Incidents:
Microchip Biotech released its financial report for the first quarter of 2021: In Q1 2021, the company achieved total revenue of 75.3046 million yuan, an increase of 130.06% over the previous year; the net profit loss of the mother was 7.3438 million yuan, a decrease of 241.44% over the previous year; after deducting the net profit loss of the non-return mother was 1,8712 million yuan, a year-on-year decrease of 4563.89%.
Key points of investment:
The original innovative drug, sidabenamide, gradually completed the market introduction stage and ushered in a period of accelerated release. In Q1 2021, the company achieved a total revenue of 75.3046 million yuan, an increase of 130.06% over the previous year. Looking at the indications, we expect the first approved indication, peripheral T-cell lymphoma (PTCL), to contribute more than 80% of revenue. The major indication breast cancer approved at the end of 2019 is in the sales phase of climbing, and it is expected that this year will perform well. Looking at business segments, in addition to the fact that sales of zidabenamide contribute the vast majority of revenue, milestone payments and sales shares are expected to drive performance elasticity. Milestone revenue and sales shares that are expected to be implemented this year include: 1) On April 28, 2021, the company announced that partner Huya Biotech submitted a listing application for Sidabonamide PTCL indications in Japan and was accepted, which is expected to trigger a milestone payment of around 10 million yuan. 2) The company's partner, Huya Biotech, submitted a marketing application for the treatment of adult T-cell leukemia (ATL) for the treatment of adult T-cell leukemia (ATL) in Japan in October 2020. It is expected to be approved for listing this year, which will also trigger a milestone payment of 10 million yuan. At the same time, Microchip will directly share the sales share of sidabenamide in Japan.
Investment in R&D and sales has increased dramatically, and short-term profits are under pressure. In Q1 2021, the company lost 7.3438 million yuan in net profit, a year-on-year decrease of 241.44%; net profit loss after deducting non-return to the mother was 128.712 million yuan, a year-on-year decrease of 4563.89%.
Factors contributing to the year-over-year decline in profit levels include:
1) The number of clinical trial projects in the company has increased, and investment in R&D has continued to increase. As a pioneer of innovative drugs in China, high investment in R&D is a key factor in maintaining the company's core competitiveness. According to the 2021 company's clinical development plan disclosed in the 2020 annual report, it is expected that this year there will be 4 phase 3 clinical trials, 6 phase 2 clinical trials, 2 phase 1 clinical trials, and 1 phase 2 clinical trial in the US. Therefore, this year was a year where the company invested heavily in R&D expenses. 2021 Q1 R&D personnel increased 91% over the same period last year, and R&D expenses were 25.85 million yuan, an increase of 123.88% over the previous year.
2) Steadily promoting the layout of the marketing network, and the perfect transformation of R&D, production and marketing integration highlights the company's determination for comprehensive development. The company added a metabolic disease products division, which is responsible for the academic promotion of the new product siglitazol. The oncology products division expanded its sales team to further spread to second- and third-tier cities. The sales cost of 2021Q1 was 4.58 million yuan, an increase of 155.83% over the previous year.
3) The share payment fee for the restricted stock incentive plan for new employees in the current period was 6.76 million yuan.
It is expected that siglitazine will be approved for listing this year, bringing a new performance engine. The company is expected to break the situation where a single product contributes revenue this year. The application for siglitazine NDA was accepted in September 2019, and production site inspections were carried out in April 2021. It is expected that Q2 2021 will be approved for listing. At the same time, the company established a new metabolic disease products division and selected Zhejiang Haizheng Pharmaceutical as a business partner to jointly promote and implement commercialization of siglitazine, making full preparations for the marketing and sale of siglitazine. Furthermore, the company's follow-up pipeline is full of momentum, and it can continuously launch unique innovative drugs to meet clinical needs. CS12192 has now completed a single-dose dose climb in phase I clinical trials, and has since been stocked with more than 20 products ready for clinical development, including CS17919, CS24123, CS17938, and CS27186.
Profit forecast and investment rating: As a pioneer of innovative drugs in China, we have long been optimistic that it can develop differentiated original innovative drugs based on an exclusive chemical genomics platform under controllable R&D risks. 2021 is the first year in which the company also transitioned from a single indication of a single product to multiple products with multiple indications to a period of accelerated growth. Therefore, we expect the company's revenue for 2021-2023 to be 422 million yuan, 665 million yuan and 1,007 million yuan, up 56.6%, 57.7% and 51.3% over the previous year. Due to the acceleration of the company's clinical pipeline development and marketing network layout, the corresponding R&D and sales investment will be greatly increased, which will have a great impact on profit levels in the short term, but we are optimistic about the high performance flexibility brought about by its original innovative drug after it is marketed, so we will maintain the purchase rating.
Risk warning: the risk of the original innovative drug not being approved by doctors or patients after it is marketed; the risk that the development of the new drug will fail; the risk that the performance will not meet expectations.