Key points of investment:

Sales of siglitazide continued to grow at a high rate, with significant cost reduction and efficiency results on the cost side

24H1 achieved revenue of 0.302 billion yuan, +25.06% year-on-year. Sales volume of siglitazide continued, with sales volume +396.15% year over year and revenue +632.48% year over year. 23Q4 sidabendamide PTCL indications entered the medical insurance catalogue for the fourth time, and the medical insurance payment price was reduced by 6%. 24H1 sidabendamide sales volume +11.74% year over year, revenue +4.15% year over year.

Net profit from 24H1 was 0.041 billion yuan, or -126% year-on-year, mainly because at the end of the same period last year, Microchip Xinyu was no longer included in the scope of the company's consolidated statements, and the company no longer controlled the remaining shares after the new domain confirmed investment income based on fair value calculation, which led to an increase in net profit for the same period last year. 24H1 deducted non-net profit of 0.047 billion yuan, +68% year-on-year, mainly due to the increase in the company's operating income while expenses decreased year-on-year. 24H1's management expenses were 0.037 billion yuan, -19.02% YoY. R&D expenses were 0.102 billion yuan, or -36.97% year-on-year, accounting for a decrease of 17.8 pct to 33.8% of revenue. Sales expenses were 0.15 billion yuan, +4.61% year-on-year, accounting for a decrease of 4.8 pct to 49.55% of revenue.

The indication for sidabenamide DLBCL has been approved, and the rapid release period is expected to begin in 25 years

There are about 0.03 million new cases of DLBCL in China every year. As the standard first-line treatment for DLBCL, about 30% of patients have MYC/BCL2 simultaneous overexpression (DEL), and the efficacy and prognosis of R-CHOP treatment are significantly lower than those with non-dual expression. Sidabenamide plus R-CHOP for treatment of previously untreated DEL was approved for marketing on April 30, 2024. The Phase III study was selected for the 2024 ASCO LBA oral report. With the efficacy advantages that PFS clearly benefits, we expect sidabenamide to quickly establish a first-line preferred position for dual-expressed DLBCL. In addition, sidabendamide has been deeply involved in the field of hematoma for many years. Currently, it covers more than 1,300 prescription hospitals and is sold in 713 pharmacies across the country. We expect dual-expression BLDCL indications to rapidly contribute to increased performance 25 years after entering medical insurance in the second half of 2024.

Phase 3 clinical trials of sidabenamide for colorectal cancer have been initiated. It is expected that the efficacy of IO+HDAC is certain. PMMR/MSS patients, who account for more than 90% of bowel cancer, cannot benefit from monotherapy with immune monotherapy, and there is an urgent clinical need. Phase II data showed that the three-drug regimen sidabenamide+cindilizumab was treated with third-line treatment. The 18-week PFS rate reached 64.0%, ORR reached 44.0%, and the median PFS reached 7.3 months. Currently, phase 3 clinical approval has been granted, and enrollment is expected to begin within the year.

Profit forecasting and investment advice

We expect the company's revenue in 2024-2026 to be 0.676/1.007/1.342 billion yuan, an increase of 29%/49%/33% year over year. Due to the reduction in R&D expenses exceeding expectations, we adjusted 24-26 net profit of -0.107/0.001/0.062 billion yuan to -0.049/0.078/0.156 billion yuan. According to the DCF valuation model, according to WACC of 9.2% and a sustainable growth rate of 1%, it is estimated that the company's reasonable market value stock price is 33.92 yuan, and the reasonable value is 13.8 billion yuan, maintaining a “buy” rating.

Risk warning

Risk of product development failure, risk of product sales falling short of expectations