2024, the pace of approval and application of Hengrui's innovative drugs has been further accelerated. In the first quarter, the Class 1 innovative analgesic Aisute was approved for marketing, becoming the first opioid analgesic independently developed in China.
Hengrui Pharmaceutical has a rich innovative drug pipeline, and more than 100 new molecular entities have entered the clinical development stage.
Among them, 16 Category 1 innovative drugs have been approved for marketing, including 13 small molecule drugs and 3 large molecule drugs, and another 10 new drugs have submitted marketing applications. The pipeline covers multiple therapeutic areas such as tumor, cardiorenal metabolism, anti-infection, and analgesia.
ADC is the key layout area of Hengrui. Through the self-built HRMAP modular ADC technology platform, Hengrui has 11 unique ADC drug candidates in the clinical development stage, covering HER2, Trop2, HER3, CD79b, Claudin18.2, Nectin-4, cMET and other targets.
Among them, SHR-A1811, a HER2-ADC product, has received 5 Breakthrough Therapy Designations, covering multiple indications such as breast cancer, lung cancer, colorectal cancer, and gastric cancer.
In addition to ADCs, it is worth noting that cutting-edge technology pipelines such as small nucleic acid drugs, mRNA vaccines, PROTACs, and radiopharmaceuticals have also entered the clinical stage.
The GLP-1 receptor agonist HRS-7535, a high-profile weight loss product, has entered the clinic. In addition, Hengrui has also laid out the field of radiopharmaceuticals, and 4 products have been approved for clinical trials. Recently, its mRNA protein replacement therapy drug RGL-2102 obtained IND, which improves the quality of life of patients with lower limb ischemia by promoting ischemia angiogenesis in patients with lower limb ischemic diseases.
2023 is the first harvest year after the internationalization strategic transformation of Hengrui Pharmaceutical, and it is also a new breakthrough brought by Dr. Jiang Ningjun's joining. Hengrui opened the licensing cooperation model and reached high-value transactions with the world's top pharmaceutical companies.
One of the most striking is the cooperation with Merck with a total amount of 1.4 billion euros, and Jianzhi Research has written in the article """Pharmaceutical Brother" Brings Surprises! Hengrui 1.4 billion euros breaks through international pharmaceutical companies According to Jianzhi Research, Hengrui exclusively licensed the PARP inhibitor HRS-1167 and CLDN18.2 ADC drug SHR-A1904 to Merck, and obtained an advance payment of 160 million euros, 90 million euros of technology transfer expenses and a milestone payment of up to 1.4 billion euros.
In addition, Hengrui also licensed the EZH2 inhibitor SHR2554 to Treeline, with a total transaction value of more than US$700 million; Licensed long-acting TSLP monoclonal antibody to One Bio, which was subsequently acquired by GSK for US$1.4 billion.
Through a series of licensing transactions, Hengrui has realized the high realization of a number of research projects in a short period of time, and brought more cash protection to the company through low-cost investment, which can ensure the increase of R&D and dividend ratio, which is also a new change in Hengrui's finances.
With the maturity of the company's BD team, it is expected that more high-quality projects under research will "go overseas" in 2024.
Selling expenses are stable, and the streamlining of the sales team is nearing the end
The company's sales expenses in the first quarter of '23 and '24 were stable, and the growth rate was smaller than the revenue growth in the same period ('23, 3%: 7%).
After 21-22 years of substantial downsizing, the decline in Hengrui's sales staff has been greatly narrowed. As of the end of 23, Hengrui had 9,134 sales personnel, a decrease of 1,258 from the previous year, and a decrease of 47% from the peak of 20 years.
Cash reserves reached a new high, with dividends + buybacks accounting for 48.84% of profits
In terms of cash reserves, Hengrui Pharmaceutical continued to grow, and as of the end of the first quarter of 24, the company's cash and its equivalents totaled 20.739 billion, a record high. On the one hand, due to the growth of the business, the efficiency of collection has been improved, and on the other hand, the cash has been supplemented by the down payment obtained from a large amount of external authorization.
Therefore, Hengrui still maintains a stable financial operation, due to the interest income brought by a large amount of cash, Hengrui Pharmaceutical's financial expenses continue to be negative, and hit a new high again in 23 years, which also lays the foundation for the increase in dividends.
It is worth noting that Hengrui announced in the 23-year financial report that it will pay a dividend of 1.274 billion yuan, accounting for 29.62% of the current net profit, and the current cash repurchase amount is 827 million yuan. In 2022, Hengrui's cash dividend ratio will be 26%, and the proportion of dividends + repurchases in the current profit will only be 36.3%.
This has changed the low dividend ratio of Hengrui, which has been questioned by the market before.
Hengrui's new overseas strategy has brought new changes to the company, and with the development of overseas authorization, the company's financial performance has undergone new changes. This change could support the company to make more radical changes in R&D and dividends.
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