The adjusted net loss in 2021 expanded to 230 million yuan from 95.69 million last year, mainly due to an increase of 140 million to 220 million in R & D expenses compared with the same period last year, and core cash expenditure of about 360 million, which is controllable as a whole. The company is expected to submit an application for cyclosporine An eye gel to NMPA at 2Q22, and the first generic drug is expected to be approved this year. The company's share price has fallen 40% since the beginning of the year, and we believe that with the subsequent recovery of sentiment and the re-recognition of the long-term potential of the ophthalmology track, there is still a lot of room for revaluation of the company's core assets, maintaining a "buy" rating and lowering the target price to HK $13.5.
2021 Cash expenditure controllable: compared with 2020, R & D expenses increased from 80 million to 220 million yuan in 2021, mainly for cyclosporine A (CsA) gel III clinical trials, R & D team expansion and employee equity incentives; adjusted net loss increased from 95.69 million to 230 million. The core cash expenditure (opex cash + capex) is about 360 million, which is controllable compared to the cash + time deposit of 2.1 billion yuan at the end of the year. Management expects R & D costs to increase significantly in 2022 as products such as NVK002 enter late clinical development, but we believe that existing funds coupled with the upcoming product sales (generic drugs 2022, CsA Gel 2023) will adequately support the expansion of the company's R & D and commercialization team in the short to medium term.
CsA gel is expected to be produced in China and overseas development is about to start: the company plans to submit an application for the listing of its core product cyclosporine An eye gel to NMPA in 2Q, which is expected to be approved and commercialized as early as 2023. The III phase clinical (COSMO study) of cyclosporine An eye gel, previously used for the treatment of moderate to severe xerophthalmia, has reached the main end point.
Although Xingqi's cyclosporine eye drops entered the health insurance catalogue at a low price (11 yuan / day, 79% lower than before Medicare), Zhaoke's cyclosporine A can open the market through higher pricing, considering the lower frequency of administration of the gel and higher comfort for its use. In addition, the company is about to start development of the product in the United States, and is expected to conduct pre-IND communication between 2Q and FDA, striving for approval through only one phase III trial of a placebo (generally speaking, FDA will require 2-3 phase III trials).
The first generic drug is expected to hit the market this year, and the commercial team is expanding: the company expects Bemesu timolol (the potential domestic first imitation, submitted to ANDA in October 2020) for glaucoma treatment, which is expected to be the company's first commercial product. At present, the commercialization team of the company has nearly 30 people, and the regional sales directors have been put in place. in the future, the construction of the sales team will be promoted according to the progress rate of product commercialization, and it is expected to expand to 200-300 in the next 5 years.
Maintain the buy rating with a target price of HK $13.50: we use r-NPV to value the company's innovative and generic pipeline: the innovative pipeline is worth 5.32 billion yuan, the generic pipeline is valued at 540 million yuan, and the overall pipeline is valued at 5.87 billion yuan. Considering that a number of products in the pipeline have entered the late clinical stage, we have raised the expected R & D cost of 2022-23e and lowered the target price to HK $13.50 per share. We believe that with the improvement in market sentiment, there is still a lot of room for a revaluation of the value of the company's core eye drug assets, maintaining a "buy" rating.
Investment risk: the progress of R & D and listing of core innovative drugs such as cyclosporine An and NVK-002 is not as expected; the progress of R & D follows partners, or there is a risk of delay.