Overwhelming PFS signals of HLX22 combo therapy in 1L GC. HLX22 (a novel HER2 mAb) combined with HLX02 (trastuzumab biosimilar, Hanquyou) and chemo showed promising clinical benefits for 1L GC patients, compared to the SoC of HLX02 + chemo in a China Ph2 study (link). In the study, a total of 53 patients were randomized to Group A (HLX22 25mg/kg + Hanquyou + chemo), Group B (HLX22 15mg/kg + Hanquyou + chemo) and Group C (Hanquyou + chemo). With a follow- up of 14.3 months, the mPFS was 15.1 months in Group A vs 8.2 months in Group C (HR=0.5, CI 0.2-1.3), and Not-Reached in Group B vs 8.2 months in Group C (HR=0.1, CI 0.0-0.5). To note, in Herceptin’s registrational ToGA study (link), Herceptin + chemo had 6.7 months of mPFS vs 5.5 months with chemo (HR=0.71, CI 0.59-0.85). In the Ph2 study, Group B with a lower dose of HLX22 showed better results than the higher dose of Group A, mainly related to better safety, in our view. Given the promising Ph2 data, Henlius will start a global Ph3 MRCT trial of HLX22 (15mg/kg) + Hanquyou + chemo in 1L GC upon IND approval.
　　Serplulimab (PD-1) showed encouraging data in 1L mCRC. In a China Ph2 study (link) assessing the addition of serplulimab to SoC in 1L mCRC, serplulimab + HLX04 (bevacizumab biosimilar) + chemo (Group A, 55 pts) demonstrated 17.2 months of mPFS, compared to the 10.7 months of mPFS in the HLX04 + chemo group (Group B, 57 pts), with HR of 0.60 (CI 0.31-1.14). The mOS was not reached in both groups, with HR of 0.77 (CI 0.41-1.45). To date, there’s no PD-(L)1 drug approved for first-line treatment of all-comer mCRC. Recall that nivolumab + SoC failed to extend PFS vs SoC in 1L mCRC (mPFS 11.9 vs 11.9 months, trial CheckMate 9X8, link), and atezolizumab + SoC only realized 13.1 months of mPFS vs 11.5 months with SoC in 1L MSS mCRC (HR 0.69, trial AtezoTRIBE, link). On the safety side, the addition of serplulimab was well-tolerated with a grade≥3 TRAEs rate of 65.5% vs 56.1% in the two groups. Serplulimab mono was approved in 2022 for MSI-H solid tumors, including mCRC. The Ph2 study above demonstrated the drug’s potential to expand the label to include the underserved MSS CRC population. Henlius plans to start a global Ph3 MRCT trial of serplulimab + HLX04 + chemo in 1L mCRC upon IND approval.
　　Sustainable profitability supported by rich commercial portfolio. Henlius realized RMB572mn operating cash inflow and RMB408mn net profit in 9M23, and we expect it to remain profitable in 2024E and beyond mainly driven by the strong sales of Hanquyou, serplulimab and other products. Hanquyou is going be approved in the US in 1H24E. We also expect serplulimab to be approved in the EU in 3Q24E, which will trigger a EUR43mn milestone payment. In 2024E, we expect Henlius to file BLA/NDAs in the US for HLX14 (3Q24), HLX11 (end-24), serplulimab (1L ES-SCLC, end-24) and HLX04-O (end-24).
　　Maintain BUY. We see strong global potential in HLX22 and serplulimab given the promising Ph2 data in 1L GC and 1L mCRC. We like the big potential of HLX14 and HLX11 in the global market, and look forward to the R&D progress of the EGFR ADC and PD-L1 ADC assets. We revised our DCF-based TP from HK$14.46 to　HK$18.65 based on DCF model (WACC: 9.7%, terminal growth rate: 2%).