The company's performance was in line with expectations. The phase III clinical trial of the metaP2 inhibitor APL-1202 for second-line NMIBC is coming to an end. We expect the trial to be completed in Q2 2023 and an NDA will be submitted within the year; data from the new adjuvant phase I trial before MIBC surgery will be disclosed at the 2023 ASCO conference. APL-1702, a pharmaceutical-integrated photodynamic therapy product, is expected to complete testing in Q3 2023 and submit NDA in Q1 2024. Investment in R&D continues to increase, and many clinical trials are progressing smoothly. The core marketing team has been set up.

The 2022 results were in line with expectations. Contrast agents and cystoscopes were first used in Hainan, and cash reserves were abundant. The company's revenue in 2022 was 26,600 yuan, mainly the bladder cancer adjuvant contrast agent APL-1706 and disposable bladder softgels first used in Lecheng, Boao, Hainan. As of December 31, 2022, the company had monetary capital and transactional financial assets totaling $2,738 billion, with abundant cash reserves.

APL-1202: The second-line NMIBC phase III clinical trial is coming to an end, and the new MIBC assistant will read the data from ASCO. APL-1202 is the world's first registered clinical-stage oral small molecule inhibitor for the treatment of NMIBC (non-muscle-invasive bladder cancer). According to the company's annual report, a number of APL-1202 clinical trials are progressing in an orderly manner:

① Second line: The phase III clinical trial of APL-1202 combined with chemotherapy perfusion to treat recurrent chemotherapy-infused NMIBC has come to an end and is being followed up with the subjects. The trial's progress fell short of expectations mainly due to the fact that events in the latter stages of the clinical trial occurred later than was assumed when the clinical trial plan was designed, and the follow-up of the subjects to the hospital was affected to a certain extent by the macroenvironment such as the epidemic, causing some subjects to drop out, resulting in the target number of incidents not being reached during the reporting period. We expect the trial to be completed in Q2 2023, and we expect to submit an NDA within the year.

② New MIBC adjuvant: The international multi-center phase II clinical trial of APL-1202 combined with tirelizumab for the novel adjuvant treatment of MIBC (myocentric invasive bladder cancer) before surgery completed the first patient enrollment in December 2022.

The company plans to disclose phase I clinical study safety and efficacy data at the ASCO conference in June 2023.

③ First-line: A phase III clinical trial of APL-1202 monotherapy for untreated medium-risk NMIBC is actively recruiting patients in China.

APL-1702: Phase III clinical trials have entered the follow-up phase, and trials are expected to be completed in Q3 2023. APL-1702, a pharmaceutical-integrated photodynamic therapy product, completed the international multi-center phase III clinical trial patient enrollment in July 2022. According to the trial's clinical protocol, we expect to complete the trial in Q3 2023 and expect to submit an NDA in Q1 2024. APL-1702 is expected to bring new non-surgical treatment options to patients with HSIL (advanced precancerous changes in cervical cancer).

Investment in R&D continues to increase, and many clinical trials are progressing smoothly. In 2022, the company spent 244 million yuan on R&D, +27.86% year on year; as of December 31, 2022, the company had 176 R&D personnel, +69.23% year on year. A number of clinical trials have progressed smoothly:

① Urinary system disease: APL-1706 completed the first patient enrollment in the phase III clinical trial in China in November 2022. We expect to complete the trial in 2023 and submit an NDA from the end of 2023 to the beginning of 2024; in July 2022 and March 2023, registration applications for Uro-3500 (electronic endoscopic image processor) and Uro-G (disposable bladder soft scope) were accepted by NMPA one after another, and we expect to be approved for listing within the year.

② Other disease fields: The IND of APL-1401 (DBH inhibitor) applied for approval by the FDA in November 2022, and is the world's first DBH inhibitor to enter the clinical stage for ulcerative colitis. The company reached a cooperation with ReVR Creek Gravel Technology in January 2023 to jointly carry out innovative therapy research for urogenital tumors and related major diseases using ReVR's self-developed AI drug development platform and targeted RNA technology.

Commercialization is imminent, and the company has completed the construction of a core marketing team. As APL-1202 and APL-1702 enter the end of phase III clinical trials, the company completed the construction of the core marketing structure. Personnel in important positions such as sales, marketing, commerce, market access, government affairs, medical affairs, and integrated operation have all taken up their jobs. In the future, the company will gradually recruit and improve a marketing team with professional promotion and sales experience in innovative pharmaceutical devices according to the product registration and listing process.

Risk factors: 1) the company's drug development speed falls short of expectations or the risk of R&D failure; 2) the company's drug review takes a long time and the marketing time falls short of the expected risk; 3) the risk that commercial sales of the company's products fall short of expectations; 4) the risk that the company's innovative drugs are not included in the national medical insurance catalogue in a timely manner or that prices drop significantly through medical insurance negotiations; 5) the risk that the company's internationalization falls short of expectations.

Profit forecasting, valuation and ratings: The company focuses on urogenital tumors and other major diseases. Relying on the three core technology platforms, the company deeply lays out product pipelines in the urogenital field to create an advantageous product portfolio integrating diagnosis and treatment, including 12 ongoing research projects corresponding to 9 products. Among them, APL-1202, an oral metap2 inhibitor for NMiBC, and APL-1702, a photodynamic drug combination product for HSIL, are in phase III or a critical clinical trial stage. They are both expected to change the treatment pattern of corresponding diseases and become major products in related treatment fields; many other products under development have significant differentiated competitive advantages.

According to the company's 2022 annual report, we adjusted the company's 2023/24 EPS forecast to -0.57/-0.70 yuan (the original forecast was -0.58/-0.77 yuan), and added the 2025 EPS forecast to -0.90 yuan. Using the absolute valuation method, the company's reasonable equity value was estimated at 12.187 billion yuan through the DCF model, corresponding to the target price of 21 yuan to maintain the “buy” rating.