9926: Positive Late-Stage Trial Results Will Drive New Market Opportunities

Key Takeaways

• Akeso's strategic focus on bispecific antibodies and NRDL inclusion could drive significant revenue growth and expand market access.
  
• Collaborations and a robust R&D pipeline signal long-term growth and potential market expansion, bolstering future earnings and global positioning.
  
• Akeso faces profitability challenges with operating losses and relies on key products and partnerships, which could risk future revenue and strategic outcomes.

Catalysts

A biopharmaceutical company, researches, develops, manufactures, and commercializes antibody drugs.

• Akeso's strategy to include their bispecific antibodies, cadonilimab and ivonescimab, in China's National Reimbursement Drug List (NRDL) by 2025 aims to significantly expand market access and adoption, potentially driving substantial revenue growth.
  
• The initiation and ongoing progress of numerous Phase III trials for cadonilimab and ivonescimab across various cancer types indicate potential future approvals that could enhance revenue streams and market positioning globally.
  
• The collaboration with SUMMIT Therapeutics and the strategic partnership with Pfizer to combine ivonescimab with Pfizer's ADCs suggests expansion into new therapeutic areas and geographic markets, promising to impact earnings positively.
  
• The company's strong R&D pipeline, including advanced bispecific antibodies and ADC candidates, provides a foundation for long-term growth, setting the stage for potential increases in net margins as products move from development to commercialization.
  
• Akeso's comprehensive sales force and manufacturing capabilities, alongside anticipated growth in hospital coverage from 1,000 to 2,000, supports a scalable commercial operation that may improve operational efficiencies and contribute to enhanced net margins.

Akeso Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Akeso's revenue will grow by 55.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -24.2% today to 25.4% in 3 years time.
• Analysts expect earnings to reach CN¥2.0 billion (and earnings per share of CN¥2.3) by about May 2028, up from CN¥-514.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥3.8 billion in earnings, and the most bearish expecting CN¥902.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 51.2x on those 2028 earnings, up from -140.9x today. This future PE is greater than the current PE for the HK Biotechs industry at 30.1x.
• Analysts expect the number of shares outstanding to decline by 0.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Akeso Future Earnings Per Share Growth

Risks

• Akeso's financials show an annual operating loss (RMB 501 million) and an EBITDA loss (RMB 225 million) for 2024, indicating profitability challenges that could impact net margins and earnings if not addressed.
  
• The significant price reduction (54%) of cadonilimab to enter the National Reimbursement Drug List (NRDL) could reduce the short-term profit margins, despite potentially increasing adoption and long-term revenue.
  
• The reliance on a few key products (ivonescimab and cadonilimab) for commercial success poses a risk of over-dependence, especially if emerging competition or adverse trial results were to negatively impact market share or sales revenue.
  
• The aggressive clinical trial expansion into new cancer indications and territories, while promising, relies heavily on continued success and approval, creating execution risks that might affect future revenue streams if expectations are not met.
  
• Collaborative efforts with external companies like SUMMIT and Pfizer, while offering growth opportunities, also heighten dependency on external factors and partners that could influence Akeso’s revenue and strategic outcomes.

Valuation

• The analysts have a consensus price target of HK$103.567 for Akeso based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$150.39, and the most bearish reporting a price target of just HK$65.24.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥8.0 billion, earnings will come to CN¥2.0 billion, and it would be trading on a PE ratio of 51.2x, assuming you use a discount rate of 7.0%.
• Given the current share price of HK$86.25, the analyst price target of HK$103.57 is 16.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.