Lepu Biotech is an innovative biopharmaceutical company focusing on the field of cancer treatment, especially targeted therapy and immunotherapy. The company is committed to developing innovative ADCs through an advanced ADC technology development platform, and developing IO+ADC combination therapy with the PD-1 monoclonal antibody Pritrizumab already marketed by the company to give full play to pipeline synergy. In addition, the company has also established a rich and differentiated pipeline by introducing oncolytic virus products through cooperation.

ADC pipelines are abundant, and target selection is differentiated. The core product MRG003 is the fastest progressing EGFR ADC in China. It has shown positive efficacy in nasopharyngeal cancer and head and neck squamous cell cancer. Among them, patients who have completed registration phase II clinical trials for nasopharyngeal cancer will be declared for marketing this year; patients are also being enrolled in phase III clinical trials for head and neck squamous cell cancer. MRG004A is the first TF ADC in China, with a differentiated layout of pancreatic cancer indications. Initial positive efficacy has been observed and will be announced at an academic conference soon. The CLDN18.2ADC CMG901, jointly developed by the company and Connoah, has authorized AstraZeneca and initiated a global multi-center clinical phase III study, which is expected to share global value. HER2 ADC MRG002 has reached the main end in single-arm registered clinical trials for liver metastatic breast cancer. Phase III confirmatory clinical enrollment is underway, and an NDA is being prepared. Furthermore, MRG006A, the first product on the Hi-TOPI ADC platform using a novel toxin topolase inhibitor, targets GPC3 and will soon be declared IND.

IO+ADC leading layout, giving full play to pipeline synergy. After 5-10 years of exhaustive clinical trial exploration of combined drugs, IO combined chemotherapy has achieved positive curative results in a number of indications and has become the most effective and widespread choice. As a type of “efficient, targeted chemotherapy,” ADC is showing potential for use in combination with IO. Nearly half of the current IO therapies may be upgraded from IO+ chemotherapy to IO+ADC, and the relevant indication market is expected to expand by 100-200%. Lepu Biotech has already launched a PD-1 monoclonal antibody, proterizumab. By using it in combination with a wide range of ADC drug candidates, it is expected to fully realize the pipeline value in the IO+ADC wave.

The company has initiated two IO+ADC combined clinical phase I/II studies. Among them, MRG003+ pritrizumab observed positive efficacy in head and neck squamous cell carcinoma and nasopharyngeal cancer. Preliminary data on MRG002+ pritrizumab treatment of HER2+ urothelial cancer is excellent and will be presented at an important academic conference this year.

Investment advice: Lepu Biotech has rich ADC pipelines, and the PD-1 monoclonal antibody, pritrizumab is already on the market. By using it in combination with a wide range of ADC drug candidates, it is expected to fully realize the pipeline value in the IO+ADC wave. We expect the company's revenue for 2024-2026 to be $3.39, 5.89, and 1.06 billion yuan, respectively, up 45.8%, 73.5%, and 87.9% year-on-year; net profit to mother will be -3.50, -1.12, and 177 million yuan. Based on the innovative drug pipeline valuation method (risk-adjusted cash flow discount method), the company was given an overall valuation of HK$10.9 billion, and the corresponding target price was HK$6.6 billion. First coverage, giving a “strong” rating.

Risk warning: Clinical progress falls short of expectations, changes in the competitive landscape, and foreign cooperation falls short of expectations.