occurrences

The company released its 2022 annual performance report: operating income of 96 million yuan (-37% year on year), R&D investment of 529 million yuan (+26% year on year), administrative expenses of 43 million yuan (-5% year on year), and losses of 372 million yuan (301 million yuan in the same period last year). The company updated the 2023 catalyst.

viewpoints

The timing of the three core catalysts is clear, which is expected to open up valuation space. The company's annual report and performance briefing revealed a number of pipeline updates and data release plans. Among them, we believe the core catalysts for 2023-2024 include:

1) Glarese combined with cetuximab treated ≥2L KRASG12C colorectal cancer data (ASCO, June 2023);

2) Glarese combined with the SHP2 inhibitor JAB-3312 to treat KRASG12C non-small cell lung cancer data was read out (the company expects ESMO, October 2023); 3) IND submission for the KrasMulti inhibitor JAB-23400 (the company expects 2023H2), and solid tumor dose climbing data is read out (we expect 2024H2).

Grayrese colorectal cancer is progressing ahead, and attention is being paid to differences in ASCO efficacy data. For late-line KRASG12C colorectal cancer, Amgen and Mirati have verified the efficacy of using the KRASG12C inhibitor plus EGFR monoclonal antibody: the ORR for the KRASG12C inhibitor is only about 10%; while when combined with EGFR monoclonal antibody, the ORR of AMG510 and MRTX849 increased to 30% and 46%, respectively, and MPFS in the AMG510 combination group was 5.7 months. Glarese is expected to be the first KRASG12C inhibitor in China to disclose CRC combined use data. The ASCO reading will include more than 40 patients in the RP2D group. The differences between its efficacy and overseas competitors are worth paying attention to. Additionally, Grarese is expected to launch CRC's critical clinical trials in 2023Q4.

Grayrese's combined use of the JAB-3312 has deep potential, focusing on ESMO's first-line non-small data. There are no KRASG12C inhibitors approved in the world. Line 1 KRASG12C is not trivial. The main difficulty is that the existing standard treatment (PD1 single drug or combined chemotherapy) for first-line KRASG12C is not small has good curative effects, especially for patients with high PDL1 expression. Amgen AMG510's first-line non-single-drug phase 2 clinical (CodeBreak 201) screened patients with low PDL1 expression and/or STK11 co-mutation, so even if successful, the number of beneficiaries was limited; while Mirati's first-line non-minor phase 2 clinical trial (Krystal-7) faced the challenge of improving ORR too little with PD1 in combination with MRTX849 compared to PD1 chemotherapy. The Glarese JAB-3312 clinical study, which is expected to be published by ESMO, included both line 1 and line 2 KRASG12C non-small patients. Considering that Glarese monotherapy obtained an ORR of 56% even in non-small second-line patients, the data for first-line non-small patients is worth looking forward to.

Overseas competitors have completed concept verification of RASmulti inhibitors, and the success rate of JAB-23400 development has increased. Given that more than 500,000 new solid tumor patients in China carry the KrasNon-G12C mutation each year, we believe that the pre-clinical pipeline KASMULTI inhibitor JAB-23400 is one of the company's most valuable assets other than Glarese and JAB-3312. In February 2023, RVMD released preliminary data for its RASMULTI pipeline RMC-6236: Among 12 patients with last-line solid tumors carrying KRASG12X (9 pancreatic cancer+3 not small), 2 patients (pancreatic cancer and 1 non-minor, both KRASG12D) were PR. Since RMC-6236 has completed an initial proof of concept, we believe the development risk of the Carcoz KrasMulti inhibitor JAB-23400 has been reduced. JAB-23400 is expected to submit an IND application in 2023H2, and we think the company is expected to release preliminary dose climbing data in 2024H2.

Profit forecasting

We forecast that the company's total operating revenue for 2023/24/25 will be 0.91/185/458 million yuan, and net profit at the parent level will be -4.24/-4.20/-378 million yuan. We have updated our valuation model. Based on the revenue forecasts of core pipelines Gracerese and JAB-3312, we calculated target share prices of HK$12.81 and HK$16.05 using the DCF method and NPV method respectively, with an average value of HK$14.43. Maintaining the “buy” rating, the target price was raised to HK$14.43.

Risk warning

R&D falls short of expected risk; BD and commercialization fall short of expected risk; industry policy risk