Clinical progress on COVID-19; maintaining “buying”
Kaitong Pharmaceutical recently revealed a number of steady developments in its clinical research: 1)) Significant progress has been made in exploring the therapeutic potential of procluramide for COVID-19; 2) Valid data on the ALK-1 antibody (GT90001) was revealed at the 2021 American Society of Clinical Oncology Gastrointestinal Oncology Symposium (ASCO-GI). We are optimistic about the treatment potential of procluramide/GT90001 for COVID-19/liver cancer, and we reaffirm our “buy” rating for Pioneer Pharmaceuticals. We expect the company's EPS for 2021/22/23 to be RMB (1.58) /$36.41/6.27, and the target price based on the DCF method is HK$88.19 (previous value: HK$21.08), considering: 1) WACC was lowered from 13.0% to 10.2% as the debt ratio increased: 2) gave pucluramide an estimate of 19.6 billion yuan for COVID-19 indications; 3) the GT90001 success rate increased from 10% to 20%.
Puclomide: a potential alternative treatment for COVID-19
Pioneer Pharmaceutical actively explored the therapeutic potential of procluramide for COVID-19 and achieved good initial results: 1) Decrease in hospitalization rate, ICU usage rate, mechanical ventilation usage rate, and mortality rate verified its good efficacy among out-of-hospital patients; 2) the risk of death among hospitalized patients was significantly reduced, and the median length of hospitalization was reduced. Kaituo Pharmaceutical is advancing a phase III trial of procluramide for COVID-19 treatment in the US. We anticipate that under optimistic circumstances, the indication will be approved in 4Q21, and is expected to receive $3.4 billion in revenue in the form of royalties from potential partners in 2022.
GT90001: Hepatocellular carcinoma treatment shows initial efficacy
According to the 2021 ASCO-GI disclosure, GT90001 showed good data in second-line treatment of patients with hepatocellular carcinoma: 1) No dose-limiting toxicity was observed during the dose reduction phase. 2) 40% of patients received partial remission, which was higher than other PD-1/PD-L1 based treatment options. We expect GT90001 to be approved in 2024, peak sales of RMB 1.5 billion, and increase our approval success rate expectations (20% vs. 10%).
COVID-19 clinical research may increase R&D expenses in 2021
The company's revenue in 2020 was zero, net loss was RMB 508 million, R&D expenses reached RMB 329 million (up 9.6% year on year), and management expenses were RMB 77.1 million (up 28.3% year on year). Considering the additional costs of COVID-19 phase III clinical trials in the US, we raised R&D expenses for 2021/2022 from the previous value of RMB 250 million/RMB 275 million to RMB 500 million/550 million yuan.
Risk warning: 1) The main targets of clinical trials have not been met; 2) Vaccination suppresses the impact of COVID-19; 3) Commercialization is uncertain; 4) Clinical trials and regulatory reviews are progressing slower than expected.