Incidents:

On February 4, 2024, the company announced that the randomized, double-blind, controlled, multi-center critical clinical trial (ACCRUE study) of APL-1202 combined with chemotherapeutic infusion to treat recurrent middle- and high-risk non-muscle-invasive bladder cancer (NMIBC) with chemotherapy perfusion did not reach the main study end. The announcement also updated developments in other businesses.

Comment:

The 2-line NMIBC key clinical trial did not reach the main end point, and the company terminated the development of APL-1202+ chemotherapy infusion combination therapy. A total of 359 patients with recurrent NMIBC were enrolled in the ACCRUE study. The experiment/control group enrolled 1 to 1. The experimental group was APL-1202 combined chemotherapy infusion, and the control group was placebo-combined chemotherapy. All participants were enrolled in the study in September 2019. The results of the completed statistical analysis showed that although there was a certain trend of efficacy in some patient groups, the main efficacy index event-free survival (EFS) did not meet the preset statistical assumptions. The company decided to discontinue the development of APL-1202 in combination with chemotherapeutic infusion in line 2 NMIBC. Since not all data analysis was completed, management speculated that the data was not ideal and that 1) the combined efficacy of APL-1202 and chemotherapy infusion was not significant, and 2) the control group EFS exceeded historical data.

Subsequent development of APL-1202 focused on single drug or combined PD1 monoclonal antibody, all with good early data. In addition to chemotherapy infusion, the company also has 2 APL-1202 mid- to late-stage clinical studies, which all showed good early data: 1) APL-1202 monotherapy versus first-line chemotherapy perfusion treatment phase 3 clinical (Ascertain study). Available data showed that the APL-1202 monotherapy group had a similar recurrence rate with the chemotherapy infusion group, and follow-up development strategies are currently being formulated; 2) Phase 2 clinical trial of APL-1202 in combination with tirelizumab versus tirelizumab as a single adjuvant treatment for MIBC (Adjuvant Study). The study has completed the enrollment of all subjects. Mid-term analysis showed that PCR for the combined group and PD1 single drug group was 39% and 21%, respectively. It is expected that top-line data will be read out in 24Q3.

Clinical research, registration, and commercialization of APL-1702 are progressing smoothly, and the strategic layout of women's health has been initially completed. In September 2023, the international multi-center phase 3 clinical trial of APL-1702 for the treatment of high-grade cervical squamous intraepithelial disease (HSIL) reached a major endpoint. The company will publish top-line data from the study at the European Organisation for Genital Infections and Oncology (EUROGIN) conference (March 13-15, 2024), and is expected to submit a drug marketing application to the Chinese regulatory authorities on 24Q2. In January 2024, the company announced the establishment of the Women's Health Division and appointed Ms. Cao Shaohua as the senior vice president and head of the Women's Health Division of Yahong Pharmaceutical. We believe that the core patient group for APL-1702 is HSIL people aged 20-40 with fertility needs, but there is also greater demand among HSIL people who have recurred from LSIL and HSIL surgery.

Investment advice:

Based on ACCRUE research and other business updates, we removed APL-1202's second-tier NMIBC revenue from the financial model and adjusted the launch time and success rate for other indications accordingly. We forecast the company's revenue for 2023/24/25 to be RMB 0.14/180/RMB 278 million, and net profit to mother of -RMB 4.30/-4.18/-390 million yuan. Assuming a WACC of 12% and a sustainable growth rate of 1%, we used the DCF method to estimate the target market value of 7.810 billion yuan, and the corresponding stock price was 13.70 yuan (down from 21.18 yuan). Maintain a “buy” rating.

Risk warning: risk of R&D or sales falling short of expectations, industry policy risk.