The company's 2023H1 performance was in line with expectations. CM310 is advancing two phase III clinical trials for adult AD and chronic sinusitis with nasal polyps. It is expected to be submitted to the NDA within 2023 and 2024H1, respectively. The Allergic Rhinitis Company plans to conduct registered clinical trials in 2023H2. Phase IA of CMG901 has excellent efficacy. Global interests have authorized AstraZeneca for a total of nearly $1.2 billion, and there is huge potential for commercialization. A number of clinical trials are progressing smoothly, and R&D investment continues to increase. Production capacity continues to expand and upgrade, team size is rapidly expanding, and there is plenty of cash on hand. Maintain a “buy” rating.
The company's 2023H1 performance is in line with expectations, R&D continues to increase, and there is plenty of cash on hand. The company achieved revenue of 327 million yuan in 2023H1, mainly down payment revenue authorized by CMG901 to AstraZeneca. The company spent 238 million yuan on R&D in 2023H1 (after deducting equity incentives), +61% year-on-year, mainly due to continued increases in clinical trials and pre-clinical development support. As of the 2023 mid-year report, the company held cash and cash equivalents, time deposits, and bank financial management totaling nearly 3 billion yuan, and had plenty of cash on hand.
CM310: AD and chronic sinusitis with nasal polyps are expected to be submitted for NDA within 2023 and 2024H1, respectively.
According to the company's 2023 mid-year report, CM310 is currently undergoing two phase III clinical trials: ① Adult moderate to severe atopic dermatitis (AD): Data disclosure and preliminary statistical analysis were completed in March 2023, and the main study endpoints were successfully achieved; the company plans to apply for the NDA in 2023. ② Chronic sinusitis with nasal polyps (CrSWnP): Patient enrollment for the phase III clinical trial was completed in May 2023, and the company is expected to submit an NDA by 2024H1. Furthermore, the company has completed the PK trial for adolescent AD and will discuss the next clinical trial plan with the CDE; the company plans to start a registered clinical trial for allergic rhinitis indications in H2 in 2023. Duprilumab has not yet deployed this indication, and CM310 is expected to form a differentiated competitive advantage in allergic rhinitis. Additionally, Shiyao Group has conducted critical phase II/III clinical trials for moderate to severe asthma.
CMG901: Phase Ia has excellent data, totaling nearly $1.2 billion to authorize AstraZeneca. In January 2023, the company announced phase Ia clinical data for CMG901 at the ASGO-GI conference. In the dose climbing phase, 8 patients with G/GEJC had an ORR of 75% and a DCR of 100%. Among them, patients in the 2.6, 3.0, and 3.4 mg/kg cohorts all achieved an ORR of 100%. CMG901 has good safety, with 11.1% drug-related adverse events above grade 3, no grade 4 or 5 drug-related adverse events, and no MTD. According to the company's announcement, in February 2023, the company and Lepu Biotech granted global rights to CMG901 to AstraZeneca, including a down payment of 63 million US dollars (received on March 31, 2023), a milestone payment of up to 1.25 billion US dollars, and a hierarchical sales share with the highest and lowest double digits (all of the company's above benefits account for 70%). It is currently the largest authorized cooperation transaction for Claudin18.2 targets in China. AstraZeneca has rich clinical promotion experience and strong commercialization capabilities in the field of oncology. This authorization not only reflects the recognition of CMG901 products by the International MNC (MNC) Company (MNC), but is also expected to gain a greater competitive advantage in subsequent clinical trials and commercialization.
Multi-pipeline clinical trials are progressing smoothly, and research and development continues to accelerate.
According to the company's 2023 mid-year report:
① CM326 (TSLP monoclonal antibody): The phase II clinical trial to treat AD in adults completed patient enrollment in June 2023; the IB/IIa clinical trial to treat CRSWNP completed patient enrollment in February 2023; Shiyao Group initiated the CM326 phase II clinical trial for asthma treatment.
② CM313 (CD38 monoclonal antibody): Phase I trial data for the treatment of R/R MM were presented at the European Hematology Association (EHA) conference in 2023. 29 patients underwent at least one post-baseline efficacy evaluation. The ORR was 34.5%, and the mPFS was 132 days, which is comparable to the efficacy of the world's first CD38 monoclonal daretuyumab. The subcutaneous dosage form of CM313 is expected to be submitted to the IND within this year, which is expected to lead to lower costs and better patient adherence. Additionally, the phase Ib/IIa trial of CM313 to treat systemic lupus erythematosus (SLE) indications was carried out to enroll patients.
③ CM338 (MASP-2 monoclonal antibody): A phase II clinical trial for patients with IgA nephropathy began in February 2023.
④ CD3 dual antibody products: CM355 (CD20xCD3) /CM350 (GPC3xCD3) /CM336 (BCmaxCD3) is currently undergoing clinical phase I/II climbing. CM355 and CM336 will develop subcutaneous dosage forms, which can reduce the risk of CRS; during the CM350 climbing process, there is a higher safe dose compared to competing products, and the initial signal is good.
⑤ CM369 (CCR8 monoclonal antibody): The administration of the first patient was completed in February 2023.
Production capacity was expanded and upgraded, and team size was rapidly expanded. The first phase of the Chengdu production base project was completed and put into operation at the end of 2022. Eight 2000L bioreactor production lines were built. A total of 16,000L production capacity was added, which can guarantee the subsequent commercialization process of products such as CM310, and the proportion of domestic substitutions in the production chain has further increased, which can effectively reduce production costs. As of the 2023 mid-year report, the company has a total of 750 employees, including more than 250 clinical development and operation employees, and more than 340 CMC and production employees. The team size continues to expand, laying the foundation for subsequent product commercialization.
Risk factors: The company's drug development speed falls short of expectations or the risk of R&D failure; the company's drug review takes a long time and the marketing time falls short of expectations; there is a risk that the company's innovative drugs will not be included in the national health insurance catalogue in a timely manner or that prices will drop significantly through medical insurance negotiations; market competition intensifies, and the company's drug sales fall short of the expected risk.
Investment advice: The company is an innovative pharmaceutical company focusing on self-protection and oncology. The core product CM310 has remarkable curative effects and good safety. The company expects to submit NDAs for atopic dermatitis and chronic sinusitis with nasal polyps within 2023 and 2024H2, respectively, making it the first domestically produced IL-4Rα monoclonal antibody to be marketed. CMG901 is the world's first Claudin 18.2 ADC to enter clinical trials. It has excellent Phase Ia data. AstraZeneca has been authorized by global interests totaling nearly 1.2 billion US dollars, and has great potential for commercialization. The company has a rich pipeline portfolio. A total of 9 products have entered the clinical stage, covering various product types such as monoclonal antibody, dual antibody, ADC, etc., including many innovative targets such as TSLP, MASP2, GPC3, and CCR8. Many products have best in class (best in class) or firstin class (first in class) potential, and the competitive advantage is obvious. In line with the company's 2023 mid-year report, considering that the CM310 listing date was slightly delayed and R&D investment continued to increase, we adjusted the company's 2023/24/25 EPS forecast to -0.78/-1.57/-1.69 yuan (the original forecast was -0.21/-1.38/-1.37 yuan). Using the absolute valuation method, the company's reasonable equity value was calculated through the DCF model to be HK$21,952 billion (exchange rate 0.92), of which the WACC value was 8.81%, and the stock beta value was 1.3 (taking the average value of Nuocheng Jianhua, Rongchang Biotech, Kangfang Biotech, and Sansheng Pharmaceutical). The risk premium was 6.00%. The target price for 2023 was HK$78, maintaining the “buy” rating.