occurrences

On October 25, 2024, Zejing Pharmaceutical released its report for the third quarter of 2024. During the reporting period, the company achieved operating income of 0.384 billion yuan, +36.16% year over year; net profit to mother -0.098 billion yuan, a year-on-year loss reduction of 51.55%; net profit after deducting non-return net profit of -0.105 billion yuan, a year-on-year loss reduction of 57.02%. Looking at the single quarter, the company's 2024Q3 revenue was 0.143 billion yuan, +130.67% year over year. The biggest increase in the single quarter was due to a lower base for the same period last year; net profit to mother was -0.031 billion yuan, a year-on-year loss reduction of 64.30%; net profit without return to mother was -0.032 billion yuan, a year-on-year loss reduction of 71.59%. The company is stable and has achieved positive month-on-month revenue growth for 4 consecutive quarters.

reviews

Maintaining a high level of gross margin, and the cost ratio continued to narrow during the period

In the first three quarters of 2024, the company's overall gross margin was 92.96%, +0.57 percentage points year on year; the cost ratio for the period was 125.41%, 58.77 percentage points year on year; of which the sales expense ratio was 49.38%, -11.66 percentage points year on year; management expense ratio was 10.68%, +2.98 percentage points year on year; financial expense ratio -5.67%, -2.30 percentage points year on year; the cost ratio was drastically reduced; net operating cash flow The amount was 0.067 billion yuan, or -129.08%, and recorded a significant decline, mainly due to the high base figure caused by the company receiving exclusive promotion authorization from Zepning in the same period last year.

ZG006 data is impressive, leading the world in progress

On September 9, 2024, the company issued an announcement disclosing the clinical research progress of the company's FIC drug CD3/DLL3 trispecific antibody (ZG006 for injection), and announced the latest data on ZG006 at ESMO 2024 and CSCO 2024 academic conferences. As of August 8, 2024, phase I/II clinical trials for the treatment of SCLC or neuroendocrine cancer have completed phase I dose escalation enrollment. A total of 24 evaluable samples have been obtained, and 17 patients have all received at least two lines of antineoplastic drugs. Of the 9 SCLC patients receiving doses of 10 mg or more, 6 achieved PR, ORR 66.7%, and DCR 88.9%. Of the 24 subjects, there was only 1 case of grade 3 CRS. The vast majority of TREs were grade 1 or 2. The overall ZG006 data were impressive, showing initially good tolerability and excellent anti-tumor efficacy. ZG006 has now been certified as an orphan drug by the FDA, demonstrating its global competitiveness.

TCE drugs have shown advantages, and combined use may become a frontline trend

The CD3/DLL3 FIC drug, Amgen's IMDELLTRATM (tarlatamabdlle), has been approved by the FDA for extensive small cell cancer SCLC (that is, SCLC post-line treatment) that progresses or fails chemotherapy. The MOS for second-line treatment in the Phase 2 expansion trial of DellPHI-301 has reached 15.2 months, and its phase 1b first-line maintenance combination therapy data proved that combining CD3/DLL3 target drugs with frontline drugs (PD-1, Imfinzi, Tecentriq monoclonal antibodies, etc.) can increase long-term benefits for patients. The effectiveness of DLL3 targets and the prospects for their frontline use have been clearly proven over time. The company's ZG006 is expected to continue to gain momentum as the leading product in the TCE antibody circuit in China, and its BD potential is worth looking forward to.

Investment advice

Considering that Zepning is still in the early stages of commercialization this year, we adjusted our product sales and profit forecasts. The company's revenue for 2024-2026 is 0.588/1.286/2.059 billion yuan (previous value was 0.673/1.818/3.081 billion yuan), up 52.3%/118.5%/60.2% year-on-year respectively, and net profit to mother is -0.127/0.104/0.245 billion yuan, respectively (previous value was -0.118/0.121 billion yuan) /0.304 billion yuan), with year-on-year increases of 54.6%/182.0%/136.0%, respectively, and the corresponding valuation is loss/144X/61X. Optimistic about the commercialization prospects of the company zeptinin and gicaxitinib, and the first-in-class potential of dual-antibody platforms, the company is expected to become the next generation of comprehensive innovative pharmaceutical companies. Maintain a “buy” rating.

Risk warning

New drug development failure risk, risk of approval falling short of expectations, industry policy risk, and sales fluctuation risk.