2021 results missed our expectations
　　Everest Medicines announced its 2021 results: R&D spending rose 62.5% YoY to Rmb613mn. Net loss reached Rmb1.01bn, wider than our forecast, mainly due to the higher-than-expected R&D spending.
　　Trends to watch
　　Trodelvy marketing application has been submitted; Everest Medicines to enter a new stage of commercialization. In May 2021, the　National Medical Products Administration (NMPA) accepted the marketing authorization application for Trodelvy for the treatment of 2-3L triple- negative breast cancer. We expect Trodelvy to be approved in mid-2022.Clinical trials for Trodelvy in China are progressing smoothly, and the　Phase III clinical trials for 3L treatment of HR+HER2-breast cancer patients and 3L treatment of urothelial cancer patients are also underway.The company's partner Calliditas announced in December 2021 that Nefecon was approved by the US FDA to become the world’s first targeted therapy for the treatment of IgA nephropathy. The company is currently conducting Phase III clinical trial for Nefecon in China. In addition, NMPA has accepted the marketing application of the company’s new antibiotic drug Eravacycline in March 2021. We expect Everest Medicines to enter a new stage of commercialization in 2022.
　　Expanding to COVID-19 mRNA vaccines and small molecule drugs　markets: The company announced it was co-developing COVID-19 mRNA vaccine PTX-COVID19-B (introduced from Providence in September 2021) and the 3CL protease inhibitor EDDC-2214 (introduced in January 2022 from Experimental Drug Development Centre (EDDC), Singapore’s national platform for drug discovery and development). The company plans to disclose Phase II clinical trial data for PTX-COVID19-B in mid-2022, and start Phase III clinical trial for the boosted dose in mid-2022. Meanwhile, the company plans to start Phase I clinical trial for EDDC-2214 as of end-2022. We believe that high-quality projects can help the company maintain its competitive strength.
　　The BD project pipeline continues to expand steadily. The company　signed an agreement with Sinovent and SinoMab in September 2021 to develop, manufacture and commercialize the third-generation BTK　inhibitor EVER-001 for the treatment of kidney disease globally, and entered into an agreement with AbCellera for R&D of up to 10 targets. In addition to R&D of innovative drugs, the company has also extensively carried out platform exploration and cooperation with several companies on innovative drug payment and drug supply.
　　Financials and valuation
　　We maintain our 2022 revenue forecast at Rmb116mn, and introduce 2023 revenue forecast at Rmb331mn. To reflect upward revisions to 2022 R&D spending forecast, we lower our 2022 net profit forecast from a loss of Rmb621mn to a loss of Rmb779mn, and introduce 2023 net loss forecast at Rmb713mn.
　　We maintain OUTPERFORM rating and our DCF-based TP at HK$28.74, offering 33.0% upside.
　　Risks
　　Disappointing progress in launching new products, clinical trials and sales; intensifying competition; continued losses may weigh on product R&D and launches.