Incident: The company released its interim report on August 30, 2024. Operating revenue was 0.786 billion yuan, up 17.37% year on year, net profit to mother was 0.645 billion yuan, and losses narrowed 35.34% year on year, including R&D expenses of 0.546 billion yuan, a decrease of 42.40% year on year.

Comment: “Cost reduction and efficiency” has achieved remarkable results, and the revenue generation of the core product Trepri continues to increase.

1) Trepri (Tuoyi) makes a core contribution to the company's revenue in terms of dominant indications and large dosage of indications. 2024H1, Tuoyi achieved sales revenue of about 0.671 billion yuan in the domestic market, an increase of about 50% over the previous year. Q1 revenue was 0.307 billion yuan (up 56.82% year over year), and Q2 revenue was 0.364 billion yuan. Up to now, 10 indications of treprilizumab have been approved in mainland China, and 6 of them have been covered by medical insurance. There are two main factors that make an important contribution to revenue: the first is the dose of large indications, the first-line treatment of negative epidermal growth factor receptor (EGFR) gene mutation and anaplastic lymphoma kinase (ALK) negative, and locally advanced or metastatic non-squamous non-small cell lung cancer that cannot be surgically resected. The first line of chemotherapy can treat adult patients with stage IIIA-IIIB non-small cell lung cancer, and treatment of stage IIII-IIB non-small cell lung cancer during the perioperative period of combined chemotherapy Following approval for listing and gradual expansion; second, Trepley is adapting to its advantages Sales of symptoms such as urothelial cancer also contributed to the company's revenue; renal cell carcinoma and triple-negative breast cancer, which have been approved as first-line exclusive indications this year, will be added. Since then, Trepri has gradually begun marketing and health insurance in multiple exclusive indications, and we expect domestic revenue to improve quarter by quarter. Additionally, Tripley's commercial sales in the US in Q2 were $3.8 million. Compared to its net sales volume of 2 million dollars in the first quarter, it increased 90%.

2) The company's losses continue to narrow, and the results of improving quality, reducing costs, and increasing efficiency are remarkable. 2024H1's net profit loss to mother was 0.645 billion yuan, a year-on-year decrease of 35.34%, and R&D expenses of 0.546 billion yuan, a year-on-year decrease of 42.40%; loss in the first quarter was 0.283 billion yuan, loss was reduced by 48%, and R&D expenses were 0.276 billion yuan, a year-on-year decrease of 47.73%; loss in the second quarter was 0.362 billion yuan, a decrease of 20% year-on-year, and R&D expenses of 0.27 billion yuan, a year-on-year decrease of 35.87%. It can be seen that while increasing revenue, the company is continuously reducing costs, and the strategic goal of improving quality, reducing costs and increasing efficiency in 2024 has gradually been achieved.

3) In the future, I am optimistic about the continued release of Trepri globally and domestically, and the marketing progress and clinical progress of other products. Trepri is expected to be approved in the EU within this year, and domestic sales will continue to increase. Another room for increasing revenue of treprel is the development of concomitant use with other products and subcutaneous injections. Trepri subcutaneous injections have entered phase III clinical registration, and the use of BTLA monoclonal antibodies in combination with Treep for refractory ES-SCLC and refractory classic Hodgkin lymphoma (cL) has entered key clinical phase III; PCSK9 monoclonal antibodies are expected to be approved for marketing this year. IL-17A inhibitors are expected to be marketed in 2025-2026. In the early stages of the pipeline, the company will continue to focus on products such as Claudin18.2ADC drugs, PI3K-α oral small molecule inhibitors, CD20/CD3 bispecific antibodies, PD-1/VEGF bispecific antibodies, and anti-DKK1 monoclonal antibodies. In the exploration process, in addition to closely tracking clinical data on relevant indications, the company will also focus on unmet clinical needs and push more advantageous products and indications into the registration clinical trial stage as soon as possible.

Profit forecast: We expect the company's revenue for 2024-2026 to be 1.7, 3.2, and 4.25 billion yuan, respectively, with year-on-year growth rates of 13.14%, 88.24%, and 32.81%, respectively, and net profit to mother of -1.842, 0.041, and 0.805 billion yuan, respectively. The year-on-year growth rates are 19.34%, 102.21%, and 1880.69%, respectively, maintaining the “Highly Recommended” rating.

Risk warning: risk of clinical failure, risk of increased competition, risk of product sales falling short of expectations, policy risk.