1H24's adjusted net loss narrowed better than market expectations, product sales grew strongly, and operational efficiency continued to improve. We raised our 2024-26 revenue forecast by 2-8% and raised our target price to HK$60.0.
1H24 overall exceeded expectations, and the continuous enrichment of the product line drove growth visibility. The target price was raised: 1H24's total revenue increased 46% year over year to 3.95 billion yuan (RMB, same below), of which product revenue was 3.81 billion yuan. We expect the increase from: 1) PD-1 sales increased by about 50% year on year to more than 1.7 billion yuan; 2) the biosimilar product portfolio continued to replace the original research market share. The company's operating efficiency was further improved. The adjusted gross margin of 1H24 increased by 1.8 ppts, the adjusted sales expenses ratio (as a share of product revenue) and management expenses ratio (as a share of total revenue) decreased by 5.9ppts/4.9 ppts respectively, and the adjusted net loss narrowed to 0.16 billion yuan (1H23:0.19 billion yuan), better than market expectations. Adjusted R&D expenses increased 57% year over year (1H23 is a low base, which is basically stable compared to 2H23), and the company expects annual R&D expenses to be close to 0.4 billion US dollars. With a cash reserve of 10.1 billion yuan at the end of 1H24, the company expects to achieve break-even at the EBITDA level by 2025. After KRAS G12C was approved in August, the company now has 11 commercial products; with at least 7 products expected to be marketed between 2H24-2027, including the potentially major single product, Mashidol, the company reiterated the guideline of reaching 20 billion yuan in product revenue in 2027.
Clear pipeline layout strategy, 2H24 data intensive release: We believe that the company's large and differentiated pipeline layout and diversified product development strategy will continue to consolidate its leading position in the industry: 1) Adhere to the “IO+ADC” strategy in the field of oncology: as an IO cornerstone product, PD-1 life cycle management will continue to explore major indications such as colorectal cancer and perioperative lung cancer, and potentially the next major IO product IBI363 (PD-1/IL-2 double antibody) has excellent preliminary data (our previous report); the ADC layout differentiates TopOI technology and next-generation dual-antibody ADCs. 2) The comprehensive field of Mast peptides will soon be approved for weight loss and hypoglycemic indications in 2025. MASH IND has been approved, and OSA and HFpEF are planned; IGF-1R and IL-23p19, the first ophthalmology and immunization products, are also expected to be marketed in 2025. 3) Early pipeline: every year 6-8 new molecules enter clinical development. The data readouts that 2H24 focuses on include:
IBI363 lung cancer/colorectal cancer/melanoma stage I, CLDN18.2 ADC pancreatic cancer stage Ib, Mashidu peptide head-to-head glucopeptide stage III, IGF-1R thyroid eye disease stage III, etc.