Core views

The company achieved revenue of 1,083 billion yuan in 2023, an increase of 40.26% over the same period last year, and achieved strong growth on the revenue side. The company has many catalysts in 2024. Overseas SLE phase 3 clinical phase I data of titacipu is expected to be read, while overseas back-line UC indications for verdicitumab are expected to be completed and submitted for marketing. We believe that as the company's commercialization team matures, the company's two core products will see significant increases in sales and cost control. Sales of both products are expected to increase by more than 50% year-on-year in 2024, and subsequent commercialization can be expected. At the same time, as the company plans to raise no more than 2.55 billion yuan in capital from specific targets, the company's overall financial structure is expected to be optimized, and research and development of new drugs under development is expected to be promoted.

occurrences

The company released its 2023 annual report

The company released its 2023 annual report. The company achieved operating income of 1,083 million yuan for the full year of 2023, an increase of 40.26% over 772 million yuan in the same period last year. The net loss attributable to shareholders of listed companies was 1,511 million yuan, an increase of 512 million yuan over -999 million yuan in the same period last year; by the end of the period, the company's monetary capital was 743 million yuan.

The company announced a plan to issue A shares to specific targets

On March 29, the company issued an announcement to raise no more than 2.55 billion yuan in specific targets for the company's new drug research and development projects.

Brief review

The company's 2023 performance was basically in line with expectations. The rapid release of core products achieved operating revenue of 1,083 billion yuan in 2023, a strong year-on-year increase of 40.26%, mainly driven by the rapid year-on-year increase in sales revenue of the company's core products, taitacip and vidicitumab. In 2023, as the world's first dual-target product approved for the treatment of SLE, the product achieved sales volume of about 782,000 units, an increase of 59.37% over the same period last year, highlighting the excellent efficacy and safety of the product. Another core product, verdicitumab, is also stable on the cancer circuit, achieving sales volume of 36,000 sticks in 2023, an increase of 15.24% over the previous year. Overall, the accessibility of the company's two products has been greatly improved after entering medical insurance. We believe that in the future, as the company's commercialization team becomes more mature and the drug penetration rate continues to increase, the volume of the two products is expected to increase further, and subsequent commercialization can be expected.

Losses have increased, mainly due to net losses of 1,511 billion yuan attributable to shareholders of listed companies for the full year of 2023 from R&D investment and commercialization promotion expenses, an increase of 512 million yuan over -999 million yuan in the same period last year. This loss was mainly due to the continuous advancement of the company's various R&D pipelines, a number of innovative drugs in critical testing and research stages, a sharp increase in R&D expenses, and an increase in commercial sales investment team building expenses and academic promotion activities. Overall, the company's existing bank credit is sufficient to support the company's normal operation, R&D, and production activities for at least the next 12 months.

The company announced a plan to issue A-shares to specific targets. It is proposed to raise no more than 2.55 billion yuan in capital. The company issued an announcement on March 29 to raise no more than 2.55 billion yuan in fixed capital increases to specific targets. This time, the company issued shares to no more than 35 people, including securities investment fund management companies, securities companies, trust companies, etc. that meet the requirements stipulated by the China Securities Regulatory Commission. The number of shares issued this time is no more than 13% of the total share capital of the company before this issuance, and the amount of capital raised will mainly be used for new drug research and development projects. The company will then select an appropriate time to distribute to specific targets within the validity period after obtaining the approval of the China Securities Regulatory Commission for registration. The issuance resolution is valid for 12 months, calculated from the date of review and approval by the shareholders' meeting.

Overall, the company has a variety of innovative drugs under development, covering antibody fusion proteins, ADC classes, and bifunctional antibody platforms. At the same time, Taytacip is simultaneously carrying out phase III clinical trials for large groups at home and abroad, which is in line with the direction of the country's startup industry. The successful implementation of the company's fund-raising investment project will help optimize the company's financial structure, accelerate the company's R&D process in the development of new drug pipelines, and promote the commercialization of R&D results.

RC18: RA indications submitted for marketing, MG and many other clinical trials continue to be promoted domestically: SLE: domestic phase III confirmatory clinical trials have been completed, and supplementary marketing applications are being submitted at the end of 2022. Children's SLE phase III and phase II lupus nephritis are being promoted; RA: rheumatoid arthritis submits marketing applications, and approval of the new indications is expected to drive further release of the product; IgA nephropathy:

Domestic phase III clinical trials are progressing smoothly; MG: The domestic phase III clinical trial has completed the enrollment of all patients, and clinical trials are continuing; PSs: Domestic phase III clinical trials have started, and it is expected that patients will be enrolled in the first half of 2024. Tetacept also has potential for various other autoimmune indications, and domestic phase II/III clinical trials for indications such as neuromyelitis optica and multiple sclerosis have been fully carried out.

Overseas: SLE: Overseas phase III research continues to advance, and all first-stage patients have been enrolled; MG: has obtained orphan drug qualification and is steadily preparing to begin phase III clinical research; IgA nephropathy: continuous communication with the FDA, phase III clinical research is in the preparation stage; PSs: Phase III clinical research is in the preparation stage.

RC48: First-line UC is being promoted, SEAGEN helps internationalization

Domestic: UC: Phase III clinical trials with PD-1 first-line treatment in China are ongoing, and phase II clinical trials of perioperative invasive bladder cancer (MIBC) continue to advance; GC: combined with PD-1 and chemotherapy or combination with PD-1 and hercetin to treat first-line patients with locally advanced or metastatic gastric cancer with locally advanced HER2 expression or metastatic gastric cancer; BC: In phase III clinical enrollment of patients with low HER2 expression, the Chinese phase III trial with high HER2 expression was completed at the end of 2022 Enrolled, the product is also undergoing several other clinical trials at the same time. On March 8, 2024, ESGO2024 published research data on verdicitumab in the treatment of cervical cancer.

Overseas: UC: Two clinical studies have begun overseas. Key clinical trials of 2L UC as a single drug are continuing, and 2025H1 is expected to be completed and BLA; phase III studies of treating 1L UC with K drugs are continuing to advance, and patients are continuing to enroll.

RC88: Clinical progress continues, the product is worth looking forward to

As an innovative MSLN ADC, RC88 is expected to achieve breakthroughs in MSLN positive solid tumors. In December 2023, RC88 was approved by the US FDA to conduct an international multi-center phase II clinical study. Meanwhile, phase II clinical research on the product continues to advance in China. As a targeted MSLN ADC, RC88 has shown excellent anti-tumor activity and good safety before clinical trials. The product is expected to read clinical trial data in the first half of '24, which is worth looking forward to.

Three core technology platforms continue to drive innovation pipeline expansion

The company has built a world-class independent innovation R&D engine, covering the whole process of biological discovery, target screening and verification, drug discovery, research and development, including three novel biopharmaceutical development technology platforms: ① antibody and fusion protein platforms, which develop products such as titasip, RC28, and RC98; ② antibody-conjugated drug (ADC) platform, developed RC48, RC88, RC108 based on this platform; ③ Bi-functional Antibody (Hibody) platform, developed RC138, RC148, and RC158 based on this platform. The company's early pipeline continues to advance. RC98 (PD-L1 monoclonal antibody) is currently undergoing joint tests with RC48 for gastric cancer and other indications; RC88 (mesothelin ADC) and RC108 (c-Met ADC) have entered an expansion period for IB/IIa patients;

RC118 (CLDN18.2 ADC) is undergoing phase I climbing in China and Australia; RC198 (IL-15/IL-15Rα) obtained phase I clinical IND approval in Australia and China in May and July 2023, respectively; and RC148 (dual antibody) was approved for phase I clinical IND in China in July 2023.

2024 outlook: Commercial products and clinical trials continue to advance, the company can be expected to develop a clinical pipeline. The company has many catalysts in 2024, and Taitacip SLE overseas phase I clinical data is expected to be read out, further promoting the development of the product overseas. At the same time, the company's verdicitumab is expected to complete second-line UC indications and submit marketing applications by early 2025, benefiting more back-line UC patients. At the same time, the company's innovative product RC88 is expected to read solid tumor data in the first half of the year, and the curative effect is worth looking forward to.

On the commercial side, the company's two core products, tetracip and verdicitumab, have characteristics. We believe that with the gradual maturity of the company's commercialization team, the company will usher in a significant increase on the product sales side in 2024. Sales of both products are expected to increase by more than 50% year on year. At the same time, with the increasingly refined management of the company's sales team, the company will also usher in improvements in the overall control of sales expenses.

On the capital side, the company has announced plans to issue A-shares to specific targets, and plans to raise no more than 2.55 billion yuan in capital. If the company's current fund-raising investment project can be successfully implemented, it will help optimize the company's financial structure, accelerate the R&D process of the company's new drug pipeline, and promote the commercialization of R&D results.

Financial analysis: Revenue grew strongly, and losses increased due to R&D expenses and sales expenses. The company performed well on the revenue side in 2023. The company achieved revenue of 1,083 billion yuan in 2023, a strong year-on-year increase of 40.26%, mainly due to the rapid year-on-year increase in sales revenue and sales volume of the company's core products, taitacip and verdicitumab. On the operating cost side, the company's operating costs in 2023 were 244 million yuan, a decrease of 10.16% compared to 272 million yuan in the same period last year, mainly due to the fact that the company did not have technical licensing costs related to verdicitumab in 2023. The company's sales expenses in 2023 were 775 million yuan, an increase of 75.90% over 440 million yuan in the same period last year. The high increase in sales expenses was mainly due to the company's commercial team in the growth stage in 2023, and the company invested more in commercial team building expenses. At the same time, the company's commercial products are also in the early stages, and the company invested more in academic promotion expenses. The company's financial expenses in 2023 were -0.05 billion yuan, an increase of 62 million yuan over -67 million yuan in the same period last year, mainly due to a decrease in the company's interest income, increased interest expenses, and a decrease in exchange earnings. The company's R&D expenses in 2023 were 1,306 million yuan, up 33.01% from 982 million yuan in the same period last year. The large R&D expenses were mainly due to the increase in the company's new drug development pipeline and the increase in clinical trial fees, testing fees, etc. due to the increase in the company's new drug development pipeline and the fact that several innovative drugs were in the critical trial research stage. At the same time, the increase in the company's R&D personnel and wage increases also led to an increase in related expenses.

The company's net loss in 2023 was 1,511 million yuan, an increase of 512 million yuan over -999 million yuan in the same period last year. As of the end of the current period, the company's monetary capital was 743 million yuan. Overall, the company's current bank credit of about 4 billion dollars is sufficient to support the company's normal operation, R&D, and production activities for at least 12 months, and the company's overall operation is steady.

Profit Forecasts and Investment Ratings

The company has established and perfected three innovative core technology platforms, and its independent research and development capabilities are strong; it is expected that the indications for the popularization of tetracitumab will continue to expand, and the company's commercialization capabilities will be verified; at the same time, the company's internationalization has begun, and cooperation has been reached with SEAGEN on RC48's overseas rights. RC18 is actively promoting clinical trials, and overall operation is becoming more mature and stable. However, due to the impact of industry changes, we expect the company's revenue to be 1.55 billion yuan, 2,453 billion yuan, and 3.173 billion yuan respectively in 2024-2026. According to the DCF model, we expect the company to have a reasonable market value of HK$22.7 billion, lower the target price to HK$41.66, and maintain a “buy” rating.

Risk analysis

The company's innovative drug research and development progress and new drug review time fell short of expectations. The company's core products, such as tetracip, verdicitumab, and RC28, all had different indications. Due to the many drug review and approval processes, long cycles, and high uncertainty, there is uncertainty about the expansion of indications; the pressure on medical insurance fees exceeds expectations, and the company's product pricing falls short of expectations. The company's core products are currently included in medical insurance, and there are still new indications renewal negotiations. If the decline is significant, it may have an impact on the company's commercialization process; commercialization progress falls short of expectations, such as market expansion and academic expansion Broad coverage, medical insurance coverage, etc. Progress in this area falls short of expectations, or the sales team's failure to keep up with policy trends and grasp market competition trends will affect the company's future commercialization capabilities; overseas expansion falls short of expectations.