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On the evening of April 17, Hengrui Pharmaceutical released its 2023 annual report, in 2023, Hengrui Pharmaceutical achieved operating income of 22.820 billion yuan, an increase of 7.26% year-on-year, net profit attributable to the parent company of 4.302 billion yuan, an increase of 10.14% year-on-year, net profit of 4.141 billion yuan, an increase of 21.46% year-on-year, and net operating cash flow of 7.644 billion yuan, an increase of 504.12% year-on-year. This is also the first time in the past three years that Hengrui Pharmaceutical has achieved a synchronous growth in annual revenue and net profit after experiencing the simultaneous decline in revenue and net profit in 2021 and 2022.
At the same time, the company also announced an annual dividend plan, distributing cash dividends of 2.00 yuan (tax included) to all shareholders for every 10 shares, plus a total dividend of more than 2.1 billion yuan plus repurchases.
Revenue from innovative drugs increased by more than 20% year-on-year
Regarding the performance, Hengrui Pharmaceutical said in the annual report that on the one hand, the company's innovative achievements continued to be approved, and the clinical value of innovative drugs was highlighted, driving revenue growth. In 2023, the company's innovative drug revenue will reach 10.637 billion yuan (including tax, excluding external licensing revenue), and despite the impact of external environmental changes, product price reductions and access difficulties, it still achieved a year-on-year growth of 22.1%. Hengrui Pharmaceutical also revealed in its annual report that the average price of the three innovative drugs revilutamide, darsilib, and hengagliflozin that will officially implement the medical insurance price in 2023 will drop by 65%.
In terms of generic drugs, it was disclosed that the revenue of generic drugs of Hengrui Pharmaceutical will decline slightly in 2023. With the recovery of diagnosis and treatment in medical institutions, the demand for prescription drugs has been gradually released, and the sales of the company's analgesic anesthesia and other products and newly listed generic drugs have increased significantly year-on-year, but the centralized procurement of generic drugs still causes a certain degree of pressure on sales. Due to factors such as the failure to win the bid and the price reduction of the centralized procurement contract in most provinces, the sales volume of abiraterone acetate tablets decreased by 702 million yuan year-on-year during the reporting period, and the sales of the products involved in the seventh batch of centralized procurement implemented in November 2022 decreased by 911 million yuan year-on-year during the reporting period.
At present, Hengrui Pharmaceutical has 19 products that have passed the adjustment of the new version of the National Medical Insurance Catalog, including a number of innovative drugs and new indications, and a total of 103 products have entered the National Medical Insurance Catalog, of which 13 innovative drugs have been marketed.
In terms of R&D, Hengrui Pharmaceutical will invest 6.150 billion yuan in R&D in 2023, accounting for 26.95% of operating income, a decrease of 2.88 percentage points from the same period last year. It is worth mentioning that the capitalization rate of Hengrui Pharmaceutical's R&D investment has increased in recent years, with the capitalization rate of its R&D investment in 2023 and 2022 being 19.45% and 22.99%, respectively, and 4.19% in 2021.
In terms of R&D progress, the company's information shows that in 2023, Hengrui Pharmaceutical has 3 Class 1 innovative drugs, including adebelimab, repagliptin phosphate, and oticonazole, and 4 Class 2 new drugs such as dexmedetomidine hydrochloride nasal spray, which have been approved for marketing in China so far, and so far the company has been approved for marketing 16 Class 1 innovative drugs and 4 Class 2 new drugs in China.
In terms of new indications, Hengrui Pharmaceutical will have 5 new indications approved for marketing in 2023, the 9th indication of camrelizumab and the 3rd indication of apatinib, which are combined for the first-line treatment of advanced liver cancer, the 3rd indication of pyrotinib maleate and the 2nd indication of darcilib isethionate were approved for marketing respectively to further expand the application in the field of breast cancer, and the second indication of dexmedetomidine hydrochloride nasal spray for sedation/anti-anxiety before general anesthesia surgery in children was approved for marketing. In 2023, a total of 14 marketing applications of the company were accepted by the NMPA, including new drug applications such as relcacimab and imaxitinib, as well as new indications such as fluzoparib combined with apatinib, involving cancer, diabetes, autoimmunity, ophthalmology, analgesia and other therapeutic areas.
In terms of research pipelines, according to the company's data, in 2023, Hengrui Pharmaceutical will have 12 clinical trials advanced to Phase III., 35 clinical trials advanced to Phase II, and 30 clinical trials advanced to Phase I, the company has more than 90 independent innovative products in clinical development, nearly 300 clinical trials are carried out at home and abroad, and a total of 7 CDE breakthrough therapy varieties have been recognized so far in 2023, and the future approval is expected to accelerate.
The overseas market continued to advance, and the scale of personnel continued to shrink
In terms of going overseas, it is reported that in 2023, Hengrui Pharmaceutical has reached a total of 5 licensing collaborations with a total transaction value of more than US$4 billion, involving innovative drugs including PARP1 inhibitor HRS-1167, Claudin-18.2 ADC drug SHR-A1904, EZH2 inhibitor SHR2554, TSLP monoclonal antibody SHR-1905, TKI pyrotinib, and PD-1 inhibitor camrelizumab in combination for the treatment of hepatocellular carcinoma. Among them, the company exclusively licensed the anti-cancer innovative drugs HRS-1167 and SHR-A1904 to Merck KGaA, Germany, with a total transaction amount of more than 1.4 billion euros, which is also the first time that Hengrui Pharmaceutical has cooperated with a large global multinational pharmaceutical company. At present, Hengrui Pharmaceutical has achieved 10 overseas authorizations for innovative drugs.
It is also worth mentioning that the staff scale of Hengrui Pharmaceutical will continue to shrink in 2023, of which the scale of sales personnel will have a greater impact. According to the disclosure, Hengrui Pharmaceutical has 19,606 employees at the end of 2023, a year-on-year decrease of nearly 5%, 20,624 at the end of 2022 and 24,491 at the end of 2021, of which 9,134 are sales personnel at the end of 2023, a decrease of 1,258 from 10,392 at the end of 2022, and the number at the end of 2021 is 13,208. In 2023, other categories of production personnel, R&D personnel and other categories of employees will increase year-on-year.
In terms of expenses, in 2023, Hengrui Pharmaceutical will incur sales expenses of 1.764 billion yuan, an increase of 5.66% year-on-year, and according to the subdivision, the compensation and benefits of employees under sales expenses will be 2.526 billion yuan, accounting for 33.47%, which will decrease by 5.9 percentage points year-on-year, and the proportion of travel office expenses and conference expenses will increase year-on-year. During the same period, Hengrui Pharmaceutical incurred management expenses of 576 million yuan and R&D expenses of 1.22 billion yuan respectively, with year-on-year increases of 5.61% and 6.21% respectively, which were close to sales expenses.
Regarding the annual performance of Hengrui Pharmaceutical, Changjiang Securities believes that the company's transformation pains have passed, the impact of centralized procurement is nearing the end, the pressure of medical insurance price reduction has been released one after another, innovative products continue to be cashed, and the performance has entered the upward channel, and there are a number of blockbuster varieties under research to provide long-term growth momentum, and the future growth can be expected.
At the same time as disclosing the annual report, Hengrui Pharmaceutical also released the first quarter report of 2024. In the first quarter of this year, Hengrui Pharmaceutical achieved operating income of 5.998 billion yuan, net profit attributable to the parent company of 1.369 billion yuan, net profit not attributable to the parent company of 1.440 billion yuan, an increase of 9.20%, 10.48% and 18.06% respectively, and net operating cash flow increased by 486.35% in the first quarter, the company said that this was due to the increase in revenue growth in the reporting period and the acceleration of customer collection, and the increase in cash received from the sale of goods.