ZHEJIANG MEDICINE(600216):FILES APPLICATION FOR ARX305 CLINICAL TRIALS;INNOVATIVE DRUGS BUSINESS SET TO BOOM

类别:公司 机构:中国国际金融股份有限公司 研究员:Yaping XIAO/Peng ZOU/Xiaofeng QIU 日期:2022-01-04

  What's new

      Zhejiang Medicine announced it received notice its application for clinical trials of the self-developed drug ARX305 had been accepted by the China Food and Drug Administration (CFDA)。 If the Center for Drug Evaluation (CDE) does not offer an objection within 60 working days from the date of acceptance, applicants can start clinical trials.

      Comments Building platform for biological macromolecular drugs innovation using non-natural amino acid-enabled and site-specific conjugation technology. As the firm’s second antibody-drug conjugate (ADC) incorporated non-natural amino acid, ARX305 was developed with the same technology as anti-HER2 and ARX788. The three make up the firm’s ADC pipeline. The firm has mature non-natural amino acid-enabled and site-specific conjugation technologies and expression systems. Based on the firm’s patent portfolio, we expect it to renovate the long-acting systems of interleukin and growth hormone, by leveraging its non-natural amino acid-enabled and site-specific conjugation technology. We think the firm will build a proprietary product line of biological macromolecular drugs.

      ARX305 is CD70-targeted ADC. ARX305 is made through covalent binding of humanized anti-CD70 monoclonal antibody and two microtubule inhibitors AS269. It was jointly developed by Zhejiang Medicine and Ambrx after an agreement in October 2019. The drug was used for the treatment of advanced tumors expressing CD70 and a variety of tumors with CD70 protein overexpression or gene amplification, including diffuse large B-cell lymphoma (88% CD70 positive rate), clear cell carcinoma of kidney (78%), nasopharyngeal carcinoma (89%), hodgkin lymphoma (97%), non-hodgkin lymphoma (77%), ovarian cancer (69%), low-grade gliomas, glioblastoma multiforme, and mesothelioma of pleura. Currently, there is no drug targeting CD70 in the domestic or global market. As ARX305 completed the preclinical trial within 2 years of joint development, we expect it to enter clinical trials in the near future. Given CD70 is a target for a variety of tumors, we think it has promising market potential.

      Innovative drugs business to thrive. The firm’s new nemonoxacin product for injection was approved for marketing in June 2021, and was included in the National Reimbursement Drug List (NRDL) in December 2021. Nemonoxacin has more competitive efficacy and is safer compared  with its rival products. As such, we expect it to become a major quinolone antibiotic medicine due to the centralized purchase policy for rival products moxifloxacin and levofloxacin. We expect ADCs and nemonoxacin to offer growth drivers for the company moving forward.

      Valuation and recommendation

      We maintain our earnings forecasts of Rmb1.27bn for 2021 and Rmb1.44bn for 2022. The stock is trading at 12.4x 2021e and 10.9x 2022e P/E. We are upbeat on the rapid growth of the Vitamin E business and the growth potential of the company’s innovative drug business. We maintain an OUTPERFORM rating and a target price of Rmb24.15 (based on a SOTP valuation method), implying 18.4x 2021e and 16.2x 2022e P/E with 47.7% upside.

      Risks

      Lower-than-expected product prices; progress in the R&D of ADC disappoints; nemonoxacin sales weaker than we expect.