Event

688578.SH released its three-quarter 2022 report that the company's revenue in the third quarter was 217 million yuan, down 40.68% from the same period last year, and its net profit was 27 million yuan, down 87.26% from the same period last year. It deducted 15 million yuan from non-parent net profit, down 92.45% from the same period last year.

Brief comment

The performance is in line with expectations, and product revenue continues to rise.

The company's revenue in the first three quarters was 112 million, 189 million and 217 million respectively, with a year-on-year growth rate of 202.32%, 123.46% and-40.68%, a month-on-month growth rate of 163.13%, 70.24% and 14.85%, and a net profit of-23 million, 49 million and 27 million, respectively. the corresponding year-on-year growth rates were 48.82%, 245.22% and-87.26%. The change in 2022Q3 financial data is mainly due to the recognition of a large amount ($40 million) of Vumetinib overseas license related gains in the third quarter of 2021. Excluding the influence of overseas rights and interests, the revenue of single Q3 products is expected to grow by about 200% compared with the same period last year.

In addition, the company in the normal promotion of business activities to maintain Q2 and Q3 for 2 consecutive quarters of positive profits.

Fumetinib first-and second-line indications work together, clinical development steadily advance the third generation EGFR-TKI-Fumetinib approved second-line indications for lung cancer in March 2021, and first-line indications for lung cancer in June 2022, and will participate in the 2022 health insurance negotiations. Compared with the first generation TKI (gefitinib, erlotinib, ectini) and the second generation TKI (apatinib, dacotinib), the third generation EGFR-TKI has better efficacy and safety data.

At present, the third-generation EGFR-TKI that has been listed are mainly vomethinib, oxitinib and ametinib, and the competition pattern is relatively clear. With the higher pursuit of clinicians and patients for treatment, the replacement of the third-generation TKI for the primary TKI and the improvement of its own permeability are expected to be further expanded.

During the three-quarter reporting period, Vumetinib was published again in an influential international academic journal. The CNS subgroup data of the III phase FURLONG study of vermetini were published in the Journal of Thoracic Oncology (Journal of Thoracic Oncology). It provides a solid evidence-based medicine basis for the first-line treatment of NSCLC patients with EGFR mutation and CNS metastasis. At the same time, the Ib phase clinical trial for the indication of exon 20 insertion mutation (that is, the treatment of adult patients with locally advanced or metastatic non-small cell lung cancer with EGFR20 exon insertion mutation) is under way, and the II phase clinical trial has been approved.

As of September 15, 2022, according to the company's public disclosure, the overseas clinical research project of Fumetinib is also progressing smoothly. Since the cooperation between the company and ArriVent was reached on June 30 last year, the two sides have actively pushed forward the relevant work, and all the work of CMC has been completed. ArriVent has initiated a phase Ib clinical trial in the United States, and 3 patients have been enrolled. In addition, the partner ArriVent communicated with FDA and obtained FDA's approval for the first-line treatment of vermetini insertion mutation in exon 20, which is now in the process of submitting an IND application.

In addition, the company's follow-up pipeline KRAS G12D is being carried out as planned and is currently in the stage of CMC research, which is expected to promote IND applications in 2023.

Comprehensively expand commercial channels, join hands with Fosun to expand and sink

The company publicly cooperated with Jiangsu Fosun on April 27 to sign the "exclusive Promotion Agreement", which will grant Jiangsu Fosun Fumetinib (Eversha) the exclusive promotion right in the broad market (more than 1500 hospitals). The company's own marketing team will continue to be responsible for the promotion of about 1000 hospitals in the core market region, the agreement will enter into force in May 2022, and the first cooperation cycle will run until December 2026.

As of September 2022, the company publicly disclosed that the vast market area covered by Jiangsu Fosun is a non-core market area that has not been covered by the company's own marketing team before, so for Jiangsu Fosun, the commercialization of Fumetinib in the broad market is still in its infancy, requiring a certain amount of market investment and precipitation, including patient education. At present, it accounts for about 5% of the company's sales revenue, and the future non-core market (broad market) accounts for about 15% of the market potential.

Financial analysis: Fumetinib's overseas licensing income affects the fee base. Q3 R & D investment rose month-on-month in the first three quarters of 2022, and the company's gross profit margin was 95.77%, down 3.64 percentage points from the same period last year. In terms of period expenses, the sales expenses were 299 million yuan, up 71.02% from the same period last year, and the sales expense rate was 57.79%, up 21.93% from the same period last year, mainly due to the licensing fee of US $4000 of 2021Q3 Fumetinib; the management fee was 72 million yuan, down 1.77% from the same period last year, and the management expense rate was 14.00%, down 1.12% from the same period last year. The R & D expenditure was 137 million yuan, down 15.96% from the same period last year, the R & D expenditure rate was 26.52%, down 6.97% from the same period last year; the financial cost was-34 million yuan, down-285.23% from the same period last year, and the financial expense rate was-6.52%, down 4.72% from the same period last year.

In terms of Q3 alone, the company's gross profit margin was 95.70%, down 3.94 percentage points from the same period last year. The sales expenses, management expenses, R & D expenses and financial expenses were 129 million yuan, 30 million yuan, 48 million yuan and-14 million yuan respectively, and the year-on-year change was 69.28%, 16.30%, 31.63%, 25.6.25%, 35.53%, 31.19%, 22.94%, 20.31%, respectively, and the four expense rates were 59.20%, 13.66%, 22.25%, 6.32%, respectively. Year-on-year changes were 38.46, 6.7, 2.94 and-5.27 percentage points, and month-on-month changes were 9.03, 1.70, 1.46 and 2.78 percentage points. This is mainly due to the recognition of a large amount of revenue related to the overseas license of Fumetinib in the third quarter of 2021.

Profit forecast and investment rating:

We estimate that the company's operating income in 2022, 2023 and 2024 will be 7.83,14.11 and 2 131 million yuan respectively, with corresponding growth rates of 47.63%, 80.30% and 51.00%, respectively. The net profit of returning home is 0.81,1.92 and 400 million yuan, respectively, with a corresponding growth rate of 341.48%, 137.72% and 108.57%. Considering that the company has a good competition pattern and good ability of commercialization and R & D cooperation in the field of oncology, KRAS and other targets are also competitive in the future. We cover it for the first time and give it a "buy" rating.

Risk analysis.

Industry policy risks: risks such as changes in research and design requirements, price changes, volume procurement policies, and changes in the scope and proportion of medical insurance reimbursement brought about by industry policy adjustments.

Research and development is less than expected risk: in the process of research and development of new drugs, there are risks such as uncertain clinical progress, uncertain efficacy and safety results and other risks.

The examination and approval is less than the expected risk: there are risks such as the extension of the approval cycle caused by factors such as data supplement and changes in the examination and approval process.

The risk of sales is lower than expected: after the drug is listed, it will be affected by scattered epidemic, intensified competition, insufficient logistics capacity, insufficient production capacity and other risks.

The risk of health insurance negotiations: there is a risk of uncertainty in the decline brought about by health insurance negotiations.