Commercial sales, net of distribution cost, was RMB2.0bn, rising 24.9% YoY, largely in line with market expectation and net loss was RMB501.1m, better than our expectation, demonstrating Akeso’s execution ability and cost-control efforts. Key to watch in 2025 is sNDA approval of AK112 in 1L PD-L1+ NSCLC and overseas data readout of HARMONi in mid-25. Rolled over our DCF model and lifted TP to HK$87. Reiterate BUY.
Key Factors for Rating
Top-line largely in line and bottom-line beat: Commercial sales, net of distribution cost, was RMB2.0bn, rising 24.9% YoY, largely in line with market expectation. Drug gross margin decreased by 7ppts to 86%, mainly due to the price cut of cadonilimab (AK104, PD-1/CTLA-4) since mid-24. Despite of multiple phase III trials ongoing, R&D expenses decreased by 19% YoY to RMB1.19bn, accounting for 58% of total drug sales (vs.77% in 2023). At the same time, admin expenses and selling expenses as % of drug sales decreased by 2ppts and 5ppts to 10% and 51%, reflecting Akeso’s effective cost control, leading to net loss of RMB501.1m for 2024, better than our expectation. As of December 2024, Akeso has total cash of RMB7.3bn.
Ongoing 7 Phase III clinical trials covering 6 tumour types, indicating the commercial potential of AK112: In addition to the 2 indications that were approved or under NMPA review, AK112 as backbone drugs, has 7 Phase III clinical trials including (i)1L sqNSCLC (vs. tislelizumab, patient enrolment completed), (ii) 2L PD-(L)1 resistant NSCLC (trial planning), (iii) 1L BTC (durvalumab, patient enrolment ongoing), (iv) 1L HNSCC (+AK117 vs. pembrolizumab, patient enrolment ongoing), (v) 1L TNBC with PD-L1- (patient enrolment ongoing), (vi) 1L CRC (vs. bevacizumab, trial initiated), (vii) pancreatic cancer (trial initiating). In overseas, Summit Therapeutics (SMMT US/NR) has completed patient enrolment of HARMONi trial, with expected topline readout in mid-2025 and commercialisation in 2026. Besides, Summit plans to initiate HARMONi-7, a Phase III clinical trial to evaluate ivonesciimab mono vs. Keytruda mono in 1L NSCLC high PD-L1 expression (PD-L1 TPS≥50%).
Key Risks for Rating
(i) Failure of regulatory filing; (ii) slower-than-expected sales ramp-up of new drugs; and (iii) failure of major clinical trials.
Valuation
Post results, we lowered our 2025-26E revenues mainly on decreasing sales contributions of AK104 (price cut from NRDL inclusion) and AK105 (change of commercialisation strategy of partner). We revised down the GPM on price cut of core products, while decreasing operating expenses as a results of Akeso’s cost-control efforts. We expects Akeso to realise breakeven in 2025. Rolled over our DCF and lifted TP to HK$87 (WACC: 10.7%, terminal growth: 4.0%). Reiterate BUY.