Incident: On August 21, Yifang Biotech released its semi-annual report. In 2023, H1 achieved revenue of 80 million yuan, mainly from technology licenses and cooperation revenue confirmed at the time; the company's products had not yet achieved sales revenue, and there were no sales-related costs or expenses; the company incurred R&D expenses of 237 million yuan, up 8.29% year on year; management expenses of 25.34 million yuan, up 13.60% year on year; net profit for the same period last year was -228 million yuan, net profit not attributable to the same period last year - At 225 million yuan, losses narrowed.

The R & D system is perfect and experienced. The company has a one-stop independent research and development system, covering target screening, pre-clinical drug research and development, CMC and clinical development. Since its establishment, the company has advanced 5 small-molecule compounds from independent discovery at the source to the clinical research stage, namely BPI-D0316, D-0120, D-0502, D-1553 and D-2570.

Befortinib has been successfully marketed and is about to be commercialized. Befortinib (BPI-D0316) is a third-generation EGFR inhibitor independently developed by the company. On May 29, 2023, the second-line treatment of befortinib was approved for marketing by the NMPA, and the first-line treatment NDA was accepted by the NMPA in January 2023. The company has reached R&D and commercialization cooperation on befortinib and Betta Pharmaceuticals. We look forward to using Betta Pharmaceuticals' rich experience in development, market development and sales in the field of non-small cell lung cancer treatment to realize the commercial value of the product.

The development progress of the KRAS G12C is advanced, and a cooperation has been reached with Zhengda Tianqing. D-1553 is a KRAS G12C inhibitor independently developed by the company. It is used to treat various cancers such as non-small cell lung cancer and colorectal cancer with KRAS G12C mutations. It is the first KRASG12C inhibitor developed independently in China and has entered the clinical trial stage. In May 2023, D-1553 completed patient enrollment in a critical phase II clinical trial.

In August 2023, the company reached a licensing cooperation agreement with respect to D-1553, and granted Zhengda Tianqing exclusive licensing rights for the development, registration, production and commercialization of Yifang Biotech D-1553 products in mainland China within the term of the agreement. Zhengda Tianqing will pay a down payment of up to RMB 55,000 million and a milestone payment to the company; it will also pay royalties to the company in a tiered manner based on annual net sales.

Follow-up pipelines are abundant. D-0502 is in phase III clinical trials, D-0120 is in phase IIb clinical trials, and D-2570 has completed phase I clinical trials. D-0502 is an oral SERD independently developed by the company. Registered Phase III clinical enrollment was completed in September 2022. D-0120 is a URAT1 inhibitor independently developed by the company. The first case was enrolled in a phase IIb clinical trial in September 2022. D-2570 is a TYK2 inhibitor independently developed by the company. Phase II clinical enrollment and all visits were completed in June 2023. As R&D continues to advance, the company can be expected to grow for a long time in the future.

Investment suggestions: We predict that the company's revenue for 2023/2024/2025 will be 164 million yuan/156 million yuan/303 million yuan, respectively; net profit for homologue will be -361 million yuan/-392 million yuan/-313 million yuan respectively; corresponding EPS will be -0.63 yuan/-0.68 yuan/-0.54 yuan, respectively. Covered for the first time, giving it a “Cautiously Recommended” rating.

Risk warning: Risk of lifting the ban on restricted shares, risk of continued loss, risk of R&D risk, risk of product declaration approval, risk of health insurance negotiations falling short of expectations, risk of falling short of expectations due to increased competition, sales falling short of expected risk.