Matters:
The company announced that ZHB202 injection, a new drug jointly applied for by the company and its holding subsidiary Zhonghong Biotech, has obtained a clinical trial notice from the State Drug Administration.
Peace view:
New drug development has made significant progress. A new drug, ZHB202, has received clinical approval: the main component of ZHB202 is a new generation of polyethylene glycolylated asparkinase (PEG-ASP), which can break down aspartam in blood into aspartic acid and ammonia. However, tumor cells such as acute lymphocytic leukemia (ALL) and NK/T cell lymphoma are unable to endogenously synthesize aspartame due to low expression of aspartame synthase. Proliferation is inhibited due to lack of aspartame, which causes inhibition of proliferation and then apoptosis. The indications for ZHB202 are acute lymphocytic leukemia (ALL) and NK/T cell lymphoma. The company has ZHB202 independent intellectual property rights, and its core technology has applied for PCT patents and Chinese invention patents. At present, a phase I clinical plan has been jointly formulated with hematologists from the First Affiliated Hospital of Soochow University, a clinical trial partner.
PEG-ASP is the first-line drug for ALL and NK/T lymphoma, and ZHB202 is expected to become the best-in-class: natural aspartamase (L-ASP) is the cornerstone of many treatment plans for ALL and NK/T cell lymphoma. It has been selected as “Chinese Adult Acute Lymphocytic Leukemia Diagnosis and Treatment Guidelines”, “Pediatric Acute Lymphocytic Leukemia Diagnosis and Treatment Recommendations”, and “2013 International Tumor Gold Standard Guidelines”. However, factors such as severe allergic reactions, drug resistance, and the need for continuous administration have highlighted the clinical application of L-ASP. Since 2013, NCCN guidelines have recommended PEG-ASP instead of L-ASP as a first-line treatment for NK/T-cell lymphoma combined with chemotherapy. The first-generation PEG-ASP currently on the market includes Enzon's Oncaspar and Hengrui Pharmaceutical's Ai Yang; in December 2018, the second-generation PEG-ASP drug ASPARLAS developed by Servier was approved by the FDA. As a third-generation PEG-ASP drug, ZHB202 is expected to become the best-in-class. At the same time, the company's largest production base for aspartamidase raw materials in China and the world can strongly guarantee the progress of the project.
The company has abundant reserves of innovative drugs, and has been in the harvest period since 2019: after QHRD107, the first class I new drug, was approved for clinical trials in July 2018, and ZHB202 received clinical approval, and the company's dark horse for innovation is evident. Currently, the company has a macromolecule drug research and development platform with Zhonghong Biotech as the main body and a small molecule drug research and development platform with Innoshengkang as the main body. In addition to the ZHB202 project, which has been approved for clinical trials, the ZHB206 project has also completed all non-clinical studies. It is in the preclinical communication stage with the National Drug Evaluation Center. All studies are progressing in an orderly manner. It is expected that it will apply for clinical trials within 2019. Meanwhile, InnoShengkang LS010 is also in the preclinical research stage and is expected to be submitted for clinical use soon.
Profit prediction and investment rating: The company's overall performance has maintained steady growth, which can support the smooth progress of new drug research and development. However, considering that 84.57 million dollars were calculated for bad financial management debts in the first three quarters of 2019, the company's EPS forecast for 2019-2021 was adjusted to 0.22 yuan, 0.26 yuan, and 0.32 yuan (the original forecast was 0.24 yuan, 0.28 yuan, and 0.36 yuan). The current stock price corresponds to only 22 times the company's PE in 2019, maintaining the “recommended” rating.
Risk Reminder: 1) R&D Risk: New drug development is a high-risk, high-benefit act that requires multiple steps such as pharmacology, toxicology, pre-clinical, and clinical trials, and there is a possibility of failure; 2) Marketing risk: The company's pharmaceutical products are mainly sold in hospitals and face intense market competition, which may affect sales growth due to increased market competition; 3) Risk of heparin API price fluctuations:
The price of APIs is volatile. Although the share of the business is already low, if the price of heparin APIs falls, it will still affect the company's revenue and profit volume.