Innovent’s Full-Year Results In Line With Expectations; Shares Modestly Cheap

Narrow moat Innovent’s 01801 results were in line with our expectations. Revenue in the second half was CNY 2.3 billion, or a 0.5% year-on-year decline and 3.4% sequential growth, which was expected given the effect of the COVID-19 lockdowns and outbreak and the Tyvyt price cut that took effect in March last year. Full-year revenue was CNY 4.6 billion, or 6.7% growth. Tyvyt revenue for the second half and full year was USD 134.4 million and USD 293.4 million, respectively, according to Eli Lilly’s disclosures, which were 34% and 30% year-on-year declines.

We lower our fair value estimate to HKD 47.50 per share from HKD 50.00 to reflect slower pipeline progress and lower pipeline contribution from the company’s bispecific molecules. The current market price is a 20% discount to this, and we think shares are modestly cheap. We view tafolecimab (PCSK9 inhibitor) and mazdutide (GLP1 and GCGR dual agonist) as its most significant mid-stage pipeline assets. Innovent submitted its first application for tafolecimab in primary hypercholesterolemia and mixed dyslipidemia in June 2022, and could launch in the first half of 2023, which would be an important catalyst. Mazdutide is expected to launch in 2025 or later, with obesity as its lead indication.

Unlike in previous updates, management did not highlight its CD47 program or PD-L1-based bispecific antibodies. Despite positive early signals, we think the company reassessed its commercial potential given the general difficulties that other drugmakers have had with both CD47 and improving upon PD-(L)1 blockade. This is in line with our interpretation of the company’s “fast follower” strategy, which is to focus on validated drug targets and designs to reduce risk of failure, while applying newer technologies to add incremental differentiation. We think it will be difficult to sell into the U.S. market with this strategy, and for the time being it will be limited to China and emerging markets.