Takeda Deal And Olverembatinib Trials Will Open Global Markets

Key Takeaways

• Ascentage's strategic alliances and NRDL inclusion are set to enhance market reach, boost accessibility, and drive substantial revenue growth.
  
• Successful NASDAQ IPO and promising registrational trials position the company to accelerate pipeline development, enhancing future earnings potential.
  
• Heavy reliance on Olverembatinib in China and non-recurring revenue sources could challenge Ascentage Pharma's sustainable growth amid high R&D costs and execution risks.

Catalysts

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

• Ascentage Pharma's collaboration with Takeda on Olverembatinib has the potential to expand the drug's global market reach significantly. The agreement could generate substantial milestone payments and royalties, positively impacting revenue and earnings.
  
• Inclusion of Olverembatinib into China's National Reimbursement Drug List (NRDL) improves patient access and affordability, expected to lead to a significant increase in domestic sales, thereby boosting revenue.
  
• Ascentage Pharma's recent successful NASDAQ IPO, raising significant capital, positions the company well to fund ongoing and future clinical trials, aiding in the acceleration of pipeline development and potentially enhancing future earnings.
  
• Ongoing registrational trials for multiple indications of lead products, like Olverembatinib and Lisaftoclax, aim to deepen market penetration and expand the therapeutic areas, which should drive future revenue growth.
  
• Lisaftoclax's differentiated dosing schedule and its potential first-line and relapse settings in hematological malignancies could provide a competitive advantage, supporting an increase in market share and revenue.

Ascentage Pharma Group International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ascentage Pharma Group International's revenue will grow by 19.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -41.3% today to 3.0% in 3 years time.
• Analysts expect earnings to reach CN¥50.7 million (and earnings per share of CN¥0.12) by about August 2028, up from CN¥-405.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥905 million in earnings, and the most bearish expecting CN¥-528.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 634.5x on those 2028 earnings, up from -67.9x today. This future PE is greater than the current PE for the HK Biotechs industry at 45.3x.
• 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

• Ascentage Pharma's reliance on revenues from Olverembatinib, primarily in China, makes it vulnerable to changes in market dynamics, regulatory policies, or healthcare reforms in China, potentially impacting overall revenue growth.
  
• Although Ascentage has shown significant revenue growth, a substantial portion was driven by an option payment from Takeda, which is a one-time event and may not be a sustainable revenue source long-term, affecting future earnings predictability.
  
• The company's R&D expenses remain high, totaling around $130 million, which, if not matched by corresponding revenue growth, could pressure net margins and delay the path to profitability.
  
• Ascentage Pharma's ambitious global expansion and multiple clinical trials may pose execution risks, such as slower than anticipated patient enrollment in trials, which could delay product approvals and impact anticipated future revenues.
  
• The competitive landscape in the pharmaceutical industry, especially in the hematological oncology space, may impact the company's ability to capture market share, affecting the revenue potential of its lead assets like Olverembatinib and Lisaftoclax.

Valuation

• The analysts have a consensus price target of HK$75.498 for Ascentage Pharma Group International based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥1.7 billion, earnings will come to CN¥50.7 million, and it would be trading on a PE ratio of 634.5x, assuming you use a discount rate of 6.9%.
• Given the current share price of HK$81.0, the analyst price target of HK$75.5 is 7.3% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.