Download Hanmi Pharm (128940 KS)

Company Report
May 28, 2015
Hanmi Pharm (128940 KS)
Diabetes and lung cancer drug pipeline
Shares surge on license-out contract with Eli Lilly
Pharma/bio

BUY (M)
TP: W500,000 (U)
Hanmi Pharm shares surged after the company signed a contract on Mar 19 with Eli Lilly to
license out its oral Bruton's tyrosine kinase (BTK) inhibitor, HM71224. The amount and timing
of milestone payments as well how they will be shared between Hanmi Pharm and Hanmi
Science (holding company) has not been disclosed.
Share price (won, May 15)
427,000
Paid-in capital (Wbn)
26
Market cap (Wbn)
4,369
BPS (won)
Reborn as new drug developer after six years of bold R&D investment

in the 2000s and has made bold investments since 2009, although the firm saw an operating
57,128
38.6
loss in 2010 after investing more than 13% of sales in R&D. In particular, since 2013, R&D
10,230,909
spending has amounted to 20% of sales, most of which has been spent on developing bio
Net debt to equity (%)
Shares outstanding
Hanmi Pharm is Korea’s leading generic drug maker. It benefited from the generic drug boom
73
drugs and their overseas clinical trials. We expect these efforts to lead to more global
Avg daily vol (2M, shrs)
280,514
partnerships in line with the recent trend of licensing deals between multinational pharma firms.
52-week high (won)
428,000
52-week low (won)
76,712
Avg daily T/O (2M, Wbn)
Foreign ownership (%)
7.2
Emergence of basal insulin/GLP-1 analog combination treatment

Major shareholders (%)
LAPS
Insulin combo) is a
diabetes treatment based on its Long-Acting Protein/Peptide Discovery (LAPSCOVERY), a
Hanmi Science & others 41.4
platform technology that prolongs the duration of drug effects and maximizes treatment effects.
At the upcoming conference of the American Diabetes Association (ADA) from Jun 5~9, the
Stock performance (%)
1M
3M
12M
Absolute
44.5
304.7
272.9
Relative
45.4
276.1
255.9
Abs (US$)
46.0
309.0
252.2
(%)
(won)
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
May-13
The company’s “Quantum Project” (an efpeglenatide, HM12470, and
company is set to disclose the clinical/non-clinical trial results of its four diabetes treatment
projects and is likely to sign more license-out contracts with other global pharmas by end-2015.
Third-generation lung cancer treatment HM61713

Around the globe, third-generation EGFR-TKIs (lung cancer drugs), are being developed,
300
including AZD9291 (AstraZeneca), CO-1686 (Clovis Oncology), and HM61713 (Hanmi Pharm).
250
Hanmi Pharm is scheduled to announce the Phase II domestic clinical trial results of HM61713
200
at the conference of the American Society of Clinical Oncology (ASCO) to be held from May 29
150
to Jun 2, and is also expecting a license-out contract for HM61713.
100
50
0
May-15
May-14
Hanmi Pharm(LHS)
Rel. to KOSPI(RHS)
Quarterly earnings
Forecasts and valuations (K-IFRS, separate)
1Q15E
% YoY
215
16.6
1.5
195
10.2
2
-88.6
-69.9
12
-83.1
Pre-tax profit
16
-2.7
15.1
12
Net profit
16
12.3
28.9
Op margin (%)
1.0
-8.7 %pt
-2.2 %pt
(Wbn)
Sales
Operating profit
Net margin (%)
7.5
-0.3 %pt
% QoQ Consens vs consens (%)
+1.6 %pt
Note: TTB = turn to black, TTR = turn to red, RR = remain in red
Source: Yuanta Securities
FY ends Dec
(Wbn)
2013A
2014A
2015E
2016E
730
761
876
880
Operating profit
62
34
78
72
32.7
Net profit, CI
44
36
65
50
10
67.8
% YoY
94.1
-19.2
82.6
-22.4
6.2
-5.2 %pt
P/E (x)
27.4
28.7
67.4
86.8
+2.5 %pt
P/B (x)
2.9
1.9
7.5
7.0
EV/EBITDA (x)
16.0
20.5
44.1
45.0
ROE (%)
11.4
7.6
11.7
8.4
5.0
Sales
Note: Operating profit = gross profit – SG&A expense, CI = controlling interest
Source: Yuanta Securities
Hanmi Pharm (128940 KS)
Enterprise value surges on license-out contract with Eli Lilly
Hanmi Pharm shares surged after the company signed a contract with Eli Lilly on March 19 to
license out its oral Bruton's tyrosine kinase (BTK) inhibitor, HM71224. The amount and timing of
milestone payments as well as how they will be shared between Hanmi Pharm and Hanmi
Science (holding company) has not been disclosed. Our assumptions for the upfront and
milestone payments of the license-out contract with Lilly are shown below:
License-out contract for HM71224, BTK inhibitor
Details
Contract announced on
Mar 19, 2015
Contract content
Clinical trials and commercialization
Region: world excluding Korea and China
License for all indications including immunological disorders including rheumatoid arthritis
Contract signed with
Eli Lilly
Contract value
$690mn
Down payment: $50mn
Milestone payment: $640mn (development, approval, sales, etc)
Royalties (double digits)
HM71224
Selective BTK (Bruton’s tyrosine kinase) inhibitor
2010: Initiated development of a novel BTK inhibitor for treatment of rheumatoid arthritis
2010: Selected as healthcare/medicine technology development project by Korea’s Ministry of
Health and Welfare
2013~2014: Phase I in Europe
2014: Presented at EULAR
Eli Lilly
10th-largest global pharma, established in 1876 (operating in 21 countries)
Introduced world’s first commercial insulin in 1923
Began to mass-produce penicillin for first time in 1943
Major products: “Cymbalta” (anti-depressant), “Evista” (osteoporosis), “Zyprexa” (schizophrenia)
Erectile dysfunction treatment “Cialis,” diabetes treatments “Trulicity,” “Jardiance”
2014 sales came to $19.6bn and net profit $2.3bn
Source: Yuanta Securities
Hanmi-Lilly alliance: Milestone payment estimate
2015E
Upfront
30.0
Initiation of Phase II
12.0
Completion of Phase II
($mn)
2016E
2017E
2018E
16.8
Initiation of Phase III
19.2
Completion of Phase III
36.0
NDA submission
24.0
NDA approval
Total milestone payments
Source: Yuanta Securities
2
2019E
60.0
42.0
16.8
19.2
60.0
60.0
Company Report
What are BTK inhibitors?
BTK inhibitors are already being developed to treat B-cell malignancies, and are known to be
effective in other B-cell related autoimmune disorders. Ibrutinib, marketed under the name
“Imbruvica” by Pharmacyclics, is the blockbuster BTK inhibitor for oncology treatment. The drug,
first approved by the FDA in Nov 2013 for the treatment of mantle cell lymphoma, has now gained
approval for four indications including chronic lymphocytic leukemia. Lymphoma, a type of cancer
that occurs in the lymph, can be treated, but some types of lymphoma do not respond to treatment.
In 2006, Pharmacyclics acquired the license for Imbruvica for $6.6mn, and entered a large-scale
agreement (upfront payment of $150mn and milestone payments of $825mn) with Janssen
Biotech (a subsidiary of Johnson & Johnson) in Dec 2011 on the co-development and marketing of
Imbruvica (then in Phase II clinical trials). The two companies split profits from global Imbruvica
sales 50:50, while Pharmacyclics continues to hold the license for inflammation and autoimmune
disorders. After fierce competition with other multinational pharmas, on Mar 5 AbbVie signed an
agreement to acquire Pharmacyclics for $21bn. Global sales of Imbruvica (released in Dec 2013)
in 1Q15 came to $247mn, and AbbVie suggested a rather aggressive guidance for Imbruvica’s
2015 full-year sales of $7bn.
Pharmacyclics share performance and P/E band (12-month forward)
(US$)
price
100x
150x
200x
250x
300x
400
350
300
250
200
150
100
50
0
2006
2008
2010
2012
2014
Source: Yuanta Securities
3
Hanmi Pharm (128940 KS)
Reborn as new drug developer after six years of bold R&D investment
Hanmi Pharm is Korea’s leading generic drug maker. The firm benefited from the generic drug
boom of the 2000s and has made bold investments since 2009, even though it saw an operating
loss in 2010 after investing more than 13% of its sales in R&D. In particular, since 2013, R&D
spending has amounted to 20% of sales, most of which has been used in developing bio drugs
and their overseas clinical trials. We expect these efforts to lead to more global partnerships, in
line with the recent trend of licensing deals between multinational pharmaceutical firms.
Hanmi Pharm: R&D investments (K-IFRS, separate)
Hanmi Pharm: share ownership
(% of sales)
Lim Seong-gi (36.16%) and related parties
30%
67.78%
25%
Hanmi Science
20%
100%
15%
100%
10%
98.57%
5%
Japan Hanmi Pharm
Europe Hanmi Pharm
63.00%
75%
0%
2003
2005
2007
2009
2011
Online Pharm
41.37%
2013
Note: The company was listed in Jul 2010 after spin-off; K-IFRS was introduced in 2011
Source: Yuanta Securities
Eremurus
Hanmi Fine Chemical
Hanmi Pharm
73.68%
Beijing Hanmi Pharm
Note: As of Dec 31, 2014
Source: Yuanta Securities
Hanmi Pharm: earnings forecast (K-IFRS, separate)
Total sales (consolidated)
% YoY
(Wbn)
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
512.5
543.8
562.8
582.0
682.0
674.2
693.5
755.0
772.0
-14
6
3
3
Total sales without Lilly Alliance
% YoY
17
-1
3
9
2
635.8
655.7
672.4
689.0
706.0
9.2
3.1
2.5
2.5
2.5
1.7
21.2
34.5
3.6
40.9
32.4
26.9
42.3
48.0
-107.7
1147.1
62.7
-89.6
1035
-21
-17
57
13
0.3
3.9
6.1
0.6
6.0
4.8
3.9
5.6
6.2
Non-op profit/loss
-13.5
-15.5
-7.7
0.5
6.0
-7.0
-7.0
-7.0
-7.0
Recurring profit
-11.8
5.7
26.8
4.1
46.85
25.4
19.9
35.3
41.0
-3.7
-1.3
0.8
-11.5
1.2
-0.5
2.1
13.0
16.0
NA
NA
3.0
NA
NA
NA
NA
NA
NA
Net profit
-8.1
7.0
26.0
15.6
45.7
25.9
17.8
22.4
25.0
% YoY
-63.2
-186.4
271.4
-40.0
193
-43
-31
26
12
-1.6
1.3
4.6
2.7
6.7
3.8
2.6
3.0
3.2
Operating profit
% YoY
Operating margin (%)
Tax
Tax rate (%)
Net margin (%)
Source: Yuanta Securities
4
Company Report
Hanmi Pharm: earnings forecast (K-IFRS, consolidated)
Total sales (consolidated)
% YoY
(Wbn)
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
606.2
674.0
730.1
761.3
875.9
879.8
909.3
981.1
1,007.7
79.6
11.2
8.3
4.3
15.1
0.4
3.3
7.9
2.7
829.7
861.4
888.2
915.1
941.7
9.0
3.8
3.1
3.0
2.9
Total sales without Lilly Alliance
% YoY
COGS
271.9
279.3
313.7
338.8
367.9
382.7
395.5
436.6
418.2
44.9
41.4
43.0
44.5
42.0
43.5
43.5
44.5
41.5
Gross profit
334.3
394.7
416.5
422.5
508.0
497.1
513.8
544.5
589.5
SG&A expense
313.1
346.5
354.6
388.1
430.4
425.6
445.6
458.7
496.0
COGS-to-sales (%)
SG&A-to-sales (%)
51.6
51.4
48.6
51.0
49.1
48.4
49.0
46.8
49.2
R&D costs
70.5
80.0
95.0
135.2
135.1
134.2
134.4
134.4
134.1
11.6
11.9
13.0
17.8
15.4
15.2
14.8
13.7
13.3
R&D-to-sales (%)
R&D costs booked as SG&A
*Total R&D costs
Total R&D-to-sales without alliances
Operating profit
83.9
87.9
82.2
88.7
89.0
89.0
89.0
89.0
89.0
84.0
91.0
115.6
152.5
151.8
150.7
151.0
151.0
150.7
13.9
13.5
15.8
20.0
18.3
17.5
17.0
16.5
16.0
21.2
48.1
61.9
34.5
77.6
71.5
68.1
85.8
93.5
% YoY
Operating margin (%)
Non-op profit/loss
Recurring profit
Tax
Tax rate (%)
126.9
28.7
-44.3
125.0
-7.9
-4.7
25.9
8.9
3.5
7.1
8.5
4.5
8.9
8.1
7.5
8.7
9.3
-14.7
-15.9
-7.1
2.0
6.0
-7.0
-7.0
-7.0
-7.0
6.5
32.2
54.8
36.5
83.6
64.5
61.1
78.8
86.5
1.1
3.4
4.3
-6.8
4.6
3.1
5.9
17.0
20.2
NA
NA
7.8
NA
5.5
4.8
9.7
21.6
23.3
Net profit
5.4
28.8
50.5
43.3
79.1
61.4
55.2
61.8
66.3
% YoY
-147.8
433.3
75.3
-14.3
82.6
-22.3
-10.1
12.0
7.2
0.9
4.3
6.9
5.7
9.0
7.0
6.1
6.3
6.6
1.3
22.6
43.9
35.5
69.7
51.5
44.8
50.8
54.8
Sales
80.9
81.2
86.0
90.7
94.3
97.1
99.1
101.1
103.1
% YoY
-16.8
0.3
6.0
5.4
4.0
3.0
2.0
2.0
2.0
Net margin (%)
Net profit for controlling interest
Hanmi Fine Chemical (63%-owned)
Operating profit
% YoY
Operating margin (%)
3.8
6.1
0.0
5.3
5.7
5.8
5.9
6.1
6.2
-48.5
62.1
NA
NA
5.8
3.0
2.0
2.0
2.0
4.7
7.5
NA
5.9
6.0
6.0
6.0
6.0
6.0
Net profit
0.5
4.8
1.0
4.9
5.2
5.3
5.4
5.6
5.7
% YoY
-89.5
923.1
-79.2
389.5
6.0
3.0
2.0
2.0
2.0
0.6
5.9
1.2
5.4
5.5
5.5
5.5
5.5
5.5
Sales
99.0
138.1
171.0
172.8
194.5
208.1
220.6
233.9
245.6
% YoY
22.7
39.4
23.8
1
12.6
7.0
6.0
6.0
5.0
Operating profit
16.2
20.4
27.0
25.6
31.1
33.3
35.3
37.4
39.3
8.8
25.7
32.6
-5
21.6
7.0
6.0
6.0
5.0
Net margin (%)
Beijing Hanmi Pharmaceutical (73.68%-owned)
% YoY
16.4
14.7
15.8
15
16
16
16
16
16
Net profit
Operating margin (%)
13.2
16.7
23.0
23.2
28.2
30.2
32.0
33.9
35.6
% YoY
10.4
26.6
38.1
1
21.7
7.0
6.0
6.0
5.0
Net margin (%)
13.3
12.1
13.5
13.4
14.5
14.5
14.5
14.5
14.5
Source: Yuanta Securities
5
Hanmi Pharm (128940 KS)
Focused on diabetes and cancer treatments
The company’s Quantum Project (an efpeglenatide, HM12470, and
LAPS
Insulin combo) is a
diabetes treatment based on its Long-acting Protein/Peptide Discovery (LAPSCOVERY), a
platform technology that prolongs the duration of drug effects and maximizes treatment effects. At
the upcoming conference of the American Diabetes Association (ADA) from June 5 to 9, the
company is set to disclose the clinical/non-clinical trial results of its four diabetes treatment projects
and is likely to sign more license-out contracts with other global pharmas by end-2015.
Hanmi Pharm also has an extensive oncology drug pipeline including HM61713, a third-generation
EGFR mutant-selective inhibitor (EMSI), which overcame the resistance problem of firstgeneration anti-lung cancer drugs “Iressa” and “Tarceva.” The company is scheduled to announce
the Phase II domestic clinical trial results of HM61713 at the conference of the American Society of
Clinical Oncology (ASCO) to be held from May 29 to Jun 2, and is also expecting a license-out
contract for HM61713.
Hanmi Pharm: R&D pipeline (1Q15)
Source: Yuanta Securities
6
Company Report
Hanmi Pharm: LAPSCOVERY
Source: Yuanta Securities
Hanmi Pharm: bio drug development
Source: Yuanta Securities
7
Hanmi Pharm (128940 KS)
GLP-1 analog gains attention as effective diabetes treatment
How to treat people with type 2 diabetes depends on the ability of their β-cells to secrete insulin.
Typically, injections of insulin are needed to control glucose levels.
Glucagon-like peptide-1 (GLP-1), a hormone secreted in response to the presence of nutrients,
reduces the secretion of glucagon, thereby lowering glucose levels. In particular, as GLP-1 causes
glucose-dependent stimulation of insulin secretion, it does not stimulate insulin secretion when
glucose levels are normal, and thus does not cause hypoglycemia. In addition, GLP-1 inhibits food
intake and delays carbohydrate absorption. GLP-1 is decomposed quickly by dipeptidyl peptidaseIV (DPP-IV) enzymes and GLP-1 has a half-life of only two minutes.
GLP-1 analogs or GLP-1 receptor agonists work similarly to GLP-1, reducing glycated hemoglobin
(HbA1C) by about 1.0%. (Medical professionals measure HbA1C to get an overall picture of
average blood sugar levels over a period of weeks/months). They are injectable drugs and
normally prescribed for patients who have not been able to control their conditions with tablet
medicine. They preserve and improve pancreatic β cells and can also be accompanied by weight
loss of 1.5~3.0kg, enhancing their clinical utility. Thirty to forty percent of patients experience
nausea and vomiting, but the intensity of these side effects is greatly reduced in two to four weeks.
Insulin secretion ability of people with type 2 diabetes and
recommended therapies
Mechanism of action of GLP-1
+
GLP-1
Insulin
-
+
Glucagon
-
Half Life < 2min
DPP-IV
Source: Yuanta Securities
8
Source: Yuanta Securities
Glucose
Company Report
Emergence of “basal insulin and GLP-1 analog combination treatment”
Basal insulin is injected once a day to manage fasting glucose levels, while fast-acting mealtime
insulin is injected three times a day 30 minutes before meals. In other words, basal insulin is good
at controlling fasting glucose levels and has a lower risk of hypoglycemia (side effect) than other
types of insulin.
War on diabetes, the silent
disease
Recently, a combo treatment of basal insulin (injected once a day to control fasting glucose) and
GLP-1 analog (injected once a day to control post-meal glucose levels) has gained attention. In
addition, once-a-week injectable basal insulin and GLP-1 analog are under development, and
Novo Nordisk is developing an oral version of GLP-1 analog (semaglutide, in Phase II clinical trial).
The insulin market is led by Sanofi, Novo Nordisk, and Eli Lilly. In particular, Sanofi takes up a high
portion of the insulin market with “Lantus” (2014 sales of $10.3bn), whose patent has expired in
the US and Europe. Novo Nordisk, focused on diabetes drugs, has a 71% share of the GLP-1
analog market (by value) with “Victoza” (2014 sales of $2.4bn). At Novo Nordisk, diabetes drugs
generate 78.8% of total sales, with insulin representing 58.4% of total sales.
Major insulin makers: 2005~2014 insulin sales CAGR
Source: Yuanta Securities
Novo Nordisk: share performance and P/E band (12-month forward)
(DKK)
price
12x
17x
22x
27x
32x
500
400
300
200
100
0
2006
2008
2010
2012
2014
Source: Yuanta Securities
9
Hanmi Pharm (128940 KS)
Competition among basal insulins and GLP-1 analogs
Daily
Combo
LixiLan [N]
Weekly
LAPSInsulin
Xultophy [M]
Combo [Pre]
Trulicity [M]
Victoza [M]
GLP-1
Lyxumia [M]
Byetta [M]
Toujeo [M]
Tresiba [M]
MK-1293 [P3]
Basaglar [M]
Insulin
Semaglutide
[Inj. P3, Oral P2]
efpeglenatide [P2]
Tanzeum [M]
Bydureon [M]
LAI287 [P1]
HM12470 [P1]
* Pre: Preclinical, P: Phase, N: NDA filed, A: Approved, M: Marketed
Source: Yuanta Securities
Basal insulin and GLP-1 analogs
Combo
GLP-1
Product /substance
Details
Xultophy (Tresiba + Victoza)
Approved by the EMA in Sep 2014, to be launched in 1H15; combo with oral diabetes drugs; second line therapy
LixiLan (Lantus + Lyxumia)
In Phase III clinical trials; able to file for FDA approval at end- 2015; likely to be launched in 2017
Weekly
LAPS
Pre-clinical
Daily
Byetta (Exenatide, 2 injections/day) AstraZeneca bought license from Lilly in 2011
Daily
Insulin Combo
Victoza (liraglutide)
Approved by EMA in 2009 and FDA in 2010 (0.75mn, 1.5mg); recently, its efficacy as complete treatment for fatty liver
proven (39% of people injected with Victoza recovered)
Under name Saxenda (3mg) approved by FDA in Dec 2014 as obesity treatment for those with more than one
complication
Lyxumia (lixisenatide)
Approved by FDA in 2013; US application for marketing approval withdrawn in 2014 due to increased cardiovascular risk
Long-term cardiovascular safety data (non-inferior) to be released in Jun 2015
Symptomatic hypoglycemia expressed more often than Victoza
Weekly
Bydureon (exenatide ER)
AstraZeneca bought license from Lilly in 2011; compared to Byetta, it has improved ability to lower glucose levels
and body weight, with less side effects
Tanzeum (albigluitde)
Approved in Europe in Mar 2014 and the US in Apr 2014; lowers HbA1C by up to 1.0%; 30~50mg injected; little
reduction in body-weight
Trulicity (dulaglutide)
Approved by FDA in Sep 2014 (first approval); lowers HbA1c by more than 1.0%; better at lowering glucose levels
than Byetta, Lantus, and Januvia
Semaglutide
Injection version (once-a-week) began Phase III-a trials in Dec 2014
Oral version (once-a-day) Phase II study results positive; oral version contains SNAC, an absorption-enhancing excipient;
oral version has little weight loss effect; high doses of oral Semaglutide carry higher risk of adverse events on
gastrointestinal system
Insulin
Daily
efpeglenatide
Two-month injection reduced HbA1C by about 1.0%; nausea and vomiting similar to placebos
Toujeo (insulin glargine)
Low risk of hypoglycemia (additional clinical trial needed); dosage triple that of Lantus
Tresiba (insulin degludec)
Approved in Europe; applied for FDA approval in Apr 2015 based on preliminary results of cardiovascular risk study; may
be approved in October
Basaglar (Lantus Biosimilar)
Co-developed with Boehringer Ingelheim; Europe’s first insulin biosimilar (approved in Sep 2014); weight loss effects
stronger than Lantus
Weekly
Source: Yuanta Securities
10
MK-1293 (Lantus Biosimilar)
In Phase III study; likely to apply for approval in 2015-2016; to co-develop with Samsung Bioepis
LAI287
In Phase I clinical trial; likely to be launched after 2020. Oral Insulin’s Phase II clinical trials to be decided in 2015.
HM12470
In Phase I clinical trial
Company Report
HM61713, third-generation lung cancer drug
Lung cancer is one of the most common cancers and the most common cause of cancer-related
deaths for both male and females (mortality rate: 11~15%). Excluding small cell carcinoma, clinical
trial prognoses of and patient responses to non-small-cell lung cancers (NSCLCs) are similar.
NSCLCs include adenocarcinoma, squamous cell carcinoma, and large cell carcinoma and
account for 80-85% of total lung cancer patients.
Epidermal growth factor receptor (EGFR) is a gene which regulates the amplification and death of
cells. Cancers are the result of mutations and over-activation of EGFR. This is the most typical
gene mutation found in NSCLCs. Treatments have been developed to inhibit over-expression or
over-activation of EGFR such as first-generation EGFR inhibitors (EGFR-TKIs, epidermal growth
factor receptor-tyrosine kinase inhibitors) “Tarceva” (erlotinib) and “Iressa” (gefitinib), and a
monoclonal antibody “Erbitux” (cetuximab), which targets EGFRs.
For the past decade, first-generation EGFR inhibitors (EGFR-TKIs) helped improve the lifespan of
progressive NSCLC patients with dramatic improvements in prognoses and user convenience
(oral administration). However, patients treated with EGFR-TKIs grew resistant to the drug and
their conditions worsened in the end. It was later found that administration of EGFR-TKIs led to a
secondary mutation, EGFR T790M. There is no standard treatment that is effective for EGFR-TKI
resistance.
Although second-generation EGFR-TKIs—known as irreversible pan-HER (human epidermal
growth factor receptor) inhibitors—such as “Afatinib” were developed, non-selective wild-type
EGFR inhibition-related toxicity made it difficult for them to be used alone for NSCLCs.
Administered together with Erbitux (cetuximab), 29% of EGFR-TKI resistant patients responded to
Afatinib, but this too was accompanied by serious adverse effects on the skin and digestive
system due to wild-type EGFR inhibition.
Third-generation EGFR-KTIs, such as AZD9291 (AstraZeneca), CO-1686 (Clovis Oncology), and
HM61713 (Hanmi Pharmaceutical) are being developed. These orally administered drugs are
mutant selective EGFR inhibitors which suppress T790M and classic EGFR mutations while not
affecting wild-type EGFRs.
Response rates among T790M-positive tumor patients to AZD9291 (AstraZeneca) and CO-1686
(Clovis Oncology) were high, but CO-1686 had a high rate of causing hyperglycemia and QTc
interval elongation (increasing the risk of irregular heartbeat, known as arrhythmia).
According to the clinical trial results released in Apr 2015, AZD9291 delays the progression of lung
cancer by more than a year (mPFS 13.5 months) and AstraZeneca plans to file for sales approval
with the US FDA in 2Q15. The firm estimates that AZD9291 sales will exceed $3bn per year.
Clovis Oncology (US) is a bio venture founded by the management of Pharmion. Pharmion was
sold for $2.9bn to Celgene in 2007. Clovis Oncology secured $145mn from investors upon its
foundation in 2010 even with an empty drug pipeline. It is currently working on three anticancer
drugs (all in Phase II clinical trials) including CO-1686. It has yet to generate any profit but its
market capitalization is already $2.8bn. The firm plans to file for sales approval of CO-1686
(rociletinib) with the US FDA in Jun 2015.
11
Hanmi Pharm (128940 KS)
At the upcoming conference of the American Society of Clinical Oncology (ASCO) scheduled for
May 29~Jun 2, Hanmi Pharm is set to disclose the Korean Phase II clinical trial results for
HM61713 and is likely to sign license-out contracts with other global pharmas in the future.
Comparison of third-generation EGFR-TKIs
Note: mPFS = median progression free survival, ILD = interstitial lung disease, SOB = shortness of breath
Source: 2014/6 ASCO, Yuanta Securities
Clovis Oncology: share performance
(US$)
100
80
60
40
20
0
2012
Source: Yuanta Securities
12
2013
2014
2015
Company Report
Hanmi Pharm valuation
To assess the enterprise value of Hanmi Pharm, we estimated the value of its most promising
pipeline, Efpeglenatide (diabetes treatment) and HM61713 (lung cancer).
1) Estimated value of Efpeglenatide (diabetes treatment)
To estimate annual sales and the value of a licensing deal for Efpeglenatide we referred to sales of
GLP-1 analogues that are already available in the market, “Byetta,” “Bydureon,” and “Victoza.”
Hanmi Pharm may manufacture and distribute Efpeglenatide itself when it is commercialized, but
for forecasting purposes, we assumed it would license it out, and accounted for milestone
payments and royalty revenues only. We also assumed that 70% of licensing-out relevant
revenues would flow into Hanmi Pharm.
GLP-1 analogue sales
($mn)
Pharma
Byetta
2007
2008
2009
2010
2011
2012
2013
2014
Total
14
73
129
151
163
233
206
327
Lilly
14
73
129
151
163
159
74
206
327
151
440
AstraZeneca
Bydureon
Total
4
67
Lilly
4
30
37
151
440
1,120
1,640
2,072
2,392
AstraZeneca
Victoza
Novo Nordisk
16
413
Note: Lilly purchased licenses for Byetta and Bydureon from AstraZeneca in 2011
Efpeglenatide alliance forecast
($mn)
2015E
Upfront payment
80
Development milestone payments
30
2016E
2017E
2018E
2019E
50
70
Year 3
Year 4
Year 5
Year 6
400
1,000
1,700
2,000
2,400
2,700
50
100
150
150
200
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
110
50
70
100
-
50
100
150
150
200
400
1,000
1,700
2,000
2,400
2,700
50
100
150
150
200
40
100
170
200
240
270
Royalty
110
% YoY
50
70
100
40
150
270
350
390
470
40.0
42.9
-60.0
275.0
80.0
29.6
11.4
20.5
10
15
16
18
16
17
2019E
2020E
2015E
2016E
2017E
2018E
85
39
54
77
Efpeglenatide sales
Sales milestone
Royalty
85
39
54
77
-
39
308
770
-
39
31
77
31
154
650
2024E CAGR ('19~'24)
-54.5
% of Efpeglenatide sales
Total sales related to alliances
Total
250
Year 2
Sales milestone
Total milestone payment
2024E
2015E
Efpeglenatide sales
(Wbn)
2023E
Year 1
Sales milestone payment
Total sales related to alliances
2022E
100
Efpeglenatide sales
Total milestone payment
2021E
80
($mn)
($mn)
2020E
63.7
Note: Assuming KRW/USD at W1,100, Source: Yuanta Securities
13
Hanmi Pharm (128940 KS)
Efpeglenatide value estimation (free cash flow discount model)
NOPLAT
Depreciation & amortization
(Wbn)
2015E
2016E
2017E
2018E
2019E
2020E
85
39
54
77
31
154
0
0
0
0
0
0
85
39
54
77
31
154
Working capital increase
0
0
0
0
0
0
Capex
0
0
0
0
0
0
Total investment
0
0
0
0
0
0
85
39
54
77
31
154
PVIF
1.00
0.94
0.88
0.83
0.77
0.73
PV of FCF
84.7
36.1
47.4
63.6
23.9
111.9
Free cash
Free cash flow
Terminal value
WACC
Beta
1.1
Terminal growth (%)
0.0
Rf
1.9
WACC
6.6
Risk premium
6.0
Dividend yield (%)
0.0
Re
8.5
We
0.7
Wd
0.3
Re
8.5
Rd
4.0
WACC
6.6
PV of FCF
20.0
368
PV of continuing value
1,909
Sum
2,277
Net debt
Equity value
Shares outstanding ('000)
Fair price (calculated)
Source: Yuanta Securities
14
185
0.68
0.68
2,801
Share price calculation
FCF growth (normalized, %)
Continuing
2,277
10,231
222,548
Company Report
2) Estimated value of HM61713 (cancer treatment)
To estimate annual sales and the value of a licensing deal for HM61713, we referred to sales of
first-generation EGFR-TKIs already available in the market—Iressa and Tarceva. Hanmi Pharm
may manufacture and distribute Efpeglenatide itself when it is commercialized, but for forecast
purposes, we assumed that it would license it out and accounted for milestone payments and
royalty revenues only. We also assumed 70% of licensing-out relevant revenues would flow into
Hanmi Pharm.
First-generation EGFR-TKIs sales
Pharma
Iressa
AstraZeneca
Tarceva
Roche
($mn)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
67
228
389
273
237
238
265
297
393
554
611
647
311
649
886
1,125
1,205
1,275
1,416
1,402
1,445
Source: Yuanta Securities
HM61713 alliance forecast
($mn)
2015E
Upfront payment
30
Development milestone payments
20
2016E
2017E
2018E
30
40
50
2019E
2020E
Efpeglenatide sales
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
200
400
600
800
1,000
1,200
50
50
100
100
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
50
30
40
50
-
-
50
50
100
100
200
400
600
800
1,000
1,200
50
50
100
100
Sales milestone
Royalty
50
% YoY
Total milestone payment
30
60
90
120
150
180
40
50
30
60
140
170
250
280
-40.0
33.3
25.0
-40.0
100.0
133.3
21.4
47.1
12.0
15
15
23
21
25
23
2015E
2016E
2017E
2018E
2019E
2020E
39
23
31
39
-
-
154
308
Efpeglenatide sales
Sales milestone
Royalty
Total sales related to alliances
39
Total
23
31
39
-
-
23
46
23
46
300
2024E CAGR ('19~'24)
30
% of Efpeglenatide sales
(Wbn)
2024E
2015E
Efpeglenatide sales
Total sales related to alliances
2023E
140
Sales milestone payment
Total milestone payment
2022E
30
($mn)
($mn)
2021E
56.3
Note: Assuming KRW/USD at W1,100,
Source: Yuanta Securities
15
Hanmi Pharm (128940 KS)
HM61713 value estimate (free cash flow discount model)
NOPLAT
Depreciation & amortization
(Wbn)
2015E
2016E
2017E
2018E
2019E
2020E
39
23
31
39
23
46
0
0
0
0
0
0
39
23
31
39
23
46
Working capital increase
0
0
0
0
0
0
Capex
0
0
0
0
0
0
Total investment
0
0
0
0
0
0
39
23
31
39
23
46
PVIF
1.00
0.94
0.88
0.83
0.77
0.73
PV of FCF
38.5
21.7
27.1
31.8
17.9
33.6
Free cash
Free cash flow
Terminal value
WACC
Beta
1.1
Terminal growth (%)
0.0
Rf
1.9
WACC
6.6
Risk Premium
6.0
Dividend Yield (%)
0.0
20.0
Re
8.5
We
0.7
Wd
0.3
Re
8.5
Rd
4.0
WACC
6.6
PV of FCF
171
PV of continuing value
573
Sum
743
Net debt
Equity value
16
743
Shares outstanding ('000)
10,231
Fair price (calculated)
72,653
Source: Yuanta Securities
55
0.68
0.68
840
Share price calculation
FCF growth (normalized, %)
Continuing
Company Report
3) Hanmi Pharm: valuation
We calculated Hanmi Pharm’s fair price based on the sum of its future earnings (including the Eli
Lilly licensing-out revenues, target P/E of 40x) and estimated value (FCF discount model) of
Efpeglenatide (diabetes treatment) and HM61713 (lung cancer treatment). We reiterate BUY and
revise up our target price to W500,000.
However, details of the Eli Lilly licensing-out contract have yet to be disclosed and it is hard to
assess the value of future licensing deals precisely. Although it is not easy to estimate the exact
value of a drug in a pipeline, which is a key determinant of a pharma’s enterprise value, we believe
the commercial values of Efpeglenatide and HM61713 are high given their product profiles.
Morgan Stanley Capital International announced on May 13 that AmorePacific (preferred) and
Hanmi Pharm would be included in the MSCI Korea Index as of Jun 1, 2015. The MSCI Korea
Index is designed to serve as an investment benchmark and its selection of constituents is based
on market capitalization and current ratio. When a stock becomes a constituent, it can easily draw
the attention of institutional investors and is incorporated into relevant index funds. Changes to
MSCI index constituents are made four times a year (February, May, August, and November).
Unlike in the past, news of inclusion in or exclusion from an MSCI index is not necessarily followed
by sharp rise or fall of the relevant stocks. However, given that foreign ownership in Hanmi Pharm
is at a mere 7.2% today, foreign demand may increase.
Hanmi Pharm: valuation (K-IFRS, consolidated)
Sales
(Wbn)
2015E
2016E
2017E Total value (Wbn)
876
880
909
Operating profit
78
72
68
Op margin (%)
8.9%
8.1%
7.5%
Net prof before income tax
84
65
61
NP
79
61
55
NP for controlling interest
EPS (won)
Current price (won)
P/E
Target P/E (x)
Avrg. EPS (2015~2017, won)
65
50
45
6,338
4,920
4,423
427,500
427,500
427,500
67
87
97
40
5,227
Value of current earnings per share (won): A
209,080
2,139
Value of Efpeglenatide per share (won): B
222,548
2,277
Value of HM61713 per share (won): C
Total equity value per share (won): A+B+C
72,653
743
504,281
5,159
Source: Yuanta Securities
17
Hanmi Pharm (128940 KS)
Hanmi Pharm (128940 KS) pro forma financial statements (K-IFRS, separate)
Statement of comprehensive income
FY ends Dec (Wbn)
Statement of financial position
2013A
2014A
2015E
2016E
2017E
Sales
730
761
876
880
909
FY ends Dec (Wbn)
Cost of sales
314
339
368
383
396
Cash & cash equiv
Current assets
2013A
2014A
2015E
2016E
452
538
616
630
2017E
707
69
52
68
79
140
Gross profit
416
423
508
497
514
Accts rec & other
221
290
333
335
346
SG&A
355
388
430
426
446
Inventory
106
133
153
154
159
Operating profit
62
34
78
72
68
Non-current assets
429
496
558
617
605
EBITDA
89
60
106
104
110
Tangible assets
259
328
382
434
418
Non-op profit/loss
-7
2
6
-7
-7
0
0
0
0
0
Forex gain/loss
0
1
0
0
0
75
50
50
50
50
Net interest inc
Total assets
881
1,033
1,175
1,246
1,312
Current liabilities
234
182
123
61
0
Investment in affiliate
Other non-current
-12
-8
-10
-10
-9
Equity-meth gain/loss
0
0
0
0
0
Other
5
9
15
3
2
Accts payable & other
93
124
129
131
133
55
36
84
64
61
ST financial liabilities
104
36
-28
-92
-156
4
-7
5
3
6
Liquid LT liabilities
24
11
11
11
11
51
43
79
61
55
Non-current liabilities
184
262
401
490
579
LT financial liabilities
Net prof before income tax
Income tax
Net profit from cont op
Net profit from discont op
0
0
0
0
0
12
94
183
272
361
Net profit
51
43
79
61
55
Debentures
139
130
180
180
180
NP for controlling int
44
36
65
50
45
Total liabilities
418
444
524
551
578
Total comprehensive inc
54
33
68
51
44
Equity, controlling int
409
527
583
622
657
TCI for controlling int
47
24
51
38
33
Note: Operating profit calculation same as K-GAAP (sales - COGS - SG&A).
Paid-in capital
21
24
26
26
26
Capital surplus
328
419
419
419
419
Retained earnings
50
80
145
195
240
Equity, non-control int
54
62
68
73
77
463
589
651
695
734
Total equity
Cash flow statement
FY ends Dec (Wbn)
Net debt
170
165
225
239
203
Total debt
281
272
347
372
398
2017E
Valuation
2013A
2014A
2015E
2016E
2017E
2013A
2014A
2015E
2016E
86
-33
41
86
75
EPS (won)
5,305
3,685
6,338
4,920
4,423
Net profit
51
43
79
61
55
BPS (won)
49,514
54,223
57,051
60,924
64,298
Depreciation & amort
25
23
26
28
36
EBITDA/shr (won)
10,745
6,211
10,322
10,165
10,771
0
-1
0
0
0
SPS (won)
88,168
79,008
85,613
85,994
88,878
DPS (won)
Operating cash flow
Forex gain/loss
FY ends Dec
Affiliate invest gain/loss
0
0
0
0
0
Inc(dec) net working cap
-2
-94
-72
-14
-28
P/E (x)
P/B (x)
Other
Investing cash flow
Investment
Inc in tangible assets
Dec in tangible assets
12
-4
9
10
12
-38
-69
-91
-91
-31
1
14
0
0
0
-27
-69
-80
-80
-20
0
0
0
67.4
86.8
96.5
2.9
1.9
7.5
7.0
6.6
20.5
44.1
45.0
42.2
1.7
1.3
5.0
5.0
4.8
2013
2014
2015E
2016E
2017E
8.3
4.3
15.1
0.4
3.4
Operating profit (%YoY)
28.6
-44.3
125.2
-7.9
-4.8
PSR (x)
4
1
0
0
0
-15
-11
-11
-11
FY ends Dec
-32
85
76
25
25
Sales (% YoY)
Inc(dec) in ST fin liab
23
-64
-64
-64
-64
Inc(dec) in LT fin liab
Financing cash flow
0
28.7
16.0
EV/EBITDA (x)
-17
Other
0
27.4
Key financial data
-45
55
139
89
89
NP, CI (%YoY)
94.1
-19.2
82.6
-22.4
-10.1
Inc(dec) in equity
0
94
1
0
0
Gross margin (%)
57.0
55.5
58.0
56.5
56.5
Cash dividend
0
0
0
0
0
Operating margin (%)
8.5
4.5
8.9
8.1
7.5
-10
-1
0
0
0
NP, CI margin (%)
6.0
4.7
7.4
5.7
5.0
12.1
Other
Other cash flow
Inc (dec) in cash & eq
Beginning cash & equiv
Ending cash & equiv
2
2
-20
-9
-9
EBITDA margin (%)
12.2
7.9
12.1
11.8
18
-14
6
11
61
ROIC (%)
9.9
6.4
9.5
7.9
6.9
58
76
62
68
79
ROA (%)
5.1
3.7
5.9
4.2
3.5
76
62
68
79
140
ROE (%)
11.4
7.6
11.7
8.4
7.1
NOPLAT
62
41
78
72
68
Debt-to-equity (%)
90.3
75.4
80.5
79.3
78.8
FCF
56
-97
-51
7
55
Net debt-to-equity (%)
41.6
31.3
38.6
38.4
31.0
OP/financing cost (x)
4.2
2.8
5.6
4.8
4.3
Note: EPS, BPS, P/E and P/B are based on controlling interest
For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price
For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior
Data to 2010 based on K-GAAP and from 2011, K-IFRS
Source: Yuanta Securities
18
Company Report
P/E band chart
P/B band chart
(W'000)
3,000
(W'000)
Price (adj)
11.1 x
112.8 x
214.4 x
316.0 x
417.6 x
2,500
2,000
600
500
400
1,500
300
1,000
200
500
100
0
Jan-08
Jan-11
Jan-14
Jan-17
0
Jan-08
Price (adj)
1.0 x
2.6 x
4.3 x
6.0 x
7.7 x
Jan-11
Jan-14
Jan-17
Hanmi Pharm (128940 KS) ratings and target price history
Date
Rating
TP (won)
2015-05-18
BUY
500,000
2015-05-06
BUY
310,000
2015-03-30
BUY
310,000
2015-03-02
BUY
120,000
300,000
2015-01-28
BUY
120,000
200,000
2015-01-14
BUY
120,000
2014-12-22
BUY
97,000
2014-12-01
BUY
97,000
2014-11-28
BUY
97,000
2014-11-20
BUY
97,000
(won)
600,000
500,000
Current Price
Target Price
400,000
100,000
0
May-13
Nov-13
May-14
Nov-14
May-15
Source: Yuanta Securities
Disclosures & disclaimers
This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to
buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from
sources we consider reliable; however, we make no representation that the information provided in this report is accurate or
complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the
sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or
consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and
may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of Yuanta Securities
Korea Co., Ltd.
As of the publication date of this report, Yuanta Securities Korea Co., Ltd. does not own a stake in excess of 1%, nor does it have
any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by Yuanta Securities Korea
Co., Ltd. to any institutional investors or third parties prior to its publication. The analyst (s) of this report or the analyst (s)’ spouse
does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any
nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long
or short position), as of the publication date of this report.
Analyst certification
I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report
accurately reflect my/our personal views about the subject securities discussed in this report.
Stock and sector ratings
 Stock ratings include an Investment Rating (Strong Buy, Buy, Hold, Sell) based on the expected absolute return of a stock over
the next 6 -12 months.
 - Strong Buy: Expected to return 30% or more
- Buy: Expected to return between 10% and 30%
- Hold: Expected to return between -10 and +10%
- Sell: Expected to return -10% or less
 Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization
weighting.
- Overweight: Investment weighting is higher than the market capitalization weighting
- Neutral: Investment weighting is equal to the market capitalization weighting
- Underweight: Investment weighting is lower than the market capitalization weighting
19
Hanmi Pharm (128940 KS)
Yuanta Securities (Korea) International Network
Seoul
Head Office
Yuanta Securities Building
Euljiro 76 Jung-gu
Seoul, Korea 100-845
Tel: +822 3770 3454
Hong Kong
TONGYANG Securities Hong Kong Limited
#2107, 21F, Hutchison House, 10 Harcourt Road,
Central, Hong Kong
Tel: +852 3980 6000
Manila
TONGYANG Savings Bank
Ground Floor Chatham House 116 Valero cor. V.A.
Rufino streets, Salcedo Village, Makati City Metro
Manila, Philippines
Tel: +63 2 845 3838
Phnom Penh
TONGYANG Securities (Cambodia) Plc.
#138, 2nd Floor, Paragon Bldg, Norodom Blvd,
Phnom Penh, Cambodia
Tel: +855 23 224 125
20
Research Center
Yuanta Securities Building
Euljiro 76 Jung-gu
Seoul, Korea 100-845
Tel: +822 3770 3454