2021 revenue in line with our expectations; loss exceeds expectation
　　Junshi Bioscience (Junshi) announced its 2021 results: Revenue surged 152% YoY to Rmb4.03bn and attributable net loss reached Rmb719mn.The firm’s 2021 revenue is in line with our expectations, but loss is larger than expected and was mainly due to slightly-lower-than-expected gross margin (GM).
　　Trends to watch
　　Revenue up 152% YoY to Rmb4.03bn. In 2021, revenue from　Toripalimab fell 59% YoY to Rmb412mn, mainly because: 1) its price declined by over 60% despite rising sales volume after it was included in the national medical insurance reimbursement catalog in 2021; 2) the firm’s commercialization team was reshuffled. However, we believe the team integration is complete and sales of Toripalimab will gradually recover following the appointment of Mr. LI Cong as the firm’s CEO in November 2021, who is fully in charge of commercialization. In addition, COVID-19 neutralizing antibody JS016 recorded revenue of Rmb2.37bn from license-in and milestone payment. In 2021, the firm received a down payment of Rmb975mn for its overseas licensing deal with Coherus for Toripalimab.
　　VV116 initiated global phase III clinical trial. Junshi partnered with　Suzhou Vigonvita Biomedical Co., Ltd. (Vigonvita) to jointly undertake the clinical development and commercialization of VV116, an oral nucleoside anti-SARS-CoV-2 drug. At present, VV116 has gained emergency use authorization (EUA) approval for the treatment of moderate to severe COVID-19 patients in Uzbekistan, and its phase I clinical trial data exhibited satisfactory pharmacokinetic performance. Junshi initiated phase III clinical trial for the treatment of moderate to severe COVID-19 patients, and phase II/III clinical study of VV116 for early treatment of patients showing mild to moderate COVID-19 symptoms. In addition, the firm also collaborated with Vigonvita to jointly develop VV993, a new oral anti- SARS-CoV-2 drug candidate targeting 3CL protease. We believe Junshi boasts an extensive presence and enjoys a first-mover advantage in the COVID-19 small-molecule drug market. Therefore, we expect Junshi to promptly roll out proprietary and controllable COVID-19 small-molecule drugs, lending support to contain the pandemic.
　　R&D pipeline progressing steadily; internalization continued. Junshi’s　biologics license application (BLA) for Toripalimab for the treatment of nasopharyngeal carcinoma was accepted by the United States Food and Drug Administration (FDA), and the prescription drug user fee act (PDUFA) action date was set for April 29, 2022. In January 2022, the firm reached an agreement with Coherus for further cooperation on anti-TIGIT monoclonal antibody (JS006) and received a down payment of US$35mn.Other products in the pipeline are progressing steadily: Adalimumab has been approved for marketing, PARP inhibitor JS109 and PCSK9 antibody JS002 have both entered phase III clinical trials, and BLTA monoclonal antibody JS004 has been making steady progress in clinical trials. We expect these new products to create new growth drivers for the firm after they hit the market.
　　Financials and valuation
　　We keep our 2022 revenue forecast unchanged at Rmb3.82bn, and introduce our 2023 revenue forecast of Rmb5.14bn. We maintain our 2022 attributable net loss forecast unchanged at Rmb348mn, and introduce our 2023 attributable net profit forecast of Rmb523mn. We maintain an OUTPERFORM rating and raise our DCF-based TP 11.3% to HK$66.78, offering 19.9% upside.
　　Risks
　　New product launch, clinical trial data and sales disappoint; insufficient capital to support R&D.