We cover Corning Jerry for the first time, with a "buy" rating for the first time, with a target price of HK $10.8. The founder of the company, Dr. Xu Ting, from Biogen, has nearly 20 years of experience in pharmaceutical research and management. The current clinical phase of the pipeline has included four biomedical molecules, including one listed drug. We expect the company's existing pipelines to generate peak sales of more than 6 billion yuan (POS adjustment).
The double-antibody pipeline is about to enter the cash period: Corning Jerry's core dual-antibody assets KN046 (PD-L1/CTLA-4) and KN026 (HER2/HER2) are in the registered research stage and have obvious competitive advantages over existing therapies: 1) non-head-to-head comparison shows that the OS improvement of KN046 in NSCLC is better than that of Keytruda+ chemotherapy (KEYNOTE-407) and Opdivo+Yervoy+ chemotherapy (CheckMate 9LA). 2) the efficacy of KN026 in the treatment of second-line and above HER2-positive gastric cancer is close to that of HER2 ADC, and the curative effect is further improved when combined with KN046. We expect both drugs to be available in 2025, with peak sales of RMB 3.4 billion and RMB 2.5 billion, respectively.
Multi-technology platform catalyzes the research and development of a new generation of antibody drugs: the company has several independent intellectual property technology platforms, and based on this, we have developed a number of highly differentiated new biomedical molecules with similar initiative / best potential, including: 1) the CRIB/CRAM platform for the development of new McAbs on the sdAb platform, which has developed commercial / near-commercial drugs such as KN046, KN026, and Envoli McAbs. The platform is relatively more mature and has a higher success rate of research and development. 2) although the innovative platform, including drug site-specific coupling and multi-functional antibody drugs, is earlier, it has greater potential, and the clinical value after successful development will be considerable.
The differentiation advantage of PD-L1 is significant: the PD-L1 Envoli monoclonal antibody developed jointly by the company and train of thought has been approved and listed in China, which can be used in the second-line treatment of patients with advanced solid tumor in MSI-H/dMMR. Envoli is the first subcutaneous drug delivery product in the global PD-1/PD-L1 field, which has obvious advantages in safety, drug delivery convenience and patient compliance. Although the domestic PD- 1/PD-L1 competition is becoming increasingly fierce, we believe that Envoli is expected to gain a better market share by virtue of its advantages in drug administration and pricing, as well as the excellent commercialization ability of Xiansheng Pharmaceutical, a commercial partner. We expect peak sales to reach 2 billion yuan.
Valuation: we expect Corning Jerry's 2022-24e revenue to be 150 million / 350 million / 380 million yuan respectively, corresponding to 38% 2021-24e CAGR, mainly driven by the sales commission of Envoli monoclonal antibody. We value the company based on the POS-adjusted revenue forecast and the DCF valuation model, with an assumption of 10.5% for WACC and 2.0% for sustainable growth, respectively, resulting in a target price of HK $10.8, corresponding to a market capitalization of HK $10.1 billion.
Investment risk: sales of Envoli monoclonal antibodies are not as expected and clinical data of pipeline products are poor.