Focus on the two potential milestones of 2H21; maintain "buy"
Yasheng Pharmaceutical announced 1H21 results on August 24, 2021: 1) revenue increased by 396.2% to RMB 12.97 million, and net loss increased by 18.0% to RMB 377 million; 2) the company promoted more than 40 clinical studies worldwide, covering more than 10 indications; and 3) the company reached cooperation with INNOVENT BIO (1801 HK) on two core varieties and subscription of new shares and warrants. We expect 2H21 Aurebatinib NDA and lisaftoclax key trials IND to be approved. We estimate that the 2021-23 EPS based on 263 million total equity will be HK $3.35 / 3.36 / 1.47 (the previous value is 253 million shares), maintaining the buy rating and the DCF-based target price of HK $70.89 (WACC: 10.8%).
1H21 Pipeline Breakthrough in all aspects
The company's pipeline achieved a number of milestones in the first half of the year: 1) lisaftoclax will disclose monotherapy data in ASCO 2021, which has good safety in 15 assessable relapsed / refractory CLL/SLL patients and 80% ORR;2) alrizomadlin and Pablizumab achieved 17.4% ORR and 60.9% DCR in 23 assessable solid tumor patients. 3) Orebatinib received the Breakthrough Therapy recognition (BTD) granted by FDA in March 2021. In addition, the company reached a strategic agreement with INNOVENT BIO, which enhanced the business prospects of Orebatinib and the synergy between lisaftoclax and INNOVENT BIO's pipeline, while initially demonstrating the long-term value of the company's innovation platform.
Continuous exploration of early pipelines
Focusing on the field of apoptosis and protein-protein interaction, the company has established a wealth of early pipelines, including: 1) Bcl-2/Bcl-xL inhibitor pelcitoclax (APG1252) to explore the global potential of monotherapy or combination therapy for SCLC, NSCLC, myelofibrosis and neuroendocrine tumors; 2) EED inhibitor APG-5918 has achieved a preclinical proof of concept; 3) MDM2 PROTAC APG-265 has shown good safety in preclinical studies. 4) A highly selective and potent Bcl-2 inhibitor, which has effective activity against both wild and mutant Bcl-2 tumor cells in vitro. We believe that the high barriers to the company's early pipelines will lead to blue ocean competition and long-term sustainability of pipelines.
Strong cash position is expected to support R & D spending over the next three years.
Yasheng Pharmaceutical 1H21 has a revenue of 12.97 million yuan (an increase of 396.2% over the same period last year), mainly from intellectual property license fees. 1H21 R & D expenditure reached RMB 318 million (a year-on-year increase of 26.3%); we expect that 2H21 R & D investment will continue to grow with the full roll-out of clinical research and the acceleration of clinical trials in the United States. The cash position is approximately RMB 1.5 billion (including cash and financial assets based on FVTPL). We expect that the existing strong cash position and the potential cash inflow from 2H21 from INNOVENT BIO will be sufficient to support the company's R & D spending as far as 2023.
Risk hints: 1) uncertainty in drug commercialization; 2) uncertainty in clinical trial results; 3) slower-than-expected progress in clinical trials and regulatory review