Incidents:

On October 31, 2024, Dizhe Pharmaceutical released its 2024 three-quarter report. The company achieved operating income of 0.338 billion yuan (+743.97% YoY) in the first three quarters of 2024, net profit attributable to shareholders of listed companies was -0.558 billion yuan (year-on-year loss reduction 32.63%), and net profit attributable to shareholders of listed companies after deduction was -0.6 billion yuan (year-on-year decrease of 29.93%). The 2024 Q3 quarter achieved operating income of 0.135 billion yuan (+236.39% year over year), and net profit attributable to shareholders of listed companies was -0.214 billion yuan (loss reduced by 32.09% year on year).

Investment highlights:

Net profit loss to mother narrowed. The company continued to invest in R&D in the first three quarters of 2024, but the loss narrowed from 0.829 billion yuan in the same period in 2023 to 0.558 billion yuan.

In the first three quarters of 2024, the company's R&D expenses were 0.568 billion yuan, down 1.94% year on year, accounting for 167.74% of sales. While maintaining innovation, the company continued to improve operational efficiency. In the first three quarters of 2024, the company's management expenses were 0.116 billion yuan, a year-on-year decrease of 34.65%.

Two innovative drugs have been approved for the market. The commercialization volume is the rapid increase in the company's revenue in the first three quarters of 2024, mainly benefiting from the remarkable commercialization results of the innovative drug Gao Ruizhe. Schwarzhe was approved for listing in October 2024, which is expected to drive the company's performance to further improve.

(1) In June 2024, the new Class I drug independently developed by the company - the world's first and only highly selective JAK1 inhibitor in the field of lymphoma, was officially approved by the National Drug Administration. The single drug is suitable for adult patients with recurrent or refractory peripheral T-cell lymphoma (r/r PTCL) who have received at least first-line systemic treatment in the past. The objective response rate (ORR) confirmed by the Independent Imaging Assessment Committee (IRC) was 44.3%, and the complete remission (CR) rate reached 23.9%, which was nearly twice that of previous targeted treatment regimens. Follow-up until February 2024, the median overall survival (OS) was 24.3 months.

(2) In October 2024, the Drug Evaluation Center of the China Drug Administration awarded the company's first self-developed novel lung cancer target drug, Schwarzhe breakthrough therapy certification. It is used for locally advanced or metastatic non-small cell lung cancer that has not received systematic treatment and has an epidermal growth factor receptor (EGFR) exon 20 insertion mutation. Schwarzer became the first and only full-line treatment of EGFR Exon20InS NSCLC to receive four “breakthrough therapy certifications” from China and the US.

Profit forecasts and investment ratings estimate that in 2024-2026, the company's revenue will be 0.471, 1.049, and 1.646 billion yuan, and net profit to mother will be -0.768, -0.421, and -0.023 billion yuan. As pipeline products continue to be marketed and indications continue to expand, revenue growth is expected to accelerate and maintain a “buy” rating.

Risk warning 1. Product sales fall short of expectations; 2. Risk of product clinical failure; 3. Risk of product shipping progress falling short of expectations; 4. Risk of industry policy changes; 5. Risk of loss of core personnel.