1H22 earnings in line with our expectations
Everest Medicines announced 1H22 results: The company’s revenue grew YoY to Rmb1.04mn and its net loss rose YoY to Rmb668mn, in line with our expectations.
Trends to watch
Agrees to sell rights to Trodelvy in Asian markets to increase cash reserves. On August 15, 2022, Everest Medicines announced that it signed an agreement with Immunomedics for the latter to obtain the rights to develop and commercialize Trodelvy in some specific Asia-Pacific markets from Everest Medicines, and Everest Medicines would receive up to US$280mn in upfront payments and up to US$175mn in potential future milestone payments, while their original cooperation agreement would be terminated. We believe that the sale of rights to Trodelvy may reduce Everest Medicines’ future revenue from Trodelvy products but increase the company's cash reserves in the near term, offering cash for the company to enhance its independent R&D capabilities and explore more growth opportunities for its businesses.
Clinical trials for Nefecon progressing smoothly; application for marketing in China to be submitted in 2022. In 1H22, after the company’s Nefecon (an oral, delayed-release capsule of budesonide for the treatment of primary IgAN) was used in the treatment of patients in China for 9 months, the results of reduction in proteinuria and stabilization of eGFR were consistent with the topline results from Part A of the NefIgArd study released by the company’s partner. In addition, Nefecon gained approval for marketing from the European Commission on July 15, 2022 for the treatment of primary immunoglobulin A (IgA) nephropathy (IgAN) in adults at risk of rapid disease progression. The company is likely to submit application for marketing Nefecon in China in 2H22. We believe the number of IgAN patients is large in China and Nefecon enjoys substantial market opportunities as the first innovative drug for IgAN approved in recent years.
Strengthening business and strategic cooperation with other companies. In April 2022, Everest Medicines signed a memorandum of cooperation with China Resources Pharmaceutical to establish an mRNA vaccine company with Everest Medicines as the controlling shareholder. Meanwhile, the company expects to release data of pivotal Phase II trials for its PTX-COVID19 (mRNA vaccine for COVID-19) in 2022 and the product to gain approval for marketing in 2023. In addition, the company's Etrasimod (a product in the pipeline) is currently at the stage of Phase III clinical research for the treatment of moderately-to-severely active ulcerative colitis, and the company expects to complete patient enrollment in 2023. The company expects its eravacycline to gain approval for the treatment of complicated intra-abdominal infections in China in 2022. We believe a number of products in the company's pipeline merit attention.
Financials and valuation
As the company has agreed to sell the rights to Trodelvy in some Asian markets, we raise our 2022 revenue forecast from Rmb116mn to Rmb1,927mn, but we think the company may no longer receive revenue from Trodelvy products in 2023 and we thus lower our 2023 revenue forecast from Rmb331mn to Rmb189mn. Meanwhile, due to out-licensing and possible declines in R&D expenses for Trodelvy, we raise our 2022 and 2023 net profit forecasts from -Rmb779mn and -Rmb713mn to Rmb828mn and -Rmb696mn. We maintain OUTPERFORM rating. Due to corrections in valuations of the healthcare sector and possible declines in the company’s future cash flows caused by changes in its products in the pipeline, we lower our target price (based on DCF valuation) by 45.2% to HK$15.73, offering 36.8% upside.
Risks
Disappointing progress in launching new products and clinical trials; intensifying competition.