The company yesterday exchanged the listing status of KN046 (PD-L1/CTLA-4 double antibody) first-line lung squamous cell carcinoma. The company received a reply from CDE during the pre-NDA communication phase, requesting OS evidence to support the formal production report, which is expected to be declared after the completion of the first OS analysis early next year, and the overall listing plan has been delayed by about 10 months. The impact of DCF valuation is about-8.5 per cent.
We believe that the actual impact is relatively small. Because 1L sqNSCLC only accounts for 10-15% of the peak KN046. The event did not affect the clinical progression and time to market of 1L pancreatic cancer and PD-1 lung cancer, the main indications of KN046 (expected to be 24 and 25 years). The company originally expected to be able to use PFS evidence to initiate rolling declaration (critical clinical PFS and OS as the dual main endpoints), followed by additional OS evidence. The main reason for the change in CDE caliber is: from a regulatory point of view, more PD-1 McAbs have been approved in the field of lung cancer, which does not meet the acute demand, so gold standard OS data are needed to support the listing application. From the overall development of double antibodies, CDE hopes to see more clinical benefits of double antibodies compared to monoclonal antibodies. Although the results of the first PFS analysis in phase III clinic have not been seen, the PFS 10.8mo (nude 33) of phase II clinical KN046 combined with chemotherapy in Stage IV 1L sqNSCLC is better than that of Stage IV tirelizu combined chemotherapy (Rationale-307) PFS 7.6mo (nude 159). CDE currently does not require head-to-head PD-1 McAb. We believe that with reference to previous data, there is still a high probability that KN046 can show differentiation in lung squamous cell carcinoma with PD-1 chemotherapy.
In addition, in the first mid-term analysis, the median follow-up time was only 4.24 months in the trial group and 4.57 months in the control group. The whole trial was accelerated from July to October in 2021, and half of the patients were enrolled in this period, so the follow-up time of OS was not enough for trend analysis, and OS analysis was needed in January 2023.
Other recent updates: the company's ASCO conference released several pieces of data:
1) KN026 single drug data of ≥ 2L HER2 positive gastric cancer (KN026-202). Compared with the previously published 19 cases of HER2 positive or HER2-low gastric cancer data, which nearly doubled to 45 assessable cases, the remission rate remained high in the HER2+ group. HER2-high (nasty 25) ORR is 56%, median PFS is 8.3 months, and median OS is 16.3 months. ORR 50% of the population, median PFS 5.5 months, median OS 14.9 months. The HER2-low (nasty 14) ORR was 14%, the median PFS was 1.4 months, and the median OS was 9.6 months. At present, 026 is a key clinical combination chemotherapy in the treatment of ≥ 2L HER2 positive gastric cancer.
2) 1L hepatocellular carcinoma (KN046-IST-05). KN046 combined with lenvatinib (12mg/ day body weight ≥ 60kg; or 8mg/ day body weight < 60kg) treatment, 21 days is a treatment cycle. 52 patients with assessable efficacy, ORR 51.9%, DCR 86.5%, mPFS9.3mo,mOS and DOR have not been achieved. The remission rate was slightly higher than 36% of drug K combined with lenvatinib (KEYNOTE-524), and mPFS was similar to 8.6mo of drug K combined with lenvatinib. In addition, 12mg group (n = 35) mPFS 12.4 mol ·L-1 8mg group (n = 20) mPFS 8.2mo. It is estimated that head-to-head PD-1+An is needed in the third stage of 1L liver cancer.
3) 2L PDAC KN046 single drug therapy. Among the 9 assessable patients, the OS rates of ORR 11.1% score DCR 44.4% (1PR3SD), mPFS 2.1 months, mOS 7.5 months, 6 months and 9 months were 61.3% and 49.5%, respectively.
The overall curative effect is comparable to that of 2L chemotherapy.
KN046 is making good clinical progress in stage III pancreatic cancer, and the company expects 1Q23 to conduct its first data analysis. The company disclosed on the ASCO data interpretation conference call that the main clinical PI was in Shanghai, which was affected by the epidemic to some extent, but the patient compliance was good, and the speed of joining the group before the epidemic was faster than previously planned. Most of this year's group plans are expected to be completed by the end of the year. In addition, PD-1 has been treated in clinical trials, and the company affected by the epidemic is expected to postpone data analysis to 4Q22 for one quarter. JSKN003 (HER2ADC) Phase I climbing trial company is expected to launch in Australia and 2H22 in China from June to July.
Management directs KN035 to achieve 150 million per cent and sales of 500-600 million for the whole year. KN026 remaining down payment 17 million, other potential down payment income 0.25-30 million, 2022 total income 1.9-200 million. The estimated net profit is-635 million (= revenue 195 million-R & D expenditure 750 million-administrative expenditure 80 million). Cash flow can support at least two years, and financing is likely to be about 1 billion yuan in 22-23.
Valuation
Maintain the "better than the market" rating and adjust the target price to HKD 18.03. We estimate that the total revenue of the company's FY22-24 is RMB 1.91 million (compared with the previous forecast of-4.8%, 47.6%, 16.8%), mainly due to the delay in the listing of KN046 to mid-24. It is estimated that the net profit of the company's FY22-24 belonging to shareholders of the listed company is-6.59 Maximus 930 Universe 0.93 million (compared with the previous forecast of-7.23 Universe 499 Mercer 256 million), mainly due to the delay in the listing of KN046 to mid-24 years, resulting in a decrease in revenue and a slight increase in 23-year losses.
The main model changes are as follows: 1) the listing year of KN046 is adjusted from mid-2023 to mid-2024. 2) income fell from 548 million to 287 million in 2023, reflecting the impact that 046 had not yet been commercialized in 23. 3) sales management expenses were reduced from 219 million to 144 million in 2023, reflecting the impact that 046 had not yet been commercialized in 23 years.
We use a hybrid model of DCF and core product valuation to value the company: 1) in terms of DCF valuation, WACC maintains 12% (the previous value is 10.1%) and the sustainable growth rate maintains 2.0%, resulting in a DCF valuation of HK $16.7 billion (the previous value is HK $18.4 billion) and a reasonable price of HK $17.83 (the previous value is HK $19.68). 2) in terms of core product valuation, after risk adjustment, the peak value of homing sales is maintained at 2.5x PS (the previous value is 2.5x PS), and the corresponding target price is HK $18.24. Taking the average of both, we give the target share price HK $18.03, maintaining a "better than the market" rating.
Risk.
The risk of clinical development failure, the risk of government regulation, the risk of drug approval.