Shuvertinib was approved for marketing in China in August 2023, becoming the first domestically produced innovative drug to treat NSCLC with EGFR exon 20 insertion mutations. It achieved sales revenue of over 40 million yuan a month after launch, and was rapidly released. The ORR = 60.8% of registered clinical trials of shuvertinib in China is 60.8%. Compared with similar products, it has Beat-inClass potential; the latest data on first-line indications is excellent; and many clinical trials are progressing steadily. The marketing application for golicitinib was accepted and included in priority review. R&D investment continues to increase, R&D teams continue to expand, commercialization team building is being carried out in an orderly manner, and many innovative varieties have great market potential. Overall, maintain a “buy” rating.

Shuvertinib: The sales performance in the first month of marketing was impressive, the curative effect was potentially the best in its class, and a number of clinical trials were carried out in an orderly manner.

(1) Approved for domestic marketing: On August 22, 2023, suvortinib was approved by the CDE for advanced or metastatic NSCLC with EGFR exon 20 insertion mutations (ex20ins) with previous progression/intolerance to platinum-containing chemotherapy, becoming the first domestically produced innovative drug approved for this indication. On August 26, shuvertinib officially began supplying drugs to hospitals and pharmacies across the country. According to the company's 2023 three-quarter report, in the month since listing, shuvetinib has achieved sales revenue of 40.102 million yuan, with rapid volume and impressive performance.

(2) Potential best-in-class efficacy of second-line efficacy: At the 2023 ASCO conference, the company announced data from the Chinese registered clinical trial of shuvetinib (WU-KONG6). At a dose of 300 mg/qd, patients with EGFR ex20ins who failed or were intolerant to platinum treatment achieved ORR = 60.8%, DCR = 87.6%, and showed excellent efficacy in patients with proximal/distal loop and brain metastases. Non-head-to-head data has best-in-class potential.

(3) First-line data also has the best potential in its class: At the 2023 ESMO Conference, the company announced the latest data on the efficacy and safety of first-line treatment of EGFR exon20ins mutant advanced NSCLC with shuvetinib. ORR of 28 patients reached 78.6%, and MPFs in the 300mg group reached 12.4 months.

At the conference, Johnson & Johnson Amivantamab announced data from the PAPILLON study. The ORR of the first-line EGFR exon20ins NSCLC combined with chemotherapy reached 73%, and MPFs were 11.4 months.

The company's non-head-to-head data has best-in-class potential.

(4) A number of clinical trials are being carried out in an orderly manner: ① Phase II international multi-center critical registration clinical trial (WUKONG1) is currently being carried out in the US, Europe, South Korea, Australia and other countries and regions. We expect overseas production to be reported in 2024H1. ② International multi-center clinical studies have also been conducted for first-line indications (WU-KONG28). ③ At the 2023 ASCO conference, the company presented the preliminary study results of sulvortinib in patients with advanced EGFR sensitive mutant NSCLC who failed treatment with EGFR-TKIS. MPFS reached 5.8 months and MdOR was 6.5 months. A phase II clinical trial for patients with EGFR mutant NSCLC who failed standard treatment with combination of suvortinib and golicitinib was approved in January 2023.

Golicitinib submitted an NDA for priority review. In September 2023, the NDA for golicitinib for r/r PTCL was accepted and included in priority review. We expect it to be approved for marketing in 2024H1, becoming the world's first and only highly selective JAK1 inhibitor for T-cell lymphoma. The company announced the international multi-center key study (JACKPORT8 Part B) data for golicitinib treatment of r/r PTCL at the 2023 ASCO conference. Among the 88 patients included in the efficacy evaluation, the ORR assessed by IRC reached 44.3%, of which CRR reached 23.9%, and the longest DoR reached 16.8 months, and continued remission.

The company plans to release more data on golicitinib at the ASH conference at the end of this year.

The new hematoma mechanism product DZD8586 is progressing smoothly, and preliminary data will be released soon. DZD8586 is a highly selective small molecule inhibitor that can completely penetrate the blood-brain barrier. It can simultaneously act on BTK-dependent and non-BCR signaling pathways, thereby effectively inhibiting the growth of B-NHL cells. DZD8586 has therapeutic potential for BTK inhibitor resistant lymphoma and DLBCL, which is difficult to treat with existing BTK inhibitors.

The company plans to read preliminary clinical data for DZD8586 at the ASH conference at the end of the year.

Investment in R&D continues to increase. As the company's many international multi-center clinical trials advance, the company's R&D investment continues to increase. 2023Q1-3's R&D expenses were 579 million yuan, +20.45% year-on-year; of these, 2023Q3 R&D expenses were 236 million yuan, +55.90% year-on-year.

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 fall short of expectations; the risk that the company's innovative drugs fail to be included in the national health insurance catalogue in a timely manner or that the price drops significantly through health insurance negotiations; the risk that the company's internationalization falls short of expectations; the risk that the company's internationalization falls short of expectations; the risk that financing progress falls short of expectations.

Profit forecasting, valuation and ratings: The company is an innovative pharmaceutical company focused on global drug development and commercialization. The head-to-head efficacy data of sulvertinib is superior to all competitors. It is a potential best-in-class product for treating EGFLEX20ins mutant NSCLC. It has been approved for marketing in China. The sales data for the first month is impressive, and global clinical trials are progressing in an orderly manner; golicitinib is the world's first JAK inhibitor for hematoma that has entered the registered clinical stage, and has been declared for NDA domestically. Various early clinical products such as DZD8586, DZD1516, and DZD2269 have differentiated competitive advantages. According to the company's report for the third quarter of 2023, considering that sulvortinib was approved for listing, R&D expenses continued to increase, and initial sales expenses were high, the company's 2023/2024/2025 EPS forecast was adjusted to -2.28/-2.10/-1.75 yuan (the original forecast was -1.37/-1.97/-0.88 yuan). Using the absolute valuation method, we use the DCF model to calculate the company's reasonable equity value of 21.8 billion yuan, of which beta = 1.0 (Nuocheng Jianhua, Beta Pharmaceutical, Zejing Pharmaceutical, Microchip Biotech, Hehuang Pharmaceutical, Cinda Biotech, and Yifang Biotech), WACC = 7.98% (Rf takes the 10-year treasury bond yield 2.7%, Rm takes 2.7%, Shanghai and Shenzhen 300, and the compound yield rises slightly. The risk premium is 6.0%, and the tax rate is 15%). Considering the company's subsequent pipeline layout, g= 2.0%, corresponding to the target price target price of 54 yuan (54 yuan) 48 yuan), Maintain a “buy” rating.