1093.HK
CSPC Pharma weighs up diet drug for bigger bottom line

After three years of sluggish growth, the company has delivered higher quarterly earnings from sales of existing drugs and is exploring new avenues in the weight-loss business 

Key Takeaways:

  • CSPC Pharmaceutical beat market forecasts with double-digit growth in first-quarter revenues and profits, driven by rising sales of drugs to treat strokes and dementia 
  • The company has dozens of candidate drugs in the pipeline, under the direction of a reconfigured management team 

By Ken Lo 

It can already fill pharmacy shelves with a wide range of approved drugs for the treatment of strokes, cancer, respiratory infections, diabetes, ulcers and hypertension.  

But China’s CSPC Pharmaceutical Group Ltd. (1093.HK) is seeking to add even more medicines to its product list, including its own version of a weight-loss drug that has been racking up huge global sales.

In the pharmaceutical business, research to develop candidate drugs is never guaranteed to pay off, as products can fail to make it through three sets of clinical trials. Investors may get a better sense of a company’s value by tracking sales of packaged drugs that have already made it onto the market.

In the case of CSPC Pharmaceuticalearnings figures released last week send positive signals.  Revenues rose 11.5% in the first quarter to 8.98 billion yuan ($1.24 billion) from the same period a year earlier, with sales of so-called finished drugs accounting for 84.2% of the income. Higher margins on the drugs business pushed net profits up 12.9% to 1.61 billion yuan.

The revenue and profit figures both exceeded market expectations. The company also reaffirmed its prediction of double-digit revenue growth for the whole year, expecting total sales of its 10 types of marketed drugs to reach $3 billion.

Accelerating growth 

Aside from drugs, CSPC Pharmaceutical sells vitamins, antibiotic products and food supplements, categorized in its accounts as bulk and functional food items.

In the first quarter, the company’s revenues from finished drugs surged 17.7% year on year to 7.56 billion yuan. The figure marked a 20% rise from the prior quarter, reversing a weakening growth trend seen in recent years. On an annual basis, drugs revenue from 2021 to 2023 came in at 22.68 billion yuan, 24.52 billion yuan and 25.64 billion yuan, translating into decelerating growth rates of 11.2%, 8.1% and 4.6% for the three-year period.

In the first quarter, drug revenue rose in all therapeutic areas except for respiratory products, with a strong performance by some of the more recently launched medicines. Drugs targeting the nervous system, for conditions such as strokes or dementia, surged 27.4% to become the biggest selling product line, contributing 35.8% of the total.

One of the company’s key drugs, butylphthalide, benefited from a price review last year by China’s medical insurance system. An increased price for the drug, which is used to treat stroke patients, offers fresh scope for revenue growth going forward. In the past, price limits for many such flagship drugs had raised the opportunity costs of R&D for pharmaceutical companies, weakening incentives to innovate.

The other two parts of the business, bulk products and functional food items, both logged lower sales than in the first quarter of last year, together accounting for less than 16% of total revenue. Falling demand for vitamin C and antibiotic products pushed revenues in the bulk business down 8% to 935 million yuan. A lower price for caffeine products drove a 21% drop in sales for functional food and other businesses, which brought in revenues of 486 million yuan.

Multiple pipelines for new drugs

The company is also investing in a host of drug pipelines across various technologies, diversifying the risk of any one avenue hitting a dead end. Its research areas include nano particles, AI-assisted drug design, long-acting injections, monoclonal antibodies, dual antibody therapies, antibody drug conjugates (ADC) and mRNA, siRNA and PROTAC technologies. 

In the first quarter it spent 1.17 billion yuan on R&D, 16% more than the same period last year and equivalent to about 15.5% of its drug revenue. More than 60 drugs under development have entered clinical trials or are at the registration stage.  Marketing applications have been submitted for seven drugs and 20 have entered a pivotal stage of clinical trials, the company said in its earnings release.

The company is also vying with other Chinese pharmaceutical firms to tap the massive potential of the diet drug market, after the runaway success of slimming injections pioneered by global pharma giants. In March, Chinese medical authorities gave the green light for CSPC Pharmaceutical to begin clinical trials of a semaglutide injection based on the same active ingredient as the weight-loss treatment sold by Danish drugmaker Novo Nordisk (NOV.US).

The company has made headway with drug approvals since the start of the year, according to a regulatory update in the earnings release. One of its existing drugs has been approved to treat further conditions, while 16 clinical trial approvals have come through. Two generic drugs were approved for  registration in China and two innovative drugs were cleared for clinical trials in North America.

Cheered by the quarterly numbers, analysts were broadly upbeat about the prospects for the full year. UBS raised its 2024 revenue growth forecast to 9.8% from an initial 6.8%, saying drugs revenue would exceed expectations. The investment bank also increased its earnings per share (EPS) forecasts for the period 2024 to 2026 by 6%, 7% and 8%. UBS also restated its “buy” rating and raised its target price for the company’s stock to HK$10.1.

A revised management line-up will be in charge of delivering on those expectations, as the company seeks to expand into new areas of medicine. CSPC Pharmaceutical recently announced the retirement of two executive directors, Wang Qingxi and Chak Kin Man. They are to be replaced by Yao Bing and Cai Xin, the son of chairman and major shareholder Cai Dongchen.

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