Core innovation pipeline continues to drive growth. Morgan Stanley gives HENLIUS (02696) a valuation of 72 billion yuan, with a target price reaching another high.

Recently, Morgan Stanley released its latest research report, conducting an in-depth evaluation of the value of the innovative drug pipeline of Shanghai Fosun Pharmaceutical (02196) and its holding subsidiary HENLIUS (02696). The report pointed out that the core innovative pipeline of HENLIUS continues to drive valuation growth, combined with its biosimilar business, it is expected to contribute approximately RMB 72 billion to the total valuation of this innovative biopharmaceutical company. Based on the current valuation of over RMB 40 billion, this means that the stock still has nearly 80% upside potential, with a target price of around HK$145, and institutional target prices for HENLIUS are continuously reaching new highs, further highlighting confidence in the company's value. Morgan Stanley stated that HENLIUS has established a diversified product portfolio consisting of antibodies and antibody-drug conjugates (ADC), and is expanding into the bispecific/trispecific antibody field. Although the company's revenue was mainly contributed by biosimilars and PD-1 before, this year's stock price increase (more than 200% year-to-date) is mainly due to the potential shown by its innovative pipeline in clinical trials. In particular, HLX43 (PD-L1 ADC) and HLX22 (HER2 monoclonal antibody), these core innovative assets are driving prospects for out-licensing and increasing diversity in product pipeline and international cooperation. In specific terms, HLX43 is well-positioned in the second-line/third-line (2L/3L) treatment of EGFR wild-type non-small cell lung cancer (NSCLC), with the peak sales estimated at $3.9 billion after adjusting the probability of success (PoS) in the U.S. market alone (unadjusted $5.6 billion). The differentiated advantage of this drug lies in the encouraging objective response rates (ORR) of 46.7% and 30% in late-stage EGFR wild-type NSCLC patients and squamous NSCLC patients who failed treatment with docetaxel (3rd-line treatment), respectively, regardless of their PD-L1 expression levels. Based on positive data, HENLIUS is seeking FDA approval based on single-arm data to explore its use in third-line indications, and is currently evaluating its use in second-line treatment (versus docetaxel) in a Phase II international multicenter clinical trial (MRCT) and plans to start a Phase III trial within a year. Additionally, HENLIUS is also exploring its use in first-line NSCLC treatment and is conducting multiple Phase II trials for various other cancer types to broaden its label (indications). In a Phase II trial for first-line (1L) HER2-positive gastric cancer (GC) conducted in China, HLX22 has already shown early signs of significant progression-free survival (PFS) and overall survival (OS) benefits at 24 weeks, with hazard ratios (HR) of 0.2 and 0.5 respectively compared to current standard of care (SoC). However, considering the limited number of patients, the conservative estimate for its peak sales in the first-line HER2-positive gastric cancer market in the U.S., Japan, and Europe after adjustments is $2.7 billion (unadjusted $4.1 billion). HENLIUS is exploring the combination of HLX22 with Enhertu for the treatment of HR-positive/HER2-negative breast cancer (BC), and proof-of-concept (PoC) data is expected to be read out in the second half of 2026, which if proven effective, will further unlock its upside potential. Furthermore, Serplulimab (PD-1) is expected to enter the biologics license application (BLA) stage in the U.S. in the first half of 2026 and will be the first PD-1 monoclonal antibody to demonstrate efficacy in first-line extensive-stage small cell lung cancer (ES-SCLC). The drug is also in Phase III clinical trials for new adjuvant treatment of pMMR/MSS colorectal cancer (CRC, accounting for 95% of CRC cases) and gastric cancer (GC). Despite intense competition in the cancer market with multiple PD-1 products already available, Morgan Stanley believes that the unique positioning of Serplulimab in first-line ES-SCLC, gastric cancer adjuvant therapy (GCneo), and CRC (where it has shown therapeutic benefits compared to limited available treatment options) should help it gain a considerable market share in target markets. Overall, Morgan Stanley believes that the innovative product portfolio of HENLIUS is an essential part of Shanghai Fosun Pharmaceutical, with 73% of its valuation growth expected to come from the global potential of core candidate drugsHLX43, HLX22, and Serplulimab. In addition, its extensive global presence in biosimilars (already approved in multiple regions including the U.S., Canada, ASEAN, Middle East) will effectively offset the negative impact of China's volume-based procurement (VBP) and contribute profits with higher profit margins.