Investment logic
Domestic TROP2 ADC leader with obvious first-mover advantage. (1) Currently, only three antibody-conjugated drugs (ADCs) targeting TROP2 have advanced to the registration or marketing stage in the world. Among them, SKB264 is expected to become the first TROP2 ADC produced and marketed in China. (2) SKB264 focuses on breast cancer (BC) and lung cancer (LC) with multiple indications: single drug 3L+ for triple negative breast cancer (TNBC) will be submitted for NDA at the end of 2023, and we expect the drug to be approved for marketing at the end of 2024; in addition, 2/3L treatment of EGFRMT NSCLC, single agent 1L treatment for TNBC, and single drug 2L+ treatment of HR+/HER2- MBc are all in phase III key clinical trials. The above three indications are expected to be approved for marketing in 2025/2026/2026 and achieve commercialized volume.
(3) In addition, SKB264 also has several development plans with the immune checkpoint inhibitor A167 or Keytruda. ADC+IO combined use has great potential for front-line layout and broad market space. In summary, the company's ADC will be a potentially billion-dollar blockbuster in the Chinese market.
Authorize MSD (MSD) to open up international space and accelerate the promotion of multiple international clinical trials. (1) The company and MSD reached three cooperation agreements involving ADC assets in 2022 and 2023 respectively. According to the company's announcement, the early and milestone payments of the three cooperation agreements are expected to exceed 10 billion US dollars. (2) Recently, MSD has intensively announced ten key phase III clinical trials and a phase I/II clinical trial relating to SKB264 (MK2870), which mainly targets major indications such as breast cancer, lung cancer, and gastric cancer, and uses diverse clinical design plans such as single drugs or combination with K drugs. The above phase III clinical trials are expected to end in 2027-2029. (3) Other key products of MSD's cooperation with the company, SKB315 (MK-1200, CLDN18.2 ADC) and SKB410 (MK-3120, NECTIN-4 ADC) have also started global clinical trials. The smooth progress of clinical trials of the above ADC products once again confirms the company's strong R&D strength in the ADC field.
The commercialization milestone is about to be achieved, and successful placement has helped the company move steadily and far-reaching. (1) The company expects to launch core products SKB264, A166, A167 and A140 in the Chinese market in the second half of 2024 or the first half of 2025. In response to the upcoming milestone of commercialization of core products, the company has accelerated the construction of production capacity and commercialization teams. (2) On May 16, 2024, the company successfully completed an IPO to 6 undertakers, including Colon Pharmaceuticals, with a net placement amount of approximately HK$0.541 billion. The above placement funds will drive the commercialization process of the company's core products and expand the product pipeline portfolio.
Profit forecasts, valuations, and ratings
We expect the company to achieve operating income of 1.25/1.55/2.4 billion in 2024/25/26. Based on DCF valuation, the company's current reasonable market value is HK$45.193 billion, corresponding to the target price of HK$202.66 per share. First coverage, giving a “buy” rating.
Risk warning
There are risks such as the development of new drugs falling short of expectations, overseas progress falling short of expectations, falling short of expectations in commercialization and the lifting of the ban on restricted shares.