The company's recent situation

The company announced that the FDA Oncology Drug Advisory Committee (ODAC) approved 1L treatment for patients with locally advanced unresectable or metastatic esophageal squamous cell carcinoma (ESCC) with PD-L1 expression level > 1% and patients with gastroesophageal junction cancer (G/GEJ) with PD-L1 expression level > 1%.

reviews

We believe that the ODAC voting results will not affect the progress of approval of Baizean-related indications. ODAC reviewed two phase III clinical studies of Baize'an, RATIONALE-305 (G/GEJ) and RATIONALE-306 (ESCC), and key clinical trials where K and O drugs were approved in these indications, and voted against PD-1 monoclonal antibody 1L treatment PD-L1 negative (PD-L1 expression < 1%) G/GEJ with an 11:1 vote against PD-1 monoclonal antibody 1L treatment for PD-L1 negative ESCC. For Baizean, which is currently applying for 1L G/GEJ and ESCC in the US, considering that both RATIONALE-305 and RATIONALE-306 have sufficient clinical evidence, and that PD-L1 expression levels were also stratified in the subgroup analysis, we believe that ODAC's recommendation may only affect Baizean's future approval label, but it will not affect Baizean's US listing submission process.

Global sales of zebutinib were strong, and operating losses continued to narrow. 1H24's zebutinib achieved sales of 1.13 billion dollars (YoY +117%), of which 1 billion dollars overseas (YoY +138%), exceeded our and market expectations. According to the company's announcement, zebutinib's market share among new 1L CLL patients in the US continues to rise and reach a dominant position. According to this, we expect zebutinib's market among new 1L CLL patients in the US to reach more than 50%. As new patients gradually transform into continuous drug users, we expect the company's zebutinib sales and market share to continue to increase. The company's 2Q24 GAAP operating loss was 0.107 billion US dollars, a decrease of 0.212 billion US dollars over the same period. Adjusted GAAP operating profit reached 48.46 million US dollars, which reversed the loss. We believe that as the company's global revenue continues to grow and operating efficiency gradually improves, GAAP operating profit is expected to reverse losses within the next 1-2 quarters.

Focus on the progress of the core pipeline and early solid tumor pipeline. BTK CDAC's clinical expansion queue for CLL and MCL may be listed as an accelerated approval. The company plans to launch Phase III of r/RCLL global registration on 4Q24 or 1Q25. The global registration phase II clinical enrollment of BCL2 for rr MCL has been completed, and clinical trials for other indications are progressing smoothly.

Profit forecasting and valuation

Considering that zebutinib sales exceeded expectations, we lowered our 2024 net loss from 1.004 billion to 0.682 billion US dollars, and the 2025 net loss from 0.497 billion to 0.101 billion US dollars. We maintain our outperforming industry rating. Based on the DCF model, considering the recent increase in the overall liquidity of A-shares, we raised our A-share target price by 18.9% to $220 (21.9% upside), and maintained the H/US target price of HK$184 /$308 (22.4%/26.7% upside).

risks

Risk of continued loss; risk of new drug development; risk of falling short of expectations in pricing and commercialization of products after launch.