2Q product sales accelerated and BD revenue boosted profit, while the mRNA platform expanded the long-term pipeline

Overview

The report reviews CSPC Pharma's 2Q results and focuses on technology platforms such as its therapeutic mRNA vaccines and in vivo CAR-T. Goldman Sachs believes product sales have improved sequentially and licensing partnerships significantly increased current-period profit, while core growth over the next two years will still depend on new product ramp-up, clinical pipeline progress, and the sustainability of BD revenue.

Core views

2Q operating performance improved from 1Q. Finished drug sales grew 16% YoY, above the 6% recorded in 1Q, with the central nervous system product portfolio growing 33%; NBP benefited from expansion in the self-pay retail channel. Licensing partnerships were the main source of reported growth, with 2Q licensing revenue reaching RMB5.7 billion, including approximately RMB840 million recognized from the US$1.2 billion upfront payment already received in connection with the long-acting technology platform transaction with AZN. Driven by this, total revenue increased 94% YoY. Expenses continued to constrain the conversion of underlying earnings. Unlike peers such as Hengrui Pharmaceuticals and Sino Biopharmaceutical, which reported lower selling expenses amid tightened anti-corruption measures, CSPC Pharma's 2Q selling expenses increased 18% YoY. However, selling expenses as a percentage of finished drug sales declined from 32.7% in 1Q to 32.1% and remained manageable. R&D expenditure increased 19% YoY as pipeline programs expanded. Net profit increased 389% YoY to RMB5.2 billion, but Goldman Sachs estimates that core earnings excluding the licensing revenue recognized in 2Q were broadly flat YoY because R&D and administrative expenses continued to grow faster than underlying product sales. Management believes operating trends have improved quarter by quarter year to date, but given policy uncertainty, it remains cautious about full-year guidance at this stage and only maintains its expectation of positive growth. It also emphasized that visibility into milestone payments and the continuously expanding pipeline could support the sustainability of BD revenue. The mRNA platform is the report's primary pipeline highlight. Against the backdrop of the first MRNA/MRK mRNA cancer vaccine achieving Phase II success, management discussed its therapeutic cancer vaccine and in vivo CAR-T initiatives. The therapeutic HPV mRNA vaccine has entered Phase II, with early data showing a viral clearance rate of approximately 70% and the disappearance or shrinkage of precancerous cervical lesions in nearly 80% of patients after treatment. The company is also developing a solid-tumor regimen combining a COVID mRNA vaccine with PD-1, focusing on non-small cell lung cancer and melanoma. The rationale is that mRNA vaccination may enhance both innate and adaptive immune responses, thereby improving the efficacy of immunotherapy. In tumor neoantigen vaccines, the company is developing colorectal cancer and lung cancer programs. The colorectal cancer vaccine submitted an IND in July, while the lung cancer neoantigen vaccine is expected to enter clinical development. Unlike personalized neoantigen approaches, the company emphasizes using a large tumor database to identify "shared" neoantigens and applying artificial intelligence to assist antigen screening, thereby improving scalability and R&D efficiency. The long-term applications of mRNA and delivery technologies extend beyond vaccines to in vivo CAR-T, gene editing, and protein replacement therapies. The in vivo CAR-T program uses both viral vector and non-viral LNP approaches. The viral vector platform has shown positive Phase I signals, including a complete response in a heavily pretreated lymphoma patient. Management believes key challenges such as repeat dosing and immunogenicity may be addressed through next-generation delivery technologies currently under development. The company also expects mRNA therapies to be increasingly combined with PD-1 inhibitors, ADCs, chemotherapy, and other cancer immunotherapy regimens, particularly for "cold tumors" with inadequate antigen presentation and T-cell activation, such as MSS colorectal cancer. The medium-term growth thesis is that mature products are approaching peak sales while new products begin to take over. NBP, Duomeisu, Junyouli, and Keaili together accounted for more than 50% of finished drug sales in 2023, and Goldman Sachs believes these major products are close to their peaks. Meanwhile, newly launched products are ramping up, and sales growth is expected to accelerate over the next two years. Early-stage pipelines and new technology platforms still require more clinical data to validate their commercial prospects but could provide additional upside, while new BD transactions may also become incremental revenue sources. Goldman Sachs' Buy view is also based on CSPC Pharma's attractive valuation relative to peers and potential near-term catalysts from its ADC pipeline. Following the results announcement, Goldman Sachs made slight adjustments to its 2026, 2027, and 2028 earnings forecasts, ranging from increases of 0.2% to 1.7%. After updating its forecasts and rolling forward its DCF valuation, it raised the 12-month target price from HK$12.14 to HK$12.56. The target price uses an SOTP valuation: NBP is valued at RMB13.0 billion using DCF, incorporating a 2029 VBP scenario; the new product portfolio is valued at RMB49.9 billion using a rolled-forward DCF; the traditional product portfolio and generic drug business are valued at RMB42.0 billion; and the API business is valued at RMB2.9 billion using 4.8 times expected 2026 P/E. The valuation uses a 9% discount rate. The target price implies 31.9% upside from the HK$9.52 current price stated in the report, and Goldman Sachs maintains its Buy rating.

Analysis framework

The report first breaks down changes in 2Q product sales, licensing revenue, profit, and expenses, using core earnings excluding licensing revenue to assess the underlying operating trend. It then reviews the clinical stages, early data, and technological mechanisms of pipeline programs such as mRNA vaccines, shared neoantigens, and in vivo CAR-T. Finally, it updates 2026–2028 earnings forecasts and derives a 12-month target price through an SOTP valuation combining DCF and P/E methodologies.

Methodology notes

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Core earnings analysis excluding licensing revenue

  The report excludes licensing revenue recognized on a one-off or milestone basis from profit to examine the underlying earnings determined jointly by product sales and recurring expenses. On this basis, it estimates that 2Q core earnings were broadly flat YoY.

• Valuation MethodologySOTP Valuation

  Sum-of-the-parts valuation

  The report separately values NBP, the new product portfolio, the traditional product and generic drug business, and the API business, then aggregates the value of each component to determine CSPC Pharma's 12-month target price.

• Valuation MethodologyDCF Valuation

  DCF valuation and valuation-period roll-forward

  The report discounts the cash flows of NBP and the new product portfolio using a 9% discount rate and rolls the valuation period forward. The NBP valuation also incorporates a 2029 VBP scenario.

• Valuation MethodologyP/E and PEG Valuation

  P/E valuation of the API business

  The API business is valued at 4.8 times expected 2026 P/E, corresponding to RMB2.9 billion, as part of the SOTP valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CSPC Pharma (1093.HK)

  The report believes it will benefit from accelerating finished drug sales, sustained BD revenue, new product ramp-up, and expansion of innovative pipelines such as mRNA and ADC.

  Strengths

  The CNS product portfolio is growing rapidly, and NBP is expanding in the self-pay retail channel. The company has a multi-layered pipeline spanning mRNA vaccines, in vivo CAR-T, ADCs, gene editing, and protein replacement, as well as the potential to continue executing BD transactions.

  Weaknesses

  Core earnings excluding licensing revenue were broadly flat YoY, while R&D and administrative expenses continued to grow faster than underlying product sales. Several existing major products are already approaching peak sales.

  Comparison

  Goldman Sachs believes the company's valuation is attractive relative to pharmaceutical peers. Its 2Q selling expenses increased 18% YoY, while peers such as Hengrui Pharmaceuticals and Sino Biopharmaceutical reported lower expenses amid tightened anti-corruption measures.

  Risks

  Earlier-than-expected VBP inclusion for NBP, slower new product ramp-up, failure of major R&D programs, a greater-than-expected impact from generic drug price reductions, or slow BD progress.

Key data

• 2Q finished drug sales growth+16% YoYA marked acceleration from +6% in 1Q.
• 2Q CNS product portfolio growth+33% YoYNBP benefited from expansion in the self-pay retail channel.
• 2Q total revenue growth+94% YoYPrimarily driven by licensing revenue.
• 2Q licensing revenueRMB5.7 billionIncludes revenue related to the long-acting technology platform transaction.
• Revenue recognized from the AZN transactionApproximately RMB840 millionRecognized from the US$1.2 billion upfront payment already received.
• 2Q selling expense growth+18% YoYPeers generally reported lower selling expenses amid tightened anti-corruption measures.
• Selling expense ratio32.1%As a percentage of 2Q finished drug sales, compared with 32.7% in 1Q.
• R&D expenditure growth+19% YoYPipeline expansion drove higher R&D investment.
• 2Q net profitRMB5.2 billionIncreased 389% YoY.
• Core earnings excluding licensing revenueBroadly flat YoYR&D and administrative expenses grew faster than underlying product sales.
• Viral clearance rate of therapeutic HPV mRNA vaccineApproximately 70%The program has entered Phase II, and the data are early clinical results.
• Percentage of patients with improvement in precancerous cervical lesionsNearly 80%Lesions disappeared or shrank after treatment.
• 2026–2028 earnings forecast revisions+0.2% to +1.7%Raised slightly following the results announcement to reflect the latest results.
• 12-month target priceHK$12.56Previously HK$12.14.
• Current price and upsideHK$9.52；31.9%The price stated in the report's table and the upside implied by the target price.
• NBP valuationRMB13.0 billionUses DCF and incorporates a 2029 VBP scenario.
• New product portfolio valuationRMB49.9 billionUses a rolled-forward DCF valuation.
• Traditional product and generic drug business valuationRMB42.0 billionA component of the SOTP valuation.
• API business valuationRMB2.9 billionCalculated at 4.8 times expected 2026 P/E.
• Valuation discount rate9%Used in the report's DCF valuation.
• Sales contribution of major mature productsMore than 50% in 2023The combined percentage of finished drug sales represented by NBP, Duomeisu, Junyouli, and Keaili.

Impact & implications

The report believes accelerating product sales in 2Q indicate an improving operating trend, but current profit growth remains highly dependent on licensing revenue, while rapid expense growth has prevented underlying earnings from expanding in tandem. Growth over the next two years will require new product ramp-up to replace mature products approaching their peaks. Whether innovative platforms such as mRNA, in vivo CAR-T, and ADC can translate into greater value will still depend on clinical data, development progress, and commercial viability. Based on updated earnings forecasts and the SOTP valuation, Goldman Sachs slightly raises its target price and maintains its Buy view.

Risks

• NBP could enter VBP earlier than expected, affecting its revenue and valuation.
• New product revenue may ramp up more slowly than expected.
• Major R&D programs may fail, and the commercial value of the innovative pipeline still requires validation through clinical data.
• Generic drug price declines may exceed expectations and weigh on sales.
• BD transactions or milestone progress may be slower than expected.
• Policy uncertainty may affect full-year growth, and management has therefore not yet raised its current positive-growth guidance.

What to watch

• Watch whether full-year positive-growth guidance becomes more specific as operations improve quarter by quarter.
• Watch the pace of new product ramp-up over the next two years and whether new products can effectively replace mature products approaching their peaks.
• Watch subsequent Phase II data for the therapeutic HPV mRNA vaccine, progress on the colorectal cancer vaccine IND, and the clinical initiation of the lung cancer neoantigen vaccine.
• Watch subsequent clinical signals from the viral vector and LNP approaches for in vivo CAR-T, as well as progress in addressing repeat dosing and immunogenicity.
• Watch near-term catalysts from the ADC pipeline and clinical data from other early-stage programs.
• Watch subsequent BD transactions, milestone payments, and the sustainability of licensing revenue.
• Watch the VBP timetable for NBP and changes in generic drug prices.