The company's adjusted net loss on 1H21 increased by 188% (or 80.4 million yuan) to 120 million yuan from a loss of 42.86 million yuan in the same period last year, mainly due to a 224% year-on-year increase in R & D expenses (or 85.35 million yuan) to 120 million yuan. The III phase of cyclosporine An eye gel, the core product of the company, reached the main end point, and all the clinicians were promoted as planned. We maintain our buy rating and target price of HK $25.2.

1H21 performance. The company temporarily had no commercial products during the period. 1H21 R & D expenses increased by 224% (or 85.35 million yuan) to 120 million yuan compared with the same period last year, and the adjusted net loss increased by 188% (or 80.4 million yuan) to 120 million yuan from a loss of 42.86 million yuan in the same period last year. If you take into account the one-time change in book value caused by the conversion of preferred shares after listing (a loss of 1.8 billion yuan), the loss during the period increased to 2 billion yuan from a loss of 66.55 million in the same period last year.

The clinical progress of the core products cyclosporine An eye gel and NVK-002 were promoted as expected. The company's core product, Cyclosporine An Eye Gel Phase III trial (COSMO study) for the treatment of moderate to severe xerophthalmia, reached the main end point. The recruitment of 644 patients was completed in April 2021 and the last patient administration was completed in July 2021. The company plans to submit NDA within the year, in line with previous company guidelines. Another core product, NVK-002 (atropine) for myopia, is expected to launch clinical III phase in 4Q21 and submit NDA in 2023.

Three generic drugs are expected to be approved for sale in 2022. In terms of generic pharmaceuticals, three generic pharmaceuticals are expected to be available in 2022, including two for glaucoma (bemeprost and bemeprost) and one for allergic conjunctivitis (Epiastine Hydrochloride).

The generics pipeline will serve as the first innovative drug expected to be approved (cyclosporine An eye gel is scheduled to be approved in 2022) to provide sales cash flow and sales team building.

Maintain the buy rating and target price of HK $25.2. We use r-NPV to evaluate the innovative drug and generic drug pipeline of Mega Ophthalmology respectively, and use SOTP to get the overall valuation of the pipeline: the innovative drug pipeline is worth 10.6 billion yuan, the generic drug pipeline is valued at 550 million yuan, and the overall pipeline is valued at 11.2 billion yuan. We raised our estimate of R & D expenses for 2021-23e, but the advance in clinical progress offset the impact of the increase in R & D costs on the valuation, leaving HKD 25.2 per share unchanged.

Investment risk: the progress of R & D and listing of core innovative drugs such as cyclosporine An and NVK-002 is not as expected; the progress of R & D follows partners, or there is a risk of delay.