In FY20, Co. started to generate revenue, ~RMB1bn of licence fee income from EQRx out-licensing deal
Co. guided an eventful 2021E (i.e. 4-5 NDA approvals; 5+ NDA filings; Pfizer collaboration advancement; 2 “pipeline 2.0” INDs)
Co. is an overlooked biotech name w/ NT approval catalysts (i.e. PD-L1 for 1L NSCLC) and global commercialization potential. BUY
　　Licence fee income help contracted adj. net loss in FY20
　　CStone started to generate revenue in FY20 （~RMB1bn vs. nil in FY19）， attributed to licence fee income from EQRx collaboration for ex-China rights of its sugemalimab and CS1003 （αPD-1）。 R&D expenses were RMB1.4bn, largely remain flat with 2019. Adj. net loss （excluding the share-based payment and non-recurring items） contracted by ~47% to RMB1bn in FY20, mainly thanks to out-licencing revenue contribution.
　　Transition from biotech towards biopharma in 2021E
　　Co. on Mar 24 won its first NDA approval （pralsetinib, a RET inhibitor, for 2L RET fusion+ NSCLC） from CDE. Co. highlighted it is well-prepared for the looming commercialization, supported by 1） a full-fledged commercial team （>300 ppl） to cover >100 core cities and >400 hospitals, reflecting ~80% of precision medicines addressable market, per mgmt. est.; 2） growing precision medicine awareness in China, thanks to updated treatment guideline （CSCO20） and years of marketing efforts by other precision medicines （i.e. EGFR+, ALK+ drugs）； 3） a feasible market access strategy via Sinopharm collaboration and next NRDL negotiation.
　　Further, mgmt. aims to nab 4 addition NDA approvals during 21E, with two avapritinib approvals in the near term plus sugemalimab and ivosidenib approvals in 2H21E. We reckon Co. to achieve RMB146mn/746mn product sales （incl: PD-L1 royalty income from Pfizer） over 2021E/22E.
　　“Pipeline 2.0” edging to clinical stages
　　Co. expects 2 IND submissions for in-licensed candidates from its “pipeline 2.0” （BIC and FIC assets） in 2H20E, namely CS5001 （a ROR1 ADC） and CS2006 （a multi-specific molecule targeting PD-L1x4- 1BBxHSA）。 Co. also stated multiple in-house “2.0” candidates progressing in preclinical phase and targeted 1-2 INDs/yr. We believe its “pipeline 2.0” strategy will help Co. to stand out in crowded PD-1/L1 ground in China.
　　Maintain BUY, SOTP-based TP updated to HKD19.1
　　We trimmed SOTP-based TP to HKD19.1 from HKD21.8 to reflect a lower PD-L1 ASP assumption based on peers’ PD-1 NRDL negotiation results. Co. is at the forefront of transformation from a biotech to a multi- commercial products biopharma. Maintain BUY.