Company profile
Founded in 2018, Lepu Biology is a biopharmaceutical company focusing on the field of tumor treatment. Currently, the company has eight clinical drug candidates, including four core products: ADC drug MRG003 targeting EGFR, innovative HER2 drug ADC drug MRG002, humanized monoclonal antibody HX008 against PD-1 and humanized monoclonal antibody LP002 against PD-L1. The largest shareholder of the company is Dr. Pu Zhongjie, while the A-share listed company Lepu Medical (300003 SZ) is also one of the major shareholders of the company.
Sino-Thai viewpoint
The company has a rich product pipeline and great potential in the future, but commercialization still takes time: the company's product pipeline is based on broad-spectrum antineoplastic drugs (anti-PD-1 and anti-PD-L1 antibody candidates), and ADC and oncolytic virus candidates go hand in hand. The core candidate products are on the high-growth track. In terms of PD-1 and PD-L1 therapy: the market size of PD-1 and PDL1 therapy in China is 13.7 billion yuan in 2020, and is expected to reach 51.9 billion yuan in 2025, with a compound annual growth rate of 30.5% from 2020 to 2025. The global market for PD-1 and PD-L1 therapy is US $28.6 billion in 2020 and is expected to reach US $62.6 billion in 2025, with a compound annual growth rate of 17.0% from 2020 to 2025. In terms of ADC products: the global market for ADC drugs is US $2.8 billion in 2019 and is expected to reach US $10.4 billion in 2024, with a compound annual growth rate of 30.6% from 2019 to 2024. China's ADC market, which began in 2020, is expected to reach 7.4 billion yuan in 2024 and 29.2 billion yuan in 2030, with a compound annual growth rate of 25.8 per cent from 2024 to 2030. At present, most of the company's core products are in clinical II phase, which is still some time away from commercialization. HX008, the fastest growing melanoma, completed the phase II melanoma registration trial in January 2021 and achieved its clinical research goal according to the clinical trial program. The company is also conducting a phase III clinical trial of second-line gastric cancer. In June, 2021, the company submitted the NDA application of HX008 for melanoma treatment to the State Drug Administration, the pre-NDA meeting application of HX008 for MSI-H/dMMR solid tumor in July of the same year, and the NDA application of HX008 for MSI-H/dMMR solid tumor to the State Drug Administration in October of the same year, and won the priority evaluation qualification. At the same time, the company will face fierce competition. FDA has approved 7 kinds of PD-1 and PDL1 products, and 12 similar products have been approved in China. In addition, 12 ADC drugs have been approved by FDA and three ADC drugs have been approved by the State Drug Administration.
Financial analysis: the company has no product revenue, as drug research and development requires a lot of resources for a long time, so the company is expected to maintain losses in the next few years. In 2019, 2020 and the first eight months to 2021, R & D expenditure was 230 million yuan, 350 million yuan and 510 million yuan respectively, accounting for 50.4%, 68.1% and 76.9% of the company's operating loss; administrative expenses were 190 million yuan, 93.757 million yuan and 110 million yuan respectively; the net loss of homing was 450 million yuan, 580 million yuan and 660 million yuan respectively The cash and cash at the end of the period are 190 million yuan, 400 million yuan and 260 million yuan respectively; the company's current ratio is 18.2%, 220.6% and 197.6% respectively.
Industry comparison and valuation level: we selected Junshi Bio (1877 HK), INNOVENT BIO (1801 HK) and Kang Fang Bio (9926 HK) who developed innovative PD-1 drugs. Based on 1.66 billion shares after the global public offering, the company's market capitalization is HK $114-12.2 billion.
Sponsor's track record: the price stabilizer is CICC. Since the beginning of 2021, he has participated in a total of 32 projects, including 9 projects as price stabilizer, with a performance of 4 up, 4 down and 1 draw on the first day.
Cornerstone investors: in terms of cornerstone, Weiwu Capital and King Star were introduced as investors to subscribe for about $50 million, assuming they were priced at the upper limit of the offering price range and did not exercise the over-allotment option, accounting for about 41.6 per cent of the offering shares.
Purchase suggestion: the company is in the PD-1 and PD-L1 high-quality track with rich product pipelines, but the core products are still in the research and development stage, and it will take some time to commercialize the products. At the same time, there are a number of approved similar therapies and drugs in the United States and China, and the products will face fierce competition after they are listed in the future. Considering that the recent IPO market is relatively lukewarm to unprofitable companies without main products, and reviewing the 12 biotech B new shares listed since August last year, the first-day failure rate is as high as 75%. To sum up, we give them 62 points and rated as "neutral".
Fund-raising purpose: assuming that the company does not exercise the over-allotment option in the end and that the offering price is HK $7.13 per share, about HK $800 million will be raised, of which about 68.5% will be used to fund the development of core products (including MRG003, MRG002, HX008, LP002, CG007); and about 6.3% will be used to fund other major clinical stage drug candidates. About 15.8% will be used to acquire potential technologies and assets to expand candidate drug pipelines; about 9.4% will be used for general corporate purposes.
Risk tips: (1) core products can not be commercialized successfully, (2) the company's long-term losses, (3) market competition risk