1H24 results were in line with BOCIe, with product sales up 22% YoY to RMB971m, including RMB706m sales of AK104 (+16.5% YoY) and RMB103m sales of AK112. Akeso's strong executive ability was reflected by strict expenses control, continued pipeline progress, including phase III studies initiation of the backbone drugs AK104 and AK112 and new candidates and R&D platform exploration. We like Akeso' self-developed comprehensive pipeline and keep close eyes on the data push of AK112 in PD-L1+ NSCLC in September. Maintain BUY and TP of HK$65.
Key Factors for Rating
1H24 results in line: product sales increased by 22% YoY to RMB971m, in line with BOCIe, including sales of AK104 (cadonilimab, PD-1/CTLA-4) which grew 16.5% YoY to RMB706m. AK112 (ivonescimab, PD-1/VEGF), which was approved by NMPA on 24 May, delivered sales of RMB103m in 1H24, demonstrating the consistent executive ability. Gross margin of drugs improved 1ppt to 92%. Total selling expenses ratio (including PD-1) dipped 4ppts to 56%. R&D expenses and administrative expenses changed by +3% and -1% to RMB594m and RMB100m, respectively. The management expects R&D expenses and administrative expense to be RMB1.3bn-1.4bn and RMB200m-210m in 2024, respectively. Net loss was RMB239m in 1H24 vs. net profit of RMB2.53bn in 1H23, due to a lack of license income from Summit Therapeutics (SMMT US/NR). As of 30 June, Akeso has cash & trading assets of RMB5.69bn.
AK104 and AK112, as the backbone drugs, continue to expand indication: AK104: apart from the sNDA in 1L GC and 1L CC under NMPA review, Akeso has initiated 5 phase III studies in PD-L1- NSCLC, adjuvant treatment HCC, + pulocimab (AK109, VEGFR-2) in 2L PD-(L)1 failed GC, +levatinib + TACE in unresectable HCC, and mono for concurrent/sequent NSCLC. AK112: apart from the sNDA review in 1L PD-L1+ NSCLC, Akeso has initiated/planed 4 phase III studies in +chemo vs tislelizumab + chemo in 1L sqNSCLC, +chemo vs. durvalumab in 1L BTC, + ligufalimab (AK117, CD47) vs. pembrolizumab in 1L PD-L1+ HNSCC, and +chemo in 1L PDAC. AK112 is the only drug that has initiated head-to-head trial vs. tislelizumab, durvalumab and pembrolizumab globally, demonstrating the management's confidence in AK112's efficacy and clinical value.
Early stage candidates: during the call, the management introduced three candidates that have obtained/submitted IND approval/application and will initiate phase I studies in 2H24, including AK135 (IL-1RAP) in chemotherapy- induced peripheral neuropathy, AK137 (CD73/LAG3) in tumour and AK138D (HER3 ADC) in tumour. Besides, the management expects to submit IND approval for a bsAb ADC in 2H24.
Key Risks for Rating
i) Failure of regulatory filing; ii) slower-than-expected sales ramp-up of new drugs; and iii) failure of major clinical trials.
Valuation
Post results, we fine-tune our 2024-26E forecasts, maintain BUY rating and TP of HK$65.