Key points of investment

Semi-annual report summary: The company's revenue for the first half of 2024 was 1.383 billion yuan, an increase of 32.2%. This increase was mainly due to the increase in milestone payments and cooperative payments due to the cooperation agreement signed with MSD. Gross profit for the first half of the year reached 1.077 billion yuan, up 59.4% year on year, net profit was 0.31 billion yuan, and loss was 31.13 million yuan in the same period last year. R&D expenditure in the first half of the year was RMB 0.652 billion, up 33% year on year. Trop2 ADC's NDA application has been accepted, and HER2 ADC has submitted an NDA application to the CDE. As of June 2024, MSD has conducted 10 global multi-center phase III clinical trials of SKB264 (MK-2870) -trop2 ADC.

SKB264 (MK-2870) -trop2 ADC:

1) Triple negative breast cancer (TNBC): TNBC's new drug marketing application (NDA), which has previously received at least 2 types of systematic treatment, was accepted by the CDE in December 2023 and included in priority review. Second-line TNBC3 clinical trials showed significant improvements in PFS and OS. First-line TNBC phase 3 clinical trials have started; 2) HR+/HER2- breast cancer (BC): 2L+ HR+/HER2- BC registration phase 3 study is ongoing and has been recognized as a breakthrough therapy by CDE;

3) NSCLC where EGFR-TKI failed treatment: In August 2024, adult patients with EGFR mutant NSCLC who received EGFR-TKI as a single agent and failed platinum-containing chemotherapy were accepted by CDE and included in the priority review process; phase 2 data published at the 2024 AACR conference showed that ORR 60.0%, median PFS 11.5 months, median OS 22.7 months; 4) EGFR wild-type NSCLC: Combined with pavolimumab has been initiated A phase 3 registration study comparing first-line treatment of PD-L1-positive patients with locally advanced or metastatic NSCLC with pabolizumab; CDE has obtained approval from CDE to conduct a phase 3 study on patients with PDL1 negative non-squamous NSCLC.

Currently, MSD has carried out 10 global phase III clinical trials overseas, namely: 1) TNBC patients who have not achieved PCR with pabolizumab; 2) treatment of HR+/HER2-BC patients with monotherapy or combination with pabolizumab; 3) treatment of resectable NSCLC patients without PCR with pabolizumab; 4) treatment of patients with resectable NSCLC without PCR with pabolizumab; 5) NSCLC patients treated with EGFR mutations or other genomic mutations in the past; 5) NSCLC patients who have previously been treated with EGFR mutations or other genomic mutations; 6) NSCLC with previous treatment; EGFR Non-squamous NSCLC after TKI treatment; 7) NSCLC treated with pabolizumab plus paclitaxel; 8) treatment of treated endometrial cancer (EC) patients; 9) second-line treatment of patients with primary or metastatic cervical cancer (CC); 10) third-line treatment of advanced/metastatic gastroesophageal adenocarcinoma (GEA).

A166 (HER2 ADC): 3L+ late HER2+ BC submitted an NDA to CDE in May 2023, 2L+ late HER2+ BC is in the process of confirmatory phase 3.

The innovation pipeline is rich: 1) SKB315 (MK-1200, CLDN18.2 ADC): MSD refunds global benefits, and the company does not need to refund the received down payment and milestone payment. Phase 1a is currently underway in China; 2) SKB410 (MK-3120) Nectin-4 ADC: Phase 1a clinical trial is underway in China. 3) A167 (PD-L1 monoclonal antibody):

In May 2024, the first-line nasopharyngeal cancer (RM-NPC) NDA was accepted. A140 (EGFR monoclonal antibody): The NDA for the treatment of RAS wild-type mCRC and HNSCC was accepted by the National Drug Administration in September 2023.

A number of products are expected to be approved and ready for commercialization. The company expects to launch its core product SAC-TMT (Cathay?) in the Chinese market in the second half of 2024 or the first half of 2025 , A166 (Stelle?) As well as the main product A167 (Cotaille?) , A140 (Dattelle?). The company has formed a mature commercialization team dedicated to preparing and implementing the marketing and commercialization of strategic products.

Profit prediction and valuation: At present, the company has established a strong pipeline with more than ten clinical-stage drug candidates. Four of them are in the NDA application stage. The pipeline is rich, and the overseas value of ADC is gradually prominent. It is estimated that its 24-26 revenue will be 1.744, 1.62, and 2.688 billion yuan. Maintain a “buy” rating.

Risk warning: risk of clinical development failure, risk of sales falling short of expectations, risk of clinical development progress falling short of expectations