Core views

The company's product revenue for the first half of 2024 was 3.811 billion yuan, a year-on-year increase of 55.1%, and the sales side performed well. At the same time, thanks to strong growth in the company's product revenue and continuous improvement in operating efficiency, the company adjusted LBITDA of 0.161 billion yuan in the first half of 2024, down 0.107 billion yuan from last year. Losses narrowed further, and overall commercialization performance exceeded expectations. The company has now entered the commercialization stage of 11 drugs, and many major varieties are ready to be launched in the follow-up pipeline. We believe that the company's future development can be expected.

occurrences

On August 28, Cinda Biotech announced its interim results for the first half of 2024.

reviews

Strong revenue growth, commercialization performance exceeded expectations

In the first half of 2024, the company achieved total revenue of 3.952 billion yuan, a year-on-year increase of 46.3%, and achieved product revenue of 3.811 billion yuan, an increase of 55.1% year-on-year, and its performance exceeded market expectations. The main reason for the high increase in revenue is the outstanding performance of Cindilizumab and other products, while benefiting from the growth contribution of new products. We believe that the company has a comprehensive layout of cindilizumab in large indications and has strong channel and brand advantages, and is expected to maintain its leading position in the market. The three biosimilar drugs bevacizumab, rituximab, and adalimumab have first-mover advantages, production capacity and cost advantages, and are also highly competitive. Other varieties, such as olebatinib, ceptinib, pemitinib, and fluzelacide, etc., have a good competitive pattern. The company has a strong leading edge and is expected to achieve continuous release.

The company has now entered the commercialization stage of 11 drugs, and many major varieties are ready to be launched in the subsequent pipeline, including Maxidol and IL23p19. We think the company's future commercialization prospects are promising. Among them, as a leading GLP1/GCG R dual-target agonist made in China, Maxidu peptide has excellent weight loss efficacy, good tolerability, clear evidence of comprehensive benefits, and the company has sufficient raw material production capacity and disposable injection pen preparation for this product. We believe that in the next two years, the company will transform its first-mover advantage in terms of time into a brand and market share advantage. IL2 3p19 is a potentially major product in the field of self-immune diseases such as psoriasis. The maintenance period is long, the injection frequency is low, the data such as PASI90 and PASI100 are amazing, and the effectiveness is fast. We are optimistic about the company's product market potential.

The company's core pipeline continues to advance, and it is expected to usher in a number of catalytic non-tumor pipelines before the first half of next year: ① Weight loss indications for the 6mg standard of mast peptides are expected to be approved. ② Indications for IBI-112 moderate to severe psoriasis are expected to be submitted for marketing, and phase II ulcerative enteritis data will be read out at the same time. ③ IBI302 (VEGF/C) reads out complete phase II 8mg data. In the cancer product pipeline: ① IBI363 (PD-1/IL2α) will display lung cancer and colorectal cancer data on WCLC and ESM O, while reducing the disclosure of more melanoma data. ② IB I 34 3 (CLDN18.2 ADC)

We believe that based on Cinda Biotech's strong R&D capabilities and the efficient advancement of clinical progress in oncology and non-oncology pipelines, the company's catalytic incidents will continue to occur for some time to come, and the company's value is expected to be further enhanced.

Financial analysis: The quality of operations continued to improve, losses dropped sharply during the adjusted period, and the quality of operations improved significantly, and gross margin and expense ratios improved markedly. The company adjusted its gross profit margin of 84.1% in the first half of the year, an increase of 1.8 percentage points over the same period last year, mainly due to increased production and continuous optimization of production costs for pharmaceutical production. At the same time, the company's adjusted sales and marketing expenses in the first half of the year were 1.851 billion yuan, accounting for 48.6% of product revenue, down 5.9 percentage points from the same period last year. We expect that as the company's revenue continues to improve and the efficiency of the commercialization team is further improved, the company's sales and marketing expenses ratio will be further reduced.

Losses fell sharply during the adjusted period. In the first half of 2024, the company lost 0.393 billion yuan during the period, an increase of 0.254 billion yuan over the same period last year. The increase was mainly due to a decrease in net exchange income from non-cash projects (0.213 billion yuan) and a decrease in one-time income tax credits (0.145 billion yuan). At the same time, the company's adjusted R&D expenditure in the first half of 2024 was 1.294 billion yuan, an increase of 0.468 billion yuan over the same period last year. The company firmly invested in research and development because The 23H1 base was low, and R&D expenses showed a significant year-on-year increase. In the first half of 2024, the company's adjusted loss was 0.16 billion yuan, down 0.107 billion yuan from the same period last year; in the first half of 2004, the company's adjusted LBITDA was 0.161 billion yuan, down 0.107 billion yuan from 0.267 billion yuan in the same period last year, mainly due to strong growth in product revenue, operational efficiency and improved financial performance. We believe that the company is expected to achieve EBITDA profits in 2025 as revenue continues to grow and operating efficiency steadily improves.

Profit forecasts and investment advice

The company's extensive layout on the oncology circuit has begun to take shape, and high-value clinical products are expected to further increase the revenue of the company's oncology circuit and continue to reduce marginal costs. In the non-oncology circuit, the company has carried out an extensive layout in the fields of metabolism, self-immunity, and ophthalmology, and the products already on the market and under development are highly competitive and leading in progress. We expect Cinda Biotech's 2024-2026 revenue to be $7.8 billion, $11.38 billion, and $14.87 billion. Using DCF valuation, the company's reasonable market value is HK$112 billion, raising the target price to HK$69.01. Maintain a “buy” rating.

Risk analysis

The risk of uncertainty in the development of new drugs. As a technological innovation, new drug research and development has the characteristics of a long R&D cycle, high investment, high risk, and low success rate. From laboratory research to approval of a new drug for marketing, it has to go through many complex steps such as pre-clinical research, clinical trials, new drug registration and marketing, and after-sales supervision. Every step may face the risk of failure. There is also a risk that existing products or treatments will be replaced by new treatments and technologies.

Commercialization risks. Health insurance fees have exceeded expectations, causing the pricing of innovative drugs to fall short of expectations; although the company has exclusive varieties in the release stage, competition in the PD1 and biosimilar markets is fierce, which may lead to a risk that the sales share falls short of expectations or that the sales expense ratio is higher than expected.