Preliminary verification of the survival benefits of AK112 vs. PD-1 single-target drugs: The company announced that the AK112 head-to-head Keytruda phase III clinical trial (AK112-303/harmoni-2) of treating PD-L1-positive NSCLC obtained decisive positive results. Compared with Keytruda, AK112 can significantly prolong patients' PFS, and HR is significantly better than expected (no specific values have been announced, we expect it to be below 0.7). Specific data will be announced at the WCLC conference in September. Keytruda sold $25 billion globally in 2023. We estimate that more than half of it comes from various lung cancer indications, and is the drug of choice for first-line treatment of PD-L1+ NSCLC in major guidelines. AK112 has become the first drug in the world to prove improved survival benefits in a phase III single-drug head-to-head clinical study. Subgroup analysis showed that in people with high PD-L1 expression (TPS ≥ 50%) and high PD-L1 expression (TPS 1-49%), PFS benefits were significant and HR values were close. Other subgroup analyses also showed strong positive efficacy results, including squamous cell carcinoma/non-squamous cell carcinoma, with/without liver metastasis, and with/without brain metastasis. The company expects to submit a supplementary application for new indications to the State Drug Administration in the near future.

Previously, the marketing application for AK112 for EGFR-TKI-resistant NSCLC was approved by the State Drug Administration, and the first batch was delivered on May 30.

Our interpretation - the guiding significance of PFS efficiency for OS: After PFS achieved positive results, the core focus of the market came to OS. Although there is limited PFS data available, we are cautiously optimistic about OS results: 1) According to the results of a study on the correlation between alternative endpoints and OS, the correlation coefficient for PFS and OS HR after PD- (L) 1 monotherapy reached 0.80 in PD-L1+ NSCLC patients; if the PFS HR of Harmoni-2 was <0.7, we speculate that OS HR may be lower than 0.65, but the control group with PD- (L) 1 alone brought some uncertainty to this hypothesis. 2) Phase III LEAP-007 test (K drug + Renval vs. K-drug monotherapy (PD-L1+ NSCLC) obtained 0.78 PFSHR to verify the prolonged effect of inhibiting the VEGF pathway on survival benefits, but the higher toxicity in the treatment group (58% incidence of grade 3-5 TRAE) affected the final OS outcome (HR 1.10) to a certain extent; the safety of AK112 in the phase II trial was significantly better (grade 3-5 TRAE 22%).

Reiterating the buying rating: The clinical results of HarmonI-2 met our expectations and are a revalidation of AK112's clinical treatment and global market potential. We will continue to monitor the disclosure of detailed PFS data in September and subsequent OS data updates. After a week of fluctuation, the current stock price is still down 8% from the day before the sharp fluctuation. We believe that now is still an excellent time to lay out, maintain the purchase rating and target price of HK$70.0, and continue to select Kang Fang as one of the first tenders in our industry.