Company event: On September 8, 2024, Kangfang Biotech released major research data in the 2024 WCLC in oral form from the registered phase III clinical study (Harmoni-2/AK112-303) for locally advanced or metastatic non-small cell lung cancer (NSCLC) with positive first-line PD-L1 expression (PD-L1 TPS ≥ 1%) compared with pabolizumab monotherapy with positive first-line treatment of PD-L1 expression (TPS ≥ 1%).

Compared with pabolizumab monotherapy, evorizumab monotherapy significantly prolonged patients' PFS, and all subgroups benefited significantly.

A total of 398 subjects were enrolled in AK112-303 (198 cases in the evorizumab monotherapy group and 200 cases in the pabolizumab monotherapy group), of which PD-L1 TPS 1-49% accounted for 57.8% and PD-L1 TPS ≥ 50%; patients with squamous non-small cell lung cancer accounted for 45.5%, and patients with non-squamous non-small cell lung cancer accounted for 54.5%, which is consistent with the distribution of expression levels among patients in the real world.

1) In ITT people: MPFs in the evosil group and pabolizumab group were 11.14 months and 5.82 months, respectively, with PFSHR=0.51 (P<0.0001). Objective response rate (50.0% vs. 38.5%) and disease control rate (89.9% vs. 70.5%).

As of this publication, overall lifetime (OS) data is not mature.

2) Subgroups with different PD-L1 expression levels: Compared with pabolizumab, the PFS HR in people with PD-L1 TPS ≥ 50% reached 0.46, and the PFS HR in people with PD-L1 TPS 1-49% reached 0.54.

3) In squamous cell carcinoma and non-squamous cell carcinoma subgroups: compared with pabolizumab, the PFS HR was 0.48 in people with squamous non-small cell lung cancer. The PFS HR was 0.54 in people with non-squamous non-small cell lung cancer.

4) Whether accompanied by liver metastases or brain metastases: patients with liver metastases accounted for 12.6%, and patients with brain metastases accounted for 16.7%. Compared with pabolizumab, the PFS HR for people with brain metastases was 0.55, and the PFS HR for those without brain metastases was 0.53. People with liver metastases had a PFS HR of 0.47; those with no liver metastases had a PFS HR of 0.53.

The overall safety of evosil is excellent, and there is no increased risk of bleeding, especially in squamous cell carcinoma patients with traditional VEGF contraindications.

1) In the ITT population: Compared with pabolizumab, TRAE: 89.8% vs 81.9%, ≥grade 3 TRAE: 29.4% vs. 15.6%. > grade 3 iRAE: 7.1% vs 8.0%. Potential anti-vascular associated grade 3 AE: 10.2% vs. 1.0%.

2) Squamous non-small cell lung cancer patients: Squamous cell carcinoma patients are contraindicated for traditional anti-VEGF treatment. Studies have shown that the risk of bleeding with evosil did not increase significantly compared to the control group. The incidence of evosil and pabolizumab grade 3 or higher TRAE is comparable (22.2% vs. 18.7%).

Reflecting confidence in the success of overseas Harmoni-3 research, an NDA has been submitted domestically. The AK112-303 subgroup analysis showed that patients with squamous cell carcinoma had significant PFS benefits, with a PFS HR of 0.48. We believe that overseas Harmoni-3 is expected to continue the significant PFS benefit results and enhance confidence in overseas clinical success. On the domestic side, on the other side? NSCLC, a single-agent first-line treatment for PD-L1+, was submitted to SNdA in July and received priority review.

Profit forecasting and valuation. We expect the company's revenue for 2024-2026 to be 2.567/4.164/6.596 billion yuan, and net profit to mother of -0.348/0.219/1.28 billion yuan, respectively. Calculated using the DCF method, assuming a sustainable growth rate of 3%, WACC of 9.70%, the company's reasonable equity value is $55.5 billion, corresponding to HK$59.3 billion (exchange rate of RMB 1 = HK$1.07).

In view of the company's excellent innovation pipeline and strong commercialization, overseas clinical certainty gradually became clear, maintaining the company's “buy” rating.

Risk warning: risk of clinical development failure, risk of deteriorating competitive landscape, risk of sales falling short of expectations, industry policy risk, etc.