Incidents:
Microchip Biotech released its 2021 mid-year financial report: In the first half of 2021, the company achieved operating income of 183 million yuan, an increase of 65.75% over the previous year; the net profit loss of the mother was 7.1523 million yuan, a decrease of 124.91% over the previous year; net profit loss after deducting the non-return mother was 147.973 million yuan, a decrease of 195% over the previous year.
Key points of investment:
The release of the largest core variety, sidamidine, has accelerated domestically, and is expected to be approved for listing overseas this year, bringing an increase in performance. In the first half of 2021, the company achieved revenue of 183 million yuan, an increase of 65.75% over the previous year.
On a quarterly basis, the sales revenue of zidabenamide in a single quarter of Q2 reached a record high. In 2021, Q1 and Q2 achieved revenue of 75.3 million yuan and 108 million yuan respectively. Q2 increased 39% year-on-year and 43% month-on-month in a single quarter, reaching record highs. Mainly, breast cancer, a major indication approved at the end of 2019, gradually completed the market introduction stage and ushered in a period of uphill sales. Breast cancer indications are expected to account for 17% of sales revenue, and the year-on-year growth rate is expected to exceed 200%, with significant additional effects.
Looking at business segments, milestone earnings and sales shares are expected to bring in additional volume. In addition to domestic citabonamide sales contributing the vast majority of revenue, milestone earnings and sales shares are also expected to drive high performance elasticity. In the first half of this year, the company confirmed the technical licensing revenue of zidabenamide adult T-cell leukemia (ATL) for adult T-cell leukemia (ATL) from Shanghai Biotech in Japan, which is expected to receive more than 20 million yuan. Meanwhile, in October 2020, Shanghai Biotech submitted a marketing application for zidabenamide monotherapy for ATL in Japan and was accepted. It is expected to be approved for listing this year, which will also trigger a milestone payment of 10 million yuan. At the same time, Microchip will directly share the sales share of zidabenamide in Japan.
Investment in R&D and sales has increased dramatically, and short-term profits are under pressure. In the first half of 2021, the company's net profit loss was 7.152,300 yuan, a year-on-year decrease of 124.91%; net profit loss after deducting non-return to the mother was 147.973 million yuan, a year-on-year decrease of 195%.
The biggest year-on-year decline on the profit side was mainly high investment on the cost side. In the first half of 2021, R&D expenses and sales expenses totaled 158.29 million yuan, accounting for 86% of revenue.
1) The number of clinical trial projects in the company has increased, and investment in R&D has continued to increase. As an original innovative drug pioneer in China, high R&D investment is a key factor in maintaining the company's core competitiveness. Currently, 20 projects are in early development to pre-clinical stages, and 11 indications are in clinical development. The product chain has covered different stages and disease fields from marketing to early exploratory research. Therefore, this year was a year where the company invested heavily in R&D expenses. In the first half of 2021, R&D expenses were 57.88 million yuan, an increase of 62.83% over the previous year.
2) Steadily promote the layout of the marketing network and integrate R&D, production and marketing to enhance the company's core competitiveness. The company added a Metabolic Disease Products Division, which is responsible for the academic promotion of the new product siglitazol. The Oncology Products Division expanded its sales team to further spread to second- and third-tier cities, and at the same time increased academic promotion of breast cancer indicated for sidabendamine. As a result, sales expenses for the first half of 2021 were 10.41 million yuan, an increase of 117.28% over the previous year.
The company plans to raise 500 million yuan by issuing convertible bonds to speed up the rapid development of subsequent product pipelines.
The company issued convertible bonds to unspecified targets and plans to raise no more than 500 million yuan, of which 260 million yuan will be used for the construction of the innovative drug production base (phase III) project. The third phase of the project will mainly build a commercial production base for the APIs and formulations of the company's fourth core variety, CS12192; 120 million yuan will be used for the theoronil combined with paclitaxel for the treatment of ovarian cancer phase III clinical trials. The remaining 120 million yuan is currently undergoing clinical trials in China and the US; the remaining 120 million yuan is in working capital. Furthermore, the company's second-largest core variety, siglitazine, has now completed production site inspections, and is expected to be approved for listing this year, bringing an increase in performance.
Profit forecast and investment rating: As a pioneer of innovative drugs in China, we have long been optimistic that the company can develop differentiated original innovative drugs based on an exclusive chemical genomics platform under controllable R&D risks. 2021 is the first year in which the company also transitioned from a single indication of a single product to multiple products with multiple indications to an accelerated growth period. Regardless of the impact of convertible bond issuance, we expect the company's revenue from 2021-2023 to be 422 million yuan, 665 million yuan and 1,007 million yuan, up 56.6%, 57.7% and 51.3% over the previous year. Due to the acceleration of the company's clinical pipeline development and marketing network layout, the corresponding R&D and sales investment will be greatly increased, which will have a great impact on profit levels in the short term, but we are optimistic about the high performance flexibility brought about by its original innovative drug after it is marketed, so we will maintain the purchase rating.
Risk warning: the risk of the original innovative drug not being approved by doctors and patients after it is marketed; the risk that new drug development will fail; the risk that performance will not meet expectations; the progress of convertible bond issuance falls short of expectations; and the progress of project construction falls short of expectations.