Today 3SBio announced a license-out agreement with Pfizer on its PD- 1/VEGF bispecific antibody SSGJ-707 for (i) an upfront payment of US$1.25bn, (ii) milestone payment of up to US$4.8bn, and (iii) tiered double-digit percentage of sales royalties. In addition, Pfizer might subscribe for US$100m worth of ordinary shares of 3SBio. The deal size with Pfizer was definitely beyond market expectation. Post announcement, we included the upfront payment into FY2025 revenue and factored in 707’s overseas contribution from FY2029. We lowered our WACC assumption from 11.5% to 10.6%, and increased terminal growth assumption from 1% to 2% to better capture the potential sales upside of 707. Lifted TP to HK$21.8 and maintained BUY.
　　Key Factors for Rating
　　Licensing out its SSGJ-707 (PD-1/VEGF) to Pfizer for deal size of US$6.05bn: on 20 May, 3SBio announced it had entered into an agreement to grant an exclusive license to Pfizer (PFE US/NR) to develop, manufacture, and commercialise its SSGJ-707 worldwide ex mainland China for (1) an upfront payment of US$1.25bn, (2) milestone payment of up to US$4.8bn, and (3) tiered double-digit percentage of sales royalties. In addition, Pfizer might subscribe for US$100m worth of ordinary shares of 3SBio.
　　Since Akeso’s (9926 HK/TP: HK$110, BUY) ivonescimab (AK112) significantly beat Merck’s (MRK US/NR) Keytruda in 1L PD-L1+ NSCLC in China in terms of PFS, PD-(L)i/VEGF as the potential next generation of I/O therapy has attracted MNCs’ attention: in November 2024, BioNTech (BNTX US/NR) acquired Biotheus for BNT327/PM8002 (PD-L1/VEGF) at a consideration of US$800m to acquire 100% of issued share capital and up to US$150m in potential milestone payment; Merck licensed in LM-299 (PD-1/VEGF, phase I) from LaNova Medicine at an upfront payment of US$588m and up to US$2.7bn milestone payments. Today, the deal size of US$6.05bn between 3SBio and Pfizer was beyond market expectation, especially in terms of a record-high upfront payment for Chinese companies, thanks to 707’s advanced development in China and the data presented at 2025 JP Morgan Meeting.
　　707’s comparable efficacy and safety profile with AK112: independently developed by 3SBio, 707 is a bispecific antibody targeting PD-1/VEGF, which plans to initiate a phase III clinical study for the 1L PD-L1+ NSCLC in China. Additionally, 707 is undergoing 3 phase II studies in China, including +chemo in 1L NSCLC, in metastatic colorectal cancer, and in advanced gynecological tumours. At 2025 JP Morgan Meeting, 3SBio presented the early-stage data of 707 in NSCLC: the ORR was 59% for 707 in 1L PD-L1+ NSCLC (N=34), similar to 50%/60% for AK112 in the phase III trial (N=198)/phase II trial (N=15) with similar safety profile (23.50% TRAE (Gr3+) vs. 29.4% and 17.2% of AK112). For 1L NSCLC without EGFR/ALK alterations, 707’s ORR was 58.3% and 81.30% in nsqNSCLC (N=12) and sqNSCLC (N=16), higher than AK112’s 54.2% (N=72) and 71.4% (N=63) in the phase II study, respectively.
　　Key Risks for Rating
　　(1) Intensifying competition, (2) further price cut on core products, and (3) failure of major clinical trials.
　　Valuation
　　Post announcement, we included the upfront payment into FY2025 revenue and factored in 707’s overseas contribution from FY2029. We lowered our WACC assumption from 11.5% to 10.6%, and increased terminal growth assumption from 1% to 2% to better capture the potential sales upside of 707. Lifted TP to