Summary of the report

Yahong Pharmaceutical is an innovative pharmaceutical company focused on solving the clinical needs of the genitourinary system. The company was founded in 2010 and listed on Kechuang Board in January 2022. The company's core products include APL-1702, a noninvasive treatment for cervical precancerous lesions, APL-1202, an oral drug for early bladder cancer, and APL-1706, a bladder cancer developer. The key clinical data of APL-1702 and APL-1706 have reached the main end point in 2023, and the readout of key clinical data of APL-1202 is approaching.

For the following reasons, we think that we are optimistic about the R & D and commercialization prospects of the company's pipelines:

APL-1702 pipeline highlights: 1) the HSIL market directly benefits from policy-driven cervical cancer diagnosis and treatment rates, and the impact of short-and medium-term HPV vaccines is limited: according to the Action Plan for accelerated Elimination of Cervical Cancer, the screening rate of cervical cancer among women of appropriate age will reach 70% in 2030, and the treatment rate of patients with cervical cancer and precancerous lesions will reach 90%. In addition, under the background that HPV vaccine has been included in NIP in the United States and Canada in 2007, the incidence of cervical cancer in North America is 62 million (in China, it is 107 million); 2) HSIL is in dire need of non-operative treatment: treatment of HSIL is one of the main ways to prevent cervical cancer, there is only surgery and ablation treatment, postoperative cervical trauma can cause abortion, preterm delivery and other complications, there is an urgent need for non-invasive treatment. 3) APL-1702 has the widest range of indications and high convenience: the active ingredient of APL-1702 is a classical photosensitizer, which mainly kills diseased cells by inducing apoptosis and stimulating the immune system. It is suitable for all types of HSIL, and its convenience is better than that of other competitive products. APL-1702 international multicenter phase 3 clinical trial has reached the main end point of efficacy and is expected to be approved for listing in 2024.

The main points of APL-1202 pipeline are as follows: 1) there is only perfusion therapy after NMIBC, and the compliance of patients is poor.

There are 81000 new cases of bladder cancer in China, of which 75% are NMIBC. TURBt operation is the first choice for NMIBC, and bladder instillation is the only first-line treatment after operation. The rate of adverse reaction of bladder instillation was high and the compliance of patients was poor. 2) there is a high barrier to oral drug development for bladder cancer, and the initial completion of the second phase of APL-1202 clinical efficacy is better than that of chemotherapy. The POC:NMIBC oral drug has a high development barrier due to the lack of blood circulation in the bladder. MetAP2 inhibitor APL-1202 is the only oral targeting drug for NMIBC in the world, which has been shown to have a good effect on second-line NMIBC in phase 2 clinic. 3) the catalyst for the key clinical data of NMIBC is approaching, and the high probability reaches the main end point: the collection of the key clinical recurrence cases of the second line NMIBC is nearing completion, and we think that the high probability can reach the clinical end point of EFS.

APL-1706 pipeline highlights: 1) bladder cancer diagnosis (initial diagnosis and follow-up) and surgery need cystoscopy; 2) APL-1706 is a photosensitizer, combined with blue light endoscope can effectively improve the diagnosis rate of bladder cancer and reduce the recurrence rate.

Early pipeline highlights: 1) MetAP inhibitor APL-1501 adopts prodrug design, the indications are extended to a variety of urinary system tumors and multidrug resistant infections, and the frequency of administration can be reduced from 3 times a day to 2 times a day. At present, phase 1 clinical is being carried out in Australia; 2) Phase 1b clinical IND of DBH inhibitor APL-1401 in the treatment of moderate and severe active ulcerative colitis has been approved by NMPA and FDA and completed the first patient in the group, which is the first pipeline of its kind.

Profit forecast

We forecast that the company's annual operating income in 2023-24-25 will be RMB 484 million and the net profit will be-RMB 411 million and RMB 449 million. The DCF model incorporates the Chinese income of three core pipelines (APL-1702, APL-1202, APL-1706). The target market capitalization is 12.073 billion yuan, and the corresponding share price is 21.18 yuan. For the first time, coverage gives a "buy" rating.