Hengrui Medicine Alert:Inking an in-licensing deal

Hengrui signs LOI for Telomelysin

    On May 20th, Oncolys Biopharma announced that it had entered a binding LOI(Letter-of-Intent) with Hengrui for exclusive license agreement of Telomelysin(OBP-301) in China. The two parties are expected to sign a final contract byNovember 2016. Telomelysin is an oncolytic virus that will preferentially infectand kill cancer cells. According to the company, OBP-301 has demonstratedeffective anti-tumor activity during pre-clinical studies.

    On Telomelysin

    The drug candidate is undergoing an open-label, multi-center phase I/II clinicaltrial in Taiwan and Korea for patients with hepatocellular carcinoma. Oncolystargets a maximum of 33 patients enrollment for phase I; and 69 patients forphase II. In the meantime, Telomelysin is being tested for other indicationsincluding esophageal cancer, lung cancer, head and neck and liver tumors inJapan. Importantly, the compound may be granted first-in-class approval forits oncolytic virus therapy area. We are cautiously optimistic on this compounddue to its unique MOA (mechanism of action).

    Reiterating Buy on Hengrui, risks

    We highlight Hengrui’s deal execution abilities and prospects for futureinternational collaboration. We base our price target of RMB59.5 on 43x 2016EEPS of RMB1.38. We believe that 43x is justified as A-share peers are tradingat 33x with 30% EPS growth in 2016 (vs. the 25% we model for Hengrui). Keyrisks are delays in product launches and pricing pressure.