Incident: The company released its 2024 mid-year report. During the reporting period, it achieved operating income of 0.116 billion yuan, an increase of 28.42% over the previous year; realized net profit to mother of 0.445 billion yuan; and realized net profit not deducted to mother of 0.461 billion yuan.

NECTIN-4 ADC is progressing rapidly, and 3 phase 3 clinical trials have been initiated. The company's core product, NECTIN-4 ADC, has now carried out 3 phase 3 clinical trials, including: 1) phase 3 key registered clinical studies for locally advanced or metastatic urothelial cancer treated with platinum chemotherapy and PD- (L) 1 inhibitors, 2) phase 3 clinical studies to treat recurrent or metastatic cervical cancer that failed platinum-containing chemotherapy, and 3) first-line clinical studies with PD-1 monoclonal antibodies to treat urothelial cancer. Clinical progress is rapid. Currently, this variety has obtained multiple evaluation qualifications granted by the US FDA: “Fast Track Accreditation” (FTD) is used to treat advanced, recurrent, or metastatic esophageal squamous cell carcinoma, recurrent or metastatic cervical cancer that has previously been treated with platinum-containing chemotherapy, and locally advanced or metastatic Nectin-4 positive triple-negative breast cancer; “Orphan Drug Qualification” (ODD) is used to treat esophageal cancer. It was also included in the list of breakthrough treatment varieties by the Drug Evaluation Center of the State Drug Administration to treat locally advanced or metastatic urothelial cancer where previous platinum chemotherapy and PD- (L) 1 inhibitor treatment failed.

In terms of other innovative drugs, long-acting whitening agents are expected to be approved for marketing in 2025, and B7H3ADC and TROP2 ADCs are progressing rapidly. The company's next-generation long-acting whitening agent, 8MW0511, is a human serum albumin-human granulocyte colony stimulating factor fusion protein. It has excellent differentiation from PEG long-term whitening agents and Fc fusion protein long-term brighteners that have been approved for marketing. The product was submitted for marketing in December 2023. Referring to the marketing review progress of other drugs, we expect it to be approved for marketing in 2025. In terms of ADC pipelines, 2 phase 1 clinical trials of the B7H3 ADC and TROP2 ADC developed based on the company's next-generation ADC technology are being successfully carried out; judging from the structural design of the next-generation ADC, it is close to AstraZeneca's self-developed ADC, and the release unit (PEG-VA) and toxins are all similar to AstraZeneca's self-developed ADC. The main difference is that the company's next-generation ADC connector part is a self-developed IDConnect connector (which can produce a fixed-point conjugated drug with DAR 4 as the main component).

Investment advice: We expect the company's revenue from 2024 to 2026 to be 0.3 billion yuan, 1.108 billion yuan, 2.013 billion yuan, and net profit of -0.92 billion yuan, -0.626 billion yuan, and -0.087 billion yuan respectively; considering the volume potential of the company's marketed/upcoming products and rich clinical research and development pipeline, we think the company's future development prospects are promising; without considering overseas expectations or unlisted biology In the case of similar drugs, a 6-month target price of 37.87 yuan was given according to the DCF model, maintaining a purchase-A investment rating.

Risk warning: Risk of overseas licensing progress falling short of expectations, risk of failure in clinical trials of innovative drugs, risk of sales of biosimilar products falling short of expectations.