Core views
2023Q3, sales of the company's core products continued to increase, with revenue of 347 million yuan in a single quarter, achieving good year-on-year and month-on-month growth. The company's core products, tetacip and vidicetumab, cover the fields of immunity and oncology, and clinical development and commercialization of both products are progressing steadily. With the subsequent expansion of new indications and the continued deepening of commercialization, future product sales are expected to achieve higher volume, and it is optimistic that the company's 2023Q4 sales revenue will increase further. At the same time, the company's internationalization has begun, and a cooperation has been reached with SEAGEN on RC48's overseas interests. RC18 is actively promoting overseas clinical registration, and is optimistic about the company's potential to grow from Biotech to Biopharma.
occurrences
The company released the 2023 three-quarter report, and sales continued to increase steadily
Rongchang Biotech released its three-quarter report for 2023. Q3's operating income was 347 million yuan, up 58.28% year on year, up 36.61% month on month, and both year on month experienced good growth; sales expenses, management expenses, and R&D expenses were 190 million yuan, 79 million yuan, and 318 million yuan respectively; expense rates were 55%, 23%, and 92% respectively; net profit was -327 million yuan. By the end of 2023Q3, monetary capital and transactional financial assets totaled 790 million yuan.
As of the third quarter, the company achieved operating income of 769 million yuan, an increase of 35.08% over the previous year; sales expenses, management expenses, and R&D expenses were 540 million yuan, 243 million yuan, and 858 million yuan respectively, with cost rates of 70%, 32%, and 112%, respectively; and net profit of -1,031 million yuan.
Brief review
The commercial layout continued to expand. The core product was steadily released in the third quarter. The company's core product, titasip, has been approved for systemic lupus erythematosus indications and is covered by medical insurance. Currently, the relevant sales team has more than 700 people. As the number of hospitals covered and admitted by the company continues to increase, the penetration rate of products throughout the country is steadily increasing. Currently, many of the indications of the product are in phase III clinical trials in China. With the approval of new indications in the future, the product is expected to benefit more patients. Currently, the indications of vidicetumab for gastric cancer and urothelial cancer are covered by medical insurance, and the product commercialization team has more than 550 experienced sales staff. Currently, the product is steadily increasing its penetration rate, and as new indications gradually advance to the front line in the future, it is expected that there will be more new growth. Overall, the clinical and commercialization of the company's two core products is progressing steadily, and the company's sales revenue is expected to increase steadily in Q4 of 2023.
Both products will enter into medical insurance negotiations within the year. Considering the excellent efficacy of the company's products, the favorable competitive pattern, and the continuous improvement of medical insurance renewal rules, it is expected that the decline in contract renewals will be manageable. In the long run, the overall volume growth of the two products will be beneficial to the continued quantitative growth of the two products.
RC18: RA indications submitted marketing applications, MG and many other clinical trials continue to advance Domestic: SLE: domestic phase III confirmatory clinical trials have been completed, and supplementary marketing applications have been submitted at the end of 2022. Children's SLE phase III domestic phase III and lupus nephritis phase II are progressing; RA: rheumatoid arthritis submitted for marketing applications, and approval of new indications is expected to drive further product release; IgA nephropathy:
Domestic phase III clinical trials are progressing smoothly; MG: domestic phase III clinical enrollment continues; PSS: domestic phase III clinical trials have begun, and patients continue to be enrolled.
Tetaxip also has potential for use in various other autoimmune indications. Phase II/III clinical trials for treatment of neuromyelitis optica and multiple sclerosis have been fully carried out in China.
Overseas: SLE: Overseas phase III research continues to advance; MG: has obtained orphan drug qualification and is steadily preparing to begin phase III clinical research; IgA nephropathy: continuous communication with the FDA, phase III clinical research is in preparation; PSS: phase III clinical research is in preparation.
RC48: Frontline UC is advancing, SEAGEN helps internationalization
Domestic: UC: Phase III clinical trials of first-line treatment with domestic PD-1 are ongoing, and phase II clinical trials of perioperative invasive bladder cancer (MIBC) are continuing; GC: Phase II/III clinical study application (IND) for patients with first-line HER2 expression of locally advanced or metastatic gastric cancer (IND) with PD-1 and chemotherapy or combination of PD-1 and hercetin for patients with locally advanced or metastatic gastric cancer with locally advanced or metastatic gastric cancer was approved by the CDE; BC: In phase III clinical enrollment of patients with low HER2 expression, the phase III clinical trial of patients with high Her2 expression and liver metastasis in China Enrollment was completed at the end of 2022, and the product is undergoing several other clinical trials at the same time.
Overseas: UC: Two clinical studies have begun overseas. The critical clinical trial of 2L UC with a single drug is continuing to advance, and the phase III study of 1L UC treatment with K drugs is in continuous progress, and the first patient enrollment has been completed.
Three core technology platforms continue to drive innovation pipeline expansion
The company has built a world-class independent innovation research and development engine, covering the entire process of biological discovery, target screening and verification, drug discovery, research and development, including three novel biopharmaceutical development technology platforms: ① Antibody and fusion protein platform. Based on this platform, it has developed products such as Titaxipro, RC28, and RC98; ② Antibody Coupling Drug (ADC) platform, which has developed RC48, RC88, RC108; ③ Bifunctional Antibody (Hibody) platform. Based on this platform, RC138, RC148, and RC158 have been developed. The company's early pipeline continues to advance. RC98 (PD-L1 monoclonal antibody) is currently undergoing joint trials with RC48 for indications such as gastric cancer; RC88 (mesothelin ADC) and RC108 (c-Met ADC) have entered the IB/IIa patient expansion period; RC118 (CLDN18.2 ADC) is climbing phase I in China and Australia; RC198 (IL-15/IL-15Rα) has successively obtained phase I clinical IND approvals in Australia and China in May and July of this year; RC148 (double (Anti) was approved for Phase I clinical IND approval in China in July of this year.
Profit Forecasts and Investment Ratings
The company has established and perfected three innovative core technology platforms, and has strong independent research and development capabilities; Titaxi is expected to continue to expand, the commercialization capabilities of the company have been verified, and sales revenue for 2023Q3 and Q4 is expected to continue to grow month-on-month; at the same time, the company's internationalization has begun, cooperating with SEAGEN on RC48's overseas rights. RC18 is actively promoting overseas clinical registration, and is optimistic about the company's potential to grow from Biotech to Biopharma. We expect the company's revenue to be 1,269 million yuan, 2,032 billion yuan, and 3,229 million yuan respectively in 2023-2025. Considering that the company is not yet profitable and has invested a lot in R&D, using DCF valuation, the reasonable market value is HK$38.535 billion, and the corresponding target price is HK$70.80 million, maintaining the “buy” rating.
Risk warning
The company's innovative drug research and development progress and new drug review time fell short of expectations. The company's core products, such as titaxipr, vidicitumab, and RC28, all have different indications. Due to the many drug review and approval processes, long cycles, and high uncertainty, there is uncertainty about the expansion of indications; the pressure on health insurance fee control exceeds expectations, and the company's product pricing falls short of expectations. The company's core products have now been included in medical insurance, and there are still new indications renewal negotiations. If the decline is significant, it may have an impact on the company's commercialization process; commercialization progress falls short of expectations, such as market expansion, academic promotion, health insurance coverage, etc. Progress in this area falls short of expectations, or the sales team's failure to keep up with policy trends and grasp market competition will affect the company's future commercialization ability; overseas expansion falls short of expectations.