Event

The company released the 2022 interim report on the evening of August 25. In the first half of 2022, the company achieved a revenue of 2.24 billion yuan, an increase of 15.3% over the same period last year. The total loss during the period was 950 million yuan (IFRS) or 1.085 billion yuan (non-IFRS).

Comment

Be financially sound and have plenty of cash on the account

In the first half of 2022, the company achieved product revenue of 2.04 billion yuan, an increase of 10.0% over the same period last year; the gross profit margin of product sales was 78.6%, 11.2% lower than that of the same period last year. The main reason for the decline in gross profit margin was that the price of ① Xindimazumab new indications entered health insurance decreased by 62%; the proportion of biological similar drug products with low gross profit margin increased at the initial stage of the launch of ② new products; and the financial treatment of a small number of ③ cooperative products. The company will continue to reduce costs through continuous process optimization, and the gross profit margin of subsequent internal products is expected to increase. In the first half of the year, the company's R & D expenditure was 1.08 billion yuan, an increase of 22.5% over the same period last year. As of August 2022, there was $1.5 billion in cash on the account, with sufficient cash flow to support development for many years.

The sales efficiency has been improved and the commercialization system has gradually matured.

The company's sales and marketing expenditure in the first half of 2022 was 1.36 billion yuan, accounting for 66.7% of the products, down 2.7% from the previous month. The company's sales volume dropped slightly to 2745 from 2768 at the end of 2021, a significant increase from 2117 in the first half of 2021, and personnel fine-tuning and optimization in the first half. During the reporting period, the company further upgraded its commercial structure and established 6 business units (BU) to improve sales efficiency. The 6 BU are immune oncology, VEGF, hematological oncology, broad market, TKI and non-tumor. As the company has established a good business model and marketing system in the second stage of commercialization, the company's sales expense rate is expected to continue to decline in the second half of the year.

A number of indications have been approved and the product layout has been further improved.

In the first half of the year, the core product Dabeshu (Sindilimab) was approved for two new indications, including first-line esophageal squamous cell carcinoma (ESCC) and first-line gastric or gastroesophageal junction adenocarcinoma (GC). At present, it has become the first domestic PD-1 inhibitor covering five major indications: non-squamous non-small cell lung cancer (NSCLC), squamous non-small cell lung cancer (NSCLC), hepatocellular carcinoma (HCC), esophageal squamous cell carcinoma (ESCC) and gastric or gastroesophageal junction adenocarcinoma (GC). In addition, Dabotong (bevacizumab analogue), Dabotan (Pemitinib), Su Lixin (Adamumab analogue) and Cyramza (ramozumab) were all approved new indications in the first half of the year; Dabotan (Pemitinib) was approved by Hong Kong; Bevagen

(bevacizumab analogue) has been approved by the Drug Administration of Indonesia (BPOM).

The progress of clinical development is gratifying, and the construction of product echelon is perfect.

OXM3 (GLP-1/GCGR) has made good progress in phase II research. It not only shows good safety in type 2 diabetes and obesity, but also has obvious weight loss and hypoglycemic effect and multiple metabolic benefits. In addition, IBI-188 (CD47), IBI-110 (LAG-3) and IBI-919 (TIGIT) all read positive POC data. In addition to phase I/II clinical trials, RET, PCSK-9, BCMA-CART and Orebatinib have all submitted listing applications to NMPA, which is expected to further expand the company's commercial layout with the approval of the products.

Deepen strategic cooperation with multinational pharmaceutical companies, internationalization firmly promote strategic cooperation between multinational pharmaceutical companies and INNOVENT BIO for many times, reflecting the high recognition of the company's R & D, production and commercialization platform capabilities, as well as INNOVENT BIO's international strategy. INNOVENT BIO and Eli Lilly and Co Pharmaceutical have established a long-term strategic partnership since 2015. They have achieved five strategic cooperation in seven years, spanning different treatment areas and R & D stages, and continue to expand the depth and breadth of business cooperation. In the first half of this year, new cooperation between VEGFR2, RET inhibitors and potential second-generation BTK inhibitors was added. In the first half of the year, INNOVENT BIO reached a strategic partnership with Sanofi, involving a clinical postpartum and early product, as well as a 300 million euro premium 20% equity investment and an additional 300 million euro potential premium equity investment.

Profit Forecast and Investment rating

It is estimated that from 2022 to 2024, the company's revenue will be 4.85 billion yuan, 6.65 billion yuan and 10.76 billion yuan respectively. It is expected to break even by 2025. Taking into account, INNOVENT BIO already has 7 commercial products and excellent commercial team, and is expected to expand to more than 12 commercial products in the next two years, as well as a first-class clinical team, operating 29 clinical pipelines, and building more than 80 BIC/FIC preclinical projects based on the research and development platform of Cinda clear Hospital. At the same time, considering that Cinda has a professional international team layout that is beginning to take shape, the company's strength has also been recognized by a number of MNC and reached strategic cooperation.

We use DCF valuation and the reasonable market capitalization of the company is HK $101.3 billion, corresponding to the target price of HK $72.77. The company has comprehensive advantages and long-term strategic layout in clinical, R & D and commercialization, and has gradually entered the stage of internationalization and maintained its buy rating.

Risk analysis.

Health insurance control fees and market competition lead to the lower-than-expected pricing of innovative drugs, the risk that the progress of new drug research and development and evaluation is not up to expectation, the risk of core team change, and the risk of overseas clinical operation.