Akeso, Inc. (9926 HK): A Revolutionary Player in Lung Cancer Treatment

Akeso, Inc. (9926 HK): A Revolutionary Player in Lung Cancer Treatment

Ivonescimab: A Game Changer in First-Line Lung Cancer Treatment

Akeso Inc. continues to make headlines in the biotechnology sector, particularly with its groundbreaking drug, Ivonescimab, which has demonstrated superior results in the treatment of advanced non-small cell lung cancer (aNSCLC). During the 2023 WCLC (World Conference on Lung Cancer), Akeso presented the clinical updates from its HARMONi-2 trial, positioning Ivonescimab as a potentially game-changing therapy in the oncology space.

Recommendation and Target Price

• Recommendation: ADD
• Target Price: HK$62.61 (Upgraded from HK$58.41)
• Current Price: HK$48.20
• Up/Downside Potential: 29.9%
• Broker: China Galaxy International (CGSI)
• Date of Recommendation: September 9, 2024

Ivonescimab Outperforms Keytruda in Lung Cancer Trials

In the HARMONi-2 trial, Ivonescimab demonstrated its efficacy over the industry-leading drug, Pembrolizumab (commonly known as Keytruda), in treating PD-L1 positive advanced non-small cell lung cancer (aNSCLC). The trial’s findings highlight Ivonescimab’s ability to significantly improve Progression-Free Survival (PFS) compared to Pembrolizumab, achieving a median PFS (mPFS) of 11.14 months versus 5.82 months (Hazard Ratio = 0.51), marking an impressive improvement in patient outcomes.

The trial’s results were particularly notable across several clinical subgroups, including:

• Tumor Proportion Score (TPS) ≥50% group: HR = 0.46
• TPS 1-49% group: HR = 0.54
• Squamous NSCLC group: HR = 0.48
• Non-squamous NSCLC group: HR = 0.54

Additionally, Ivonescimab exhibited superior Objective Response Rate (ORR) at 50.0% (versus 38.5% for Pembrolizumab) and a Duration of Response (DoR) of 89.9% (compared to 70.5% for Pembrolizumab).

New Revenue Growth Driver

Ivonescimab is a novel PD-1/VEGF bispecific antibody (bsAb) combining two powerful mechanisms into a single molecule, enhancing its therapeutic potential. The drug’s efficacy has been demonstrated across various subgroups, including those with squamous NSCLC, a category typically difficult to treat with other VEGF inhibitors due to associated bleeding risks. Ivonescimab’s ability to avoid these complications makes it an attractive option for broader use in lung cancer treatment.

Akeso anticipates regulatory approval for Ivonescimab in China by FY25F, which will mark the beginning of its commercial success. The drug is poised to become a first-line treatment standard for aNSCLC, with strong potential for global market penetration.

Valuation and Investment Thesis

Akeso’s recent clinical advancements with Ivonescimab have led to a significant upward revision of its target price. The company’s valuation is driven by its Discounted Cash Flow (DCF) model, with key assumptions including:

• WACC (Weighted Average Cost of Capital): 10.7%
• Terminal Growth Rate: 3%

The success of Ivonescimab presents a major re-rating catalyst for Akeso, as the drug’s approval and global market expansion are expected to drive significant revenue growth from FY27F onwards. The broader revenue forecast has been upgraded based on superior clinical results and expanded market potential beyond China, reflecting a higher TP of HK$62.61.

Risk Factors

While Akeso’s prospects appear promising, the investment case is not without risks:

1. Drug Pricing Risks: Inclusion in the National Reimbursement Drug List (NRDL) could lead to downward pressure on drug pricing, potentially affecting profitability.
2. Patent Expiry Competition: As patents expire, Akeso could face intense competition from generic drugs, limiting its ability to maintain premium pricing for Ivonescimab.
3. Clinical Outcomes Risks: Any setbacks in ongoing or future clinical trials could hurt Akeso’s revenue growth potential and investor confidence.

Stock Performance and Financial Metrics

Akeso’s stock has seen a 15.4% increase over the last month, with a three-month gain of 10.4% and a 12-month surge of 39.7%. This positive momentum reflects investor confidence in the company’s drug pipeline, particularly in light of the HARMONi-2 trial results. Akeso’s market cap stands at HK$41.7 billion, with an average daily turnover of HK$210.2 million.

Key Financial Highlights (FY23A – FY26F)

• Revenue Growth: From RMB 838 million in FY22A to a projected RMB 5,902 million in FY26F.
• Operating EBITDA: Expected to swing from a loss of RMB 1,237 million in FY22A to RMB 926 million in FY26F.
• Net Profit: Forecasted to recover from a loss of RMB 1,168 million in FY22A to a positive RMB 678 million in FY26F.

Akeso’s financial recovery is closely linked to the successful commercialization of Ivonescimab and its other drugs, which will begin to contribute meaningfully to revenue in FY25F and beyond.

Conclusion

Akeso Inc. is on the cusp of becoming a dominant player in the biotechnology sector, with Ivonescimab poised to revolutionize the treatment of advanced non-small cell lung cancer. The company’s strategic focus on innovative therapies, combined with favorable clinical trial results, provides a solid foundation for long-term growth. Investors looking for exposure to cutting-edge oncology treatments should consider Akeso as a strong buy candidate, especially with a potential 29.9% upside to the current stock price.

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