Matters:
On April 8, 2024, Chi-Med announced its 2023 annual report. The company's total revenue was US$838 million (yoy +97%), of which the comprehensive revenue from the oncology/immunization business was US$529 million (yoy +223%). Affected by the confirmed collaboration with Takeda of US$312 million, the company's net profit was US$101 million for the first time, and the results were in line with expectations.
Ping An's point of view:
Sales of core products continued to grow rapidly, and fruquintinib was released rapidly after it was marketed in the US. Among the company's 3 core products, 1) fruquintinib has maintained a leading position in the domestic third-tier colorectal cancer market with excellent clinical results, increasing domestic revenue by 19% in 23 years to US$83.2 million (26% at a fixed exchange rate). 2) Surufatinib continued marketing activities, and revenue increased 36% to US$43.9 million in 23 years (43% at a fixed exchange rate). 3) After being included in the national medical insurance drug catalogue in March '23, revenue increased 30% to US$28.9 million (37% at a fixed exchange rate). Takeda Pharmaceuticals has global sales rights for fruquintinib other than China. Fruquintinib was marketed in the US in November 2023. It is the first innovative targeted therapy approved for the treatment of metastatic colorectal cancer in the US in more than 10 years. Only two months after launch, sales in the US market have reached 15.1 million US dollars, and the volume is rapid.
The company's R&D expenditure is expected to remain steady in the short to medium term, and the restructuring of overseas operations effectively controls sales and administrative expenses. The company's R&D expenses fell 22% to US$302 million in 23 years (US$387 million in 2022). Among them, the company spent US$107 million on international clinical and registration application business expenses in the US and Europe in 23 (US$171 million in 2022). The decline was significant, mainly due to the completion of several large-scale registration trials, development outside of China dominated foreign cooperation, and continued strategic priority drug candidate pipeline. The company's sales and administrative expenses for 23 years were US$133 million (US$136 million in 2022), a slight decrease over the previous year, mainly due to the company restructuring commercial operations of the US oncology/immunization business at the end of '22, and the company's business infrastructure in China can support further revenue growth.
The global innovation pipeline continues to gain strength, catalyzing the company's value increase. Many of the company's major products with major indications are expected to be approved or declared for NDA in '24. 1) Fruquintinib has submitted NDAs in Europe and Japan for the indication of third-line colorectal cancer, and is expected to be approved for marketing in '24. 2) Fruquintinib was accepted by the CDE for domestic second-line gastric cancer indications in April '23, and is expected to be approved for marketing in '24. 3) Is sevotinib used in second/third-line treatment of MET abnormalities? The phase III clinical study of refractory non-small cell lung cancer completed patient enrollment in February 2024. Based on the accelerated approval granted by the FDA, it is expected that a new drug marketing application will be submitted by the end of 24. 4) Solepinib second-line treatment for immune thrombocytopenia (ITP). The application for marketing of the new drug was accepted by the CDE in January '24 and included in priority review, and is expected to be approved for marketing in '24. The approval of a number of major products for major indications is expected to continuously catalyze the company's value increase.
Investment advice: We expect the company's main business revenue in 2024-2026 to be US$671, 8.61, and US$1,027 million, respectively, and the company's net profit for 2024-2026 will be -1.07, 0.20, and 95 million US dollars, respectively, in line with the previous one. Considering that the indications for the company's listed products are still expanding, and the company is also rich in research pipelines, pipeline valuation is expected to further improve and maintain the “recommended” rating.
Risk warning: 1) Drug approval falls short of expectations: the company's innovative products may be delayed in approval; 2) the marketing volume of new drugs falls short of expectations: whether each node progresses smoothly after the launch of the company's innovative products has a significant impact on the company's product sales volume; 3) Impact of national policies: Health insurance negotiation policies may be adjusted, thereby affecting the company's innovative drug sales.