Takeda Payments Will Undermine Revenue Amid China NRDL Pressures

Key Takeaways

• Over-reliance on non-recurring partnership payments and pipeline-stage products renders future revenue and earnings highly uncertain amidst rising competition and healthcare cost pressures.
  
• Intensifying regulatory, geopolitical, and funding challenges threaten global expansion, product launches, and long-term financial sustainability, exposing the company to dilution and operational cutbacks.
  
• Expanding product sales, global partnerships, robust late-stage pipeline, clinical differentiation, and financial strength position the company for sustained growth, higher margins, and reduced risk.

Catalysts

A clinical-stage biotechnology company, develops therapies for cancers, chronic hepatitis B virus (HBV), and age-related diseases in Mainland China.

• Revenue and earnings are heavily inflated by one-off option and equity payments from the Takeda partnership, masking the company's underlying dependence on partnership capital rather than sustainable sales growth, which will lead to declining reported revenue and weaker profit margins once these non-recurring payments are exhausted.
  
• With escalating pressure from global healthcare cost containment, including new price controls and expanded reimbursement programs like China's NRDL, there is likely to be severe downward pressure on net pricing for Olverembatinib and Lisaftoclax, which will significantly restrict future revenue growth even as sales volumes rise.
  
• As geopolitical tensions and deglobalization intensify, Ascentage's ability to access Western markets for both clinical trials and commercial products is at risk, threatening regulatory approvals, cross-border deals, and the viability of global expansion efforts that support long-term top-line and earnings growth.
  
• The company remains fundamentally vulnerable due to its heavy reliance on a development-stage pipeline in highly competitive oncology segments, where clinical failure or regulatory delay-compounded by industry-wide scrutiny of trial design-could halt new product launches and trigger significant drops in projected revenue and net margins.
  
• Persistent high R&D spending, combined with a tightening global funding environment and the specter of rising interest rates, makes Ascentage increasingly exposed to future shareholder dilution, cost-cutting, or operational retrenchment, all of which would suppress earnings and limit the potential for positive cash flow over the long term.

Ascentage Pharma Group International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ascentage Pharma Group International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ascentage Pharma Group International's revenue will decrease by 3.8% annually over the next 3 years.
• The bearish analysts are not forecasting that Ascentage Pharma Group International will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ascentage Pharma Group International's profit margin will increase from -41.3% to the average HK Biotechs industry of 18.6% in 3 years.
• If Ascentage Pharma Group International's profit margin were to converge on the industry average, you could expect earnings to reach CN¥162.4 million (and earnings per share of CN¥0.43) by about August 2028, up from CN¥-405.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 136.6x on those 2028 earnings, up from -69.3x today. This future PE is greater than the current PE for the HK Biotechs industry at 45.0x.
• Analysts expect the number of shares outstanding to grow by 0.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.89%, as per the Simply Wall St company report.

Ascentage Pharma Group International Future Earnings Per Share Growth

Risks

• The rapid growth in Olverembatinib sales, especially following China NRDL inclusion and label expansion, signals expanding addressable markets and potential for sustained revenue growth in China, which could positively impact top line and operating earnings.
  
• The execution of a global partnership with Takeda, featuring significant upfront and potential milestone payments as well as double-digit royalties on ex-China sales, provides validation of the lead asset and de-risks international commercialization, supporting higher near-term and long-term cash flow and margin stability.
  
• The company's expanding late-stage pipeline, with multiple Phase III global registration trials for both Olverembatinib and Lisaftoclax and several additional innovative compounds advancing, increases the likelihood of future product launches and diversified revenue streams, improving long-term revenue and potentially boosting net margins.
  
• Advancements in clinical differentiation of lead compounds-for example, the convenience and tolerability of Lisaftoclax's dosing regimen compared to competitors and Olverembatinib's efficacy in resistant mutations-enhance competitive positioning, which can contribute to premium pricing and improved gross margins.
  
• Strong balance sheet bolstered by a recent NASDAQ IPO, substantial existing cash reserves, and anticipated inflows from commercial sales and partnership milestones reduces near-term dilution risk and enables continued R&D investment, thus increasing the company's ability to sustain growth and ultimately transition to net profitability.

Valuation

• The assumed bearish price target for Ascentage Pharma Group International is HK$51.97, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ascentage Pharma Group International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$92.99, and the most bearish reporting a price target of just HK$51.97.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥872.2 million, earnings will come to CN¥162.4 million, and it would be trading on a PE ratio of 136.6x, assuming you use a discount rate of 6.9%.
• Given the current share price of HK$82.55, the bearish analyst price target of HK$51.97 is 58.8% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.