Company Introduction:

Innovent Biologics Inc（HKG: 1801）established in 2011 with the motto "Starting with Trust, Achieving through Action," is focused on the research, production, and sales of affordable and high-quality biopharmaceuticals. The company primarily focuses on innovative drugs in areas such as oncology, autoimmune diseases, metabolism, and ophthalmology. Innovent has obtained market approval for 10 products, including various monoclonal antibody injections and tablets. Additionally, two varieties are under review, five new drug candidates are in Phase III or pivotal clinical trials, and 19 new drug varieties are in clinical research.

Innovent  has established strategic collaborations with international partners such as Lilly, Roche, Sanofi, Adimab, Incyte, and MD Anderson Cancer Center, totaling 30 partnerships. With a patient-centric approach, the company is committed to initiating and participating in drug assistance programs. As of October 2023, these programs have benefited over 170,000 patients, with a total drug donation value of 3.4 billion RMB. Innovent aims to work together with others to enhance the level of China's biopharmaceutical industry, meet the medication needs of the people, and fulfill the pursuit of a better life and health for the population.

 

Significant Milestones in Company Development:

➢ 2018:

   - October:Innovent Pharmaceuticals listed on the Main Board of the Hong Kong Stock Exchange.

   - November: The National Medical Products Administration (NMPA) acceptsInnovent's new drug application for Adalimumab Injection (a biosimilar) and grants it priority review status.

   - December:Innovent enters into a strategic collaboration and exclusive development agreement with Incyte, a US-based pharmaceutical company.

➢ 2019:

   - January: The NMPA acceptsInnovent's new drug application for IBI305 (a biosimilar of Bevacizumab Injection) and grants it priority review status.

   - June: The NMPA acceptsInnovent's new drug application for IBI301 (a biosimilar of Rituximab Injection) and grants it priority review status.

   - August:Innovent announces a licensing agreement with Eli Lilly for the development and commercialization of a novel diabetes drug in China.

➢ 2020:

   - June: Dabaoxu® (Bevacizumab Injection) receives official market approval in China.

   - August:Innovent and Eli Lilly announce an expanded global strategic collaboration for Dabershu® (Sintilimab Injection).

➢ 2021:

   - February: Dabershu® (Sintilimab Injection) receives approval for a second indication, in combination with Pembrolizumab and platinum-based chemotherapy, for non-squamous non-small cell lung cancer in China.

   - November: Olverembatinib, the first approved third-generation BCR-ABL targeted therapy for resistant chronic myeloid leukemia (CML), receives official market approval in China.

   - December: Dabershu® becomes the only PD-1 inhibitor approved for four indications, including first-line non-squamous non-small cell lung cancer, first-ine squamous non-small cell lung cancer, first-line liver cancer, and Hodgkin's lymphoma. All indications are included in the National Medical Insurance coverage.

➢ 2022:

   - March:Innovent enters into a strategic collaboration agreement with Eli Lilly, securing exclusive commercialization rights in mainland China for Ramucirumab and Retsevmo® (Selpercatinib), as well as priority negotiation rights for the future commercialization of Pirtobrutinib (a BTK inhibitor) in mainland China.

   - August:Innovent establishes a strategic collaboration in the field of oncology with Sanofi, aiming to accelerate the development and market access of innovative cancer drugs, benefiting more Chinese patients. Additionally, Retsevmo®, the world's first highly selective RET inhibitor, receives approval in China, benefiting patients with RET-driven lung cancer and thyroid cancer.

   - December:Innovent forms a strategic partnership with LG Chem, introducing Tigulixostat, a novel Xanthine Oxidase Inhibitor (XOI), in the field of gout.

➢ 2023:

   - January: Dabershu® becomes the only PD-1 inhibitor included in the National Medical Insurance catalog for gastric cancer and the only PD-1 inhibitor that covers first-line treatment for the five major prevalent tumors. Olverembatinib is included in the insurance for the first time, filling the treatment gap for patients with T315I mutation-positive chronic myeloid leukemia (CML).

   - June: Fucosu® (Idecabtagene Vicleucel), the world's first fully human BCMA-targeted CAR-T cell therapy, receives approval for the treatment of relapsed/refractory multiple myeloma.

 

Change in share price

(Translation: Change inInnovent's Share Price from 2018 to 2024)

 

Investment Advantages of Innovent:

➢ Rapid Growth in Main Product Revenue, with New Products Bringing New Highlights:

In the first half of 2023,Innovent witnessed significant growth in the sales of its main products, particularly with a rapid increase in sales of Dabershu. The company's revenue for the first half of the year increased by 20.6% YoY, reaching RMB 2.7 billion, and gross profit increased by 24.3% YoY, amounting to RMB 2.2 billion. Shareholders' net loss also narrowed by 85.4% YoY, totaling RMB 140 million. Among them, Dabershu sales increased by 4% YoY, reaching $160 million (approximately RMB 1.14 billion), with the second quarter accounting for approximately $100 million (around RMB 730 million). Apart from Dabershu, the sales of the company's other eight products grew by approximately 39.4% YoY, amounting to RMB 1.32 billion. The company's expense ratio significantly decreased, and it received a one-time tax refund of RMB 120 million, leading to a significant reduction in shareholders' net loss.

➢ Significant Improvement in Key Financial Indicators:

Benefiting from rapid revenue growth and continuous improvement in operational efficiency,Innovent witnessed significant improvements in key financial indicators and profitability. The loss before interest, taxes, depreciation, and amortization (LBITDA) reduced by 74.2% YoY to RMB 267 million compared to the same period last year.

➢ Strong Revenue Growth:

Thanks to the continuous volume growth of its diversified product portfolio, extensive medical insurance coverage, and clear clinical value of innovative drugs,Innovent achieved total revenue of RMB 2.7 billion in the first half of 2023, representing a YoY growth of 20.6%. Product revenue amounted to RMB 2.46 billion, with a YoY growth of 20.4%. The growth rate accelerated in the second quarter, surpassing 35% YoY.

➢ More Aggressive Approach of Biotech Companies during Fed Rate Cuts:

Analyzing historical periods of Fed rate cuts and hikes, it was observed that during the Fed rate cut period from April 29, 2019, to May 28, 2021, several biotech stocks experienced significant increases, outperforming pharmaceutical companies. This phenomenon can be attributed to different valuation systems based on the business models of various companies. Biotech assets relying on discounted future cash flows experienced a substantial valuation increase during rate cut cycles and demonstrated a marked aggressive nature. Based on these characteristics, it is believed that during rate cut cycles, priority should be given to investing in innovative drugs from companies with significant long-term potential and excellent future prospects, as well as the ability to benefit from changes in discount rates to obtain greater cash flow discount elasticity.

 

Analysis of the Biopharmaceutical Industry:

➢ Market Size of China's Medical Biotechnology Sector:

From 2016 to 2021, the global annual compound growth rate of the number of biotechnology companies was 11.0%, higher than the global pharmaceutical market growth rate during the same period. Factors such as favorable policies, talent influx, and biotechnology development will further expand the Chinese market.

The global growth rate of biotechnology companies surpasses that of the global pharmaceutical market. From a global perspective, the annual compound growth rate of biotech companies' numbers from 2016 to 2021 was 11%, higher than the growth rate of enterprise numbers in the global pharmaceutical market (10.3%). It is expected that, influenced by favorable policies, active primary and secondary capital markets, and the continuous development of biotechnology, the number of biotech companies will continue to expand in the future.

The overall market size of China's medical biotechnology sector is expected to rapidly grow due to the influence of factors such as favorable capital policies. In recent years, the Chinese government has formulated many favorable policies for the development of the medical biotechnology industry, ranging from drugs to medical services. The primary and secondary capital markets have also shown high attention to the industry. These favorable factors in the market will drive the expansion of the Chinese medical biotechnology industry.

The acceleration of medical insurance catalog adjustments supports the development of innovative drug industry. Medical insurance is the largest purchaser of medical services in China. Entering the medical insurance catalog helps greatly accelerate the sales volume of drugs. Previously, the adjustment frequency of the medical insurance catalog was approximately every five years. After the establishment of the Medical Insurance Bureau, it was adjusted every two years, significantly increasing the frequency of new products entering the medical insurance catalog. This contributes to the rapid increase in sales volume of new products, improving the sales growth curve and increasing the return on investment.

➢ Brand Value and Industry Outlook:

In 2018, the average R&D expenditure of international pharmaceutical giants was $3.75 billion, with AstraZeneca reaching 26.4%. The top three companies, Roche, Johnson & Johnson, and Novartis, all had R&D expenditures exceeding $10 billion. In comparison, the average R&D expenditure of Chinese pharmaceutical companies in 2018 was CNY 430 million, with the median revenue proportion being 5.9%. Even the domestic giant, Hengrui Medicine, had R&D expenses exceeding CNY 2.6 billion in 2018, indicating significant room for future development.

 

Investment Risks:

1) Fluctuations in production due to the recurring COVID-19 pandemic:

The global pharmaceutical market has experienced some volatility due to the impact of the COVID-19 pandemic. In the first half of the year, four out of the top five global pharmaceutical companies saw varying degrees of revenue decline. However, from a medium to long-term perspective, although medical demand has been delayed due to the pandemic, it has not disappeared. With global aging populations and increased health awareness, medical demand as a rigid necessity is expected to gradually recover after the end of the pandemic. Over the next five years, the global pharmaceutical industry is expected to maintain a stable upward development trend.

2) Intense competition and export risks in the pharmaceutical industry:

Compared to developed countries, China's pharmaceutical industry has lower concentration and lacks high-value-added and high-tech exclusive products, making it difficult to enter the international market. Many companies have excessive investment in non-patented drugs, leading to resource waste. Due to severe product homogeneity, market competition drives price wars, resulting in lower overall market development capabilities and profit margins for Chinese pharmaceutical companies. In terms of exports, China's pharmaceutical products mainly consist of active pharmaceutical ingredients (APIs) and face restrictions in the high-end market dominated by Europe and the United States, while also facing strong competition from India in the low-end market.

3) Significant gap in research and innovation capabilities compared to foreign counterparts:

In 2018, the average R&D expenditure of international pharmaceutical giants was $3.75 billion, with a median revenue proportion of 16.1%. AstraZeneca had the highest proportion at 26.4%, and the top three companies in terms of R&D expenditure were Roche, Johnson & Johnson, and Novartis, with all expenditures exceeding $10 billion. In comparison, the average R&D expenditure of Chinese pharmaceutical companies in 2018 was CNY 430 million, with the median revenue proportion being 5.9%. Even the domestic pharmaceutical giant, Hengrui Medicine, had R&D expenses exceeding CNY 2.6 billion in 2018, indicating a significant gap compared to international giants. However, there is potential for future development.

 

How to place a trade on uSMART mobile application

Access the uSMART SG app - Search for the code "01801" - Click on "Trade" - Select "Buy/Sell" - Unlock the transaction.

            （This diagram is provided for illustrative purposes exclusively）

 

Follow us

Find us on Twitter, Instagram, YouTube, and TikTok for frequent updates on all things investing.

Have a financial topic you would like to discuss? Head over to the uSMART Community to share your thoughts and insights about the market! Click the picture below to download and explore uSMART app！

 

 

 

Important Notice and Disclaimer:

We have based this article on our internal research and information available to the public from sources we believe to be reliable. While we have taken all reasonable care in preparing this article, we do not represent the information contained in this article is accurate or complete and we accept no responsibility for errors of fact or for any opinion expressed in this article. Opinions, projections and estimates reflect our assessments as of the article date and are subject to change. We have no obligation to notify you or anyone of any such change. You must make your own independent judgment with respect to any matter contained in this article. Neither we or our respective directors, officers or employees will be responsible for any losses or damages which any person may suffer or incur as a result of relying upon anything stated or omitted from this article.

This document should not be construed in any jurisdiction as constituting an offer, solicitation, recommendation, inducement, endorsement, opinion, or guarantee to purchase, sell, or trade any securities, financial products, or instruments or to engage in any investment or any transaction of any kind, nor is there any intention to solicit or invite the purchase or sale of any securities.

The value of these securities and the income from them may fall or rise. Your investment is subject to investment risk, including loss of income and capital invested. Past performance figures as well as any projection or forecast used in this article is not indicative of its future performance.

This advertisement has not been reviewed by the Monetary Authority of Singapore