The phase III pancreatic cancer trial HR has not yet met the requirements for early termination of effectiveness and will continue: the company said in today's conference call that the KN046-303 IDMC held a meeting on November 14 and informed the company after the market that the mid-term analysis as of August 31 had not found any new safety signals, and recommended continuing OS data collection. IDMC did not recommend discontinuing the trial due to statistical effectiveness/ineffectiveness/safety issues, nor did it require additional enrollment. The number of deaths as of August 31 was 211, and blind MoS was less than 10.5 months. MoS in the company's pre-test group was probably 12 months or more, the control group was less than 10 months, and the HR was around 0.8, which did not meet the requirements for early termination of effectiveness (HR<0.72). The current number of deaths is 244, and the final OS analysis will be carried out when it reaches 314. We expect this to happen early next year. In summary, we believe that the development prospects of KN046 in pancreatic cancer are still uncertain.

The HER2 layout is progressing steadily: 1) KN026 has been recognized as a breakthrough treatment drug. The indication is HER2 positive gastric cancer where first-line standard treatment (trastuzum+chemotherapy) failed; 2) the latest results of JSKN003 Australian phase I have been announced. Compared with DS8201, the safety is outstanding and the efficacy is similar (not head-to-head). In terms of efficacy, the ORR and DCR of JSKN003 in HER2 high expression BC were 75.0%/100.0% (vs. DS-8201 54.5%/100%), respectively, and the ORR and DCR in HER2 low expression BC were 40.0%/80.0%, respectively (vs. DS-8201 16.7%/100%). In terms of safety, the incidence of hematologic toxicity in the JSKN003 test group was 3.1%, 15.6% of subjects stopped administration due to AE (vs. DS-8201 50.0%), and there were no dose reductions or serious adverse events.

Lowering the KN046 success rate forecast and lowering the company's target price: Considering that the uncertainty of the KN046-303 test results has increased again, we have lowered the KN046 pancreatic cancer development success rate assumption from 80% to 60%, the POS-adjusted peak sales forecast was lowered from 2.5 billion yuan to 2.3 billion yuan, and the sales forecast for other products remained unchanged. Based on the DCF model valuation, we lowered the target price to HK$7.40 (previously HK$9.00), corresponding to the target equity valuation of HK$7.14 billion and 2.1x P/S at peak sales. We believe this valuation can better reflect the long-term value of the company's pipeline and the uncertainty in subsequent clinical development, and maintain a neutral rating.

Upside risks: core product development progress, commercial product sales, and BD exceeding expectations.

Downside risks: R&D progress falls short of expectations; competition for similar products intensifies; sales fall short of expectations.