Incident: 2024H1 achieved operating income of 0.302 billion yuan, a year-on-year increase of 25.06%; net loss to mother of 0.041 billion yuan, and net profit of 0.156 billion yuan for the same period last year. Among them, 2024Q2 revenue was 0.172 billion yuan, up 27.00% year on year; net loss to mother was 0.023 billion yuan, and net profit for the same period last year was 0.188 billion yuan. The high base of 2023Q2 and 2023H1 net profit is mainly due to the fact that the company no longer controls the new Microchip domain, making it no longer included in the scope of consolidated statements. The company's remaining shares after losing control of Microchip's new domain are calculated at fair value and investment returns are confirmed.

New indications for sidabendamide have been approved, and revenue continues to grow. In April 2024, the key clinical phase III trial of sidabenamide combined with R-CHOP for first-line standard treatment in dual-expressed diffuse large B-cell lymphoma was conditionally approved for marketing by CDE. Currently, the company is completing follow-up work in accordance with CDE requirements, and data submission will be completed on time. In July, a phase III clinical trial of sidabenamide combined with cindilimab and bevacizumab for advanced microsatellite-stabilized or mismatched repair complete (MSS/pMMR) colorectal cancer that failed in line 2 or above standard treatment was approved by the CDE. In terms of sales, 2024H1 sidabenamide sales increased 11.74% year on year, and revenue increased 4.15% year on year (health insurance price reduction of 6%).

Siglita sodium supplementation has been approved, and revenue is growing rapidly. In July 2024, the marketing application for siglitazide combined with metformin for the treatment of type 2 diabetes was approved by the CDE, providing a new option for patients with type 2 diabetes to adopt a combination medication treatment plan. In terms of sales, sales of 2024H1 siglitazepam increased 396.15% year over year, and revenue increased 632.48% year over year.

Multiple clinical data will soon be read out, and Theoroni's US clinical trial will be fully launched. In February 2024, the phase II clinical trial of sitaglita monotherapy for non-alcoholic steatohepatitis (NASH) completed database locking. The curative effect was good, and the phase III plan is being refined. In April, the key phase III trial of Theoroni's single-agent treatment of small cell lung cancer was completed. The relevant data is expected to be read out in the near future, and the marketing application data is also in the preparation stage. Clinical work on the treatment of advanced solid malignant tumors and relapsed/refractory small cell lung cancer with Theoroni alone was fully initiated in the US during the reporting period. Currently, clinical 1b trials are progressing smoothly. Theoroni has shown positive efficacy signals, and no obvious safety issues have been reported.

The gross margin declined slightly, and the cost ratio for the period was clearly optimized. 2024H1's gross profit margin was 87.91%, down 2.59 percentage points year over year. Sales/ management/ R&D/ finance rates were 49.55%/12.14%/33.83%/2.56%, respectively, with year-on-year changes of -9.69/ -6.61/-0.17/ -33.30 percentage points, respectively. Sales expenses increased slightly year-on-year due to the increase in marketing expenses for siglitazide sodium, but the rapid increase in revenue diluted the sales expense ratio. The decline in the management fee rate is mainly due to expenses related to no equity incentives in the current period. The sharp drop in R&D costs is mainly due to the fact that the new Microchip domain is no longer consolidated after 2023H1.

Investment proposal: As one of the pioneers and leading enterprises in the field of original innovative drugs in China, the company focuses on developing original innovative molecular physical drugs for major diseases with global patent protection and unique clinical effects to meet unmet clinical needs. New indications for the marketed product sidabendamide have been successfully approved, and revenue has maintained steady growth; siglitazide is rapidly released after entering medical insurance, and approval of the combined medication plan is expected to open up new demand scenarios. In the long run, new indications of sidabendamide, siglitazide, and domestic and foreign clinical trials of theoroni are being carried out in an orderly manner, and pipelines such as CS12192/CS23546/CS32582 are in the early stages of clinical trials. The rich pipeline layout is expected to ensure the company's long-term growth space. We expect the company's net profit to be -0.052/0.02/0.095 billion yuan in 2024-2026, respectively. The predicted PE corresponding to the current stock price is -135, 360, and 75 times, giving it an “increase in holdings” rating.

Risk warning: risk of large fluctuations in raw material prices, risk of drug development falling short of expectations, risk of increased market competition, risk of industry policy fluctuations