In FY23, Akeso recorded RMB4.53bn in revenue, including RMB1.63bn from product sales and RMB2.92bn from license income relevant to AK112 (PD- 1/VEGF). Cadonilimab/AK104 (PD-1/CTLA-4) achieved RMB1.36bn in sales in FY23, surpassing the Company’s initial guidance of RMB1.2-1.3bn. In 2H23, AK104 recorded RMB752mn sales, +24% HoH, even with the impact of challenging regulatory environment in China in 2H23. Akeso maintained a high product GP margin at 91.8% in FY23, compared to 91.5% in FY22. Overall selling expenses (incl. distribution cost) as % of product sales decreased from 74.5% in FY22 to 56.3% in FY23, indicating the improving operating efficiency. The R&D expenses decreased 5.2% YoY to RMB1.25bn in FY23. Akeso recorded RMB2.03bn attributable net profit in FY23. Excluding the license income and equity investment loss, the operating net loss shrank by 45% YoY to RMB788mn in FY23, vs RMB1.43bn in FY22. As of end-2023, Akeso had a sufficient cash balance of RMB4.90bn.
Near-term data readout of AK112’s head-to-head study. The H2H Ph3 study of AK112 mono vs Keytruda for PD-L1+ (TPS≥1%) NSCLC was fully enrolled in Aug 2023, with the interim PFS data readout expected in 2Q24. We think OS trend of this study is also important although OS is a secondary endpoint of the study. Akeso also filed the NDA of AK112 in Aug 2023 for post-TKI EGFR-m nsq-NSCLC, with the approval expected in 2H24 aligned with timing of the data release. The MRCT HARMONi trial is on track for enrolment completion in 2H24 as per Summit. The Ph3 trial in China evaluating AK112+chemo vs tislelizumab+chemo in 1L sq-NSCLC is expected to complete enrolment in 2024/early-2025 as well. We expect Akeso to initiate more Ph3 trials of AK112 to expand the indications of the drug.
Fast indication expansion progress of AK104. Besides the approved 2/3L CC, AK104 is in multiple Ph3 trials to expand its indication coverage. In Nov 2023, the Ph3 trial of AK104 in 1L GC met the OS endpoint and a sNDA was submitted to CDE in Jan 2024, with the approval expected in end-2024/early- 2025. The Ph3 data in 1L GC will be released at the AACR meeting in Apr. In Nov 2023, the Ph3 trial of AK104 in 1L CC met the PFS endpoint in the interim analysis, with the sNDA submission expected upon the maturity of OS data. AK104 has also recently started two additional Ph3 trials, for 1L HCC (+lenvatinib+TACE) and post-PD(L)-1 GC (+AK109 +chemo). In a Ph2 study of AK104+lenvatinib+TACE in mid- and advanced-stage HCC (link), the ORR reached 85% (CR 15%) in 60 patients. Recall that Keytruda+lenvatinib +TACE realized a 47% ORR (10% CR, link). The results supported AK104’s newly started Ph3 trial in 1L HCC. Akeso also started a Ph3 trial of AK104 + AK109 (VEGFR2 mAb) + chemo in post-PD(L)-1 GC. In a Ph2 trial, this triple- combo achieved ORR of 48% in post-PD(L)1 GC patients, vs 27% ORR of ramucirumab+chemo in the RAINBOW-Asia trial (link) and 42% ORR of fruquintinib+chemo in the FRUTIGA trial (link) for 2L GC patients.
Maintain BUY. We see blockbuster potential in AK104 and AK112. Akeso’s non-oncology business is near commercialization with NDAs of PCSK9 and IL12/23 under review. We revised our TP from HK$51.23 to HK$59.61 (WACC: 11.64%, terminal growth rate: 3.0%).