Key points of investment:

Incident: The company released its 2023 annual results report. The company achieved operating income of 91 million yuan in 2023, an increase of 88% over the previous year, and achieved net profit of -418 million yuan, compared to -220 million in the same period last year; achieved operating income of 23 million yuan in the fourth quarter, an increase of 69% over the previous year, and achieved net profit of -174 million yuan, compared to -47 million yuan in the same period last year. Revenue for the full year was in line with expectations, and the increase in profit loss was due to increased investment in R&D.

Contizolamide tablets continue to grow rapidly, and the immediate need for terminals has been further verified. The company's revenue increased by 88.31% over the same period last year. According to the company's performance report, the main reason is that the company actively expanded its academic promotion efforts and further expanded the distribution network of pharmaceutical commercial companies. At the same time, the number of hospitals covered increased, so the main business revenue grew rapidly. Given the characteristics of contizolamide products, they can be used in multiple departments and cover a wide range of people. In the next step, we believe that the company should continue to increase terminal coverage, expand the distribution network, and improve the accessibility of terminal medication, so as to achieve continuous rapid product growth.

The further increase in losses was due to increased investment in R&D. According to the company's performance report, the clinical progress of the company's research projects continues to advance and the size of the R&D personnel team is expanding, and R&D expenditure continues to increase. In order to enhance its core competitiveness, the company's new drug development pipeline is further enriched, and R&D projects continue to advance. Many innovative drugs are in the critical clinical trial stage, R&D expenditure has further increased, and the company's overall R&D investment remains at a high level. Specific clinical promotion projects include:

1. MRX-4 for injection in China. MRX-4 is an injectable dosage form of contizolamide prodrug. The efficacy of the two is similar, but the administration method is more suitable for the dosage habits of Chinese clinicians. It is expected that the second round of rapid growth of contezolamide products will begin after marketing. According to R&D progress, we expect MRX-4 to be approved for sale in 2026; 2. Global multi-center phase III clinical trial of injectable MRX-4 sequential conteconazolamide tablets. This clinical trial is an important clinical trial for the company's products to enter the international market; 3. MRX-5 Phase I clinical trial is used to treat infections caused by non-tuberculous mycobacteria; 4. Phase I clinical trial of MRX-8 is used to treat multiple drug-resistant gram-negative bacterial infections.

The commercialization of contezolamide is progressing smoothly, and continues to advance in the research pipeline, maintaining a “buy” rating. We are optimistic about the domestic volume and foreign market potential of the core product contizolamide. According to the 2023 performance report, we adjusted the profit forecast for 2023. The net profit forecast for 2023 is -418 million yuan, which was previously estimated at -360 million, mainly due to the acceleration of the company's R&D investment. R&D investment is related to the progress of R&D projects, and also indicates that the company's R&D progress has exceeded expectations. Maintain the 2024-2025 net profit forecast unchanged at -$414 million and -312 million, respectively. The company is deeply involved in the super antibiotic circuit and is actively expanding global value. We believe that the sharp drop in stock prices at the beginning of the year has nothing to do with the company's fundamentals; it is mainly due to the small-cap liquidity crisis. Our expectations for the competitiveness and peak sales of the company's core products remain unchanged, and we maintain a “buy” rating.

Risk warning: risk of R&D failure or delay in progress, risk of product sales falling short of expectations, risk of continued loss