The company's third-generation EGFR-TKI befortinib has been successively approved for second-line and first-line NSCLC indications. It has potential optimal potential in its class, cooperates with Betta Pharmaceuticals, and has broad market space. Data on the KRAS G12C inhibitor D-1553 in patients with advanced pancreatic cancer and in combination with cetuximab in patients with advanced colorectal cancer has a curative advantage over competing products; NSCLC indications will soon be submitted to NDA.

The oral SERD targeting drug D-0502 and the URAT1 inhibitor D-0120 are progressing smoothly, and have therapeutic potential for breast cancer and gout indications, respectively. Overall, maintain a “buy” rating.

Performance was in line with expectations, and losses continued to be reduced on the profit side. The company achieved revenue of 127 million yuan in 2023Q1-Q3, of which 2023Q3 achieved revenue of 47 million yuan, mainly due to technology licensing and cooperation revenue confirmed in the current period; the company's products have not yet achieved sales revenue, and there have been no costs or expenses related to sales. In 2023Q1-Q3, the company achieved net profit/net profit after deducting non-return net profit of 241 million/248 million yuan, a year-on-year decrease of 144 million/137 million yuan; of these, 2023Q3 achieved net profit/net profit minus non-return net profit of 74 million/-75 million yuan, a year-on-year reduction of 86 million/85 million yuan.

Befortinib has been successively approved for second-line and first-line indications, and the results of research and development have gradually been implemented. In May 2023 and October 2023, the company's third-generation EGFR-TKI befortinib was successively approved for second-line and first-line NSCLC indications, and the R&D results were gradually realized. Clinical non-head-to-head clinical data for first-line treatment and second-line treatment both obtained the longest PFS in the history of three generations of EGFR-TKI, showing the best potential in its class. Previously, the company had reached an R&D and commercialization cooperation with Befortinib and Betta Pharmaceuticals. Joining hands with established lung cancer leaders, it is hoped that the product market potential will be fully exploited.

There are excellent data on D-1553 treatment for pancreatic cancer and colorectal cancer, and NSCLC indications will soon be reported for domestic production. The company read two clinical trial data of the KRAS G12C inhibitor D-1553 at the 2023ESMO conference:

① Single drug treatment for advanced pancreatic cancer, ORR = 35.7%, DCR = 85.7%, MPFs = 8.54 months, grade 3 TRAE incidence rate 21.4%, no grade 4/5 TRAE reported; non-head-to-head MPFs data were superior to Sotorasib's 4.0 months and Adagrasib's 6.6 months; ② Combined cetuximab treatment for colorectal cancer, ORR = 46%, MPFs = 6.9 months; non-head-to-head data was superior to Soasitorb's ROR= 26.4%, 26.4% MPfS = 4.0 months, comparable with Adagrasib's preliminary data ORR = 45% and MPfS = 7.6 months.

Furthermore, according to the company announcement, the key registered phase II clinical trial of D-1553 to treat NSCLC completed patient enrollment in May, and we expect to submit an NDA between the end of 2023 and the beginning of 2024. In August, the company reached a cooperation with Zhengda Tianqing on D-1553, granting it domestic rights. The latter will pay the company no more than 550 million yuan in down payments and milestone payments, and will pay royalties to the company in tiers based on annual net sales.

Many clinical trials, such as D-0502 and D-0120, are progressing smoothly. ① D-0502 is currently the only domestically produced oral SERD product that has entered phase III clinical phase, and there is huge room for SERD drugs to replace fluorovetran. Currently, D-0502 is in the patient enrollment stage. The main end point is PFS. We expect enrollment to end in early 2024, and apply for an NDA after data is read out within 2024. ② D-0120 is a URAT1 inhibitor in the first tier in China. Its phase IIa data shows that the blood uric acid attainment rate of patients with D-0120 at the target dose is 80%. At present, D-0102 has entered phase IIb clinical trials, and we expect 2024H1 to read phase IIb clinical trial data. ③ The oral TYK2 inhibitor D-2570 completed phase I clinical enrollment and all interviews in June 2023. We expect phase II clinical trials for psoriasis to begin in 23Q4.

Risk factors: the company's drug development speed falls short of expectations or the risk of R&D failure; the company's drug review takes a long time and marketing time falls short of expectations; the risk that commercial sales of the company's products will fall short of expectations; the risk that the company's innovative drugs will not be included in the national health insurance catalogue in a timely manner or that the price will drop significantly through health insurance negotiations; the risk that the company's foreign cooperation will not progress as expected; the risk that the pharmaceutical industry policy will change beyond expectations.

Profit forecasting, valuation and rating: The company is based on a first-class R&D platform and is deeply involved in small-molecule innovative drugs. Many products have the best potential in their class. The core product market space is vast and the competitive advantage is obvious, and major pipelines are gradually entering the harvest period. The first-line and second-line indications of befortinib have been approved for listing. According to the company's 2023 three-quarter report, considering that both of the befortinib indications have been approved for listing, D-1553 has authorized the milestone revenue of Zhengda Tianqing, we adjusted the company's 2023/2024/2025 EPS forecast to -0.58/-0.34/-0.53 yuan (the original forecast was -0.64/-0.93/-0.49 yuan). Since the company has not yet entered a profit period, the absolute valuation method is applied to calculate the company's reasonable equity value of 141 billion yuan through the DCF model, of which beta = 1.1 (BeiGene, Beta Pharmaceutical, Zejing Pharmaceutical, Kangfang Biotech, Kangfang Biotech, average value, Rongchang Biotech, Alice average), WACC = 7.58% (Rf takes 2.7%, and Rm takes Shanghai and Shenzhen 300 compound yield slightly. The risk premium is 5.0%, and the tax rate is 15%). Considering the company's subsequent pipeline layout, G= 2.0% Yuan, maintaining a “buy” rating.