With a focus on genitourinary tumors and other major diseases, Yahong Meditech has been deeply engaged in genitourinary pipelines based on its three core technology platforms and has developed an integrated product mix for diagnosis and treatment, including 12 R&D projects for nine products. Among them, APL-1202, an oral MetAP2 inhibitor for non-muscle invasive bladder cancer (NMIBC), and APL-1702, a photodynamic drug-device combination product for high-grade squamous intraepithelial lesions (HSILs), have been in phase III or pivotal clinical trials. We expect clinical trials for APL-1202 to be completed and submitted for new drug application (NDA) in 2023, with the drug likely approved for marketing by the end of 2024. We also expect APL-1702 to be submitted for NDA in 1Q24 and marketed in 1H25. The two drugs are likely to alter the treatment pattern of corresponding diseases and become blockbusters in related fields. The Company has significant differentiated advantages in several candidates. Using the absolute valuation method, we estimate a fair equity value of Rmb12.110bn for the Company based on the discounted cashflow (DCF) model, corresponding to a target price of Rmb21. We initiate coverage with a “BUY” rating.

An international innovative pharma focusing on genitourinary diseases.

Yahong Meditech focuses on the vast unmet treatment needs in genitourinary tumors and other major diseases. Leveraging its three core technology platforms of targeted immunomodulator normalization (TIMN), prodrug and accurate drug delivery (PADD), and fragment-based assembling & selectively targeting chimeras (FASTac), the Company has established an in-depth pipeline of candidates in the genitourinary field, including nine candidates in clinical and pre-clinical stages. Among these, three studies for two core products have entered phase III or pivotal clinical trials. The Company's founders and heads of R&D and marketing departments have more than 20 years of experience in innovative drug development and management of large multinational pharmaceutical companies, with successful track records from innovative drug development to commercialization, providing solid talent resources for the Company's future product commercialization and sustainable operation.

APL-1202: World's first oral targeted therapy for NMIBC under phase III clinical trial; approval for second-line treatment likely in 2024.

According to Frost & Sullivan (cited in Yahong Meditech’s prospectus), the incidence of bladder cancer in China reached 86k in 2020, and NMIBC accounted for 75%. Transurethral resection of bladder tumor (TURBT) is the preferred option for the standard treatment of NMIBC, and postoperative perfusion therapy is recommended. As there is no second-line treatment option after perfusion therapy, relapsed patients eventually need to undergo radical cystectomy after repeated perfusion therapy, resulting in a substantial decline in the quality of life. As an invasive transurethral treatment, perfusion therapy is also uncomfortable for patients and may cause infection. APL-1202, noral MetAP2 inhibitor, is likely to provide a new regimen for patients with NMIBC as its use as second-line treatment can avoid or delay cystectomy and effectively improve patients' quality of life. Its use as first-line treatment (oral monotherapy) is likely to replace perfusion therapy as an oral drug with better patient compliance and safety. We expect the study of the drug for second-line treatment will probably be completed in Apr-May 2023, and an NDA submission is likely within 2023. We expect the product to be approved for second-line and first-line treatment in 2024 and 2027, respectively, with risk-adjusted peak sales of c.Rmb1.8bn and Rmb600mn.

Building a diversified portfolio of integrated solutions for bladder cancer diagnosis and treatment.

With bladder cancer as its first key market, the Company has built a competitive product portfolio centering on its independently developed APL-1202, and has created an integrated diagnosis-treatment solution ranging from diagnosis and treatment to follow-up. The licensed-in APL-1706 is the only approved imaging agent to support detection or surgery of patients with bladder cancer. In combination with Blue Light Cystoscopy, it can effectively improve the detection rate of bladder cancer. UroViu's cystoscopy can provide a safer and more comfortable experience for patients. APL-1501, another candidate, is likely to reduce medication frequency through prodrug design and controlled release, and become the next-generation oral drug for NMIBC. The integration of diagnosis and treatment will enhance the diversification and synergy of the product pipelines and be conducive to synergistic sales and promotion of each product line. The strategy also provides doctors and patients with a competitive full-process product portfolio and helps to sharpen the Company's lead in the genitourinary market.

APL-1702 is likely to fill the gap in non-surgical treatment of cervical precancerous lesions and be approved for marketing in 1H25.

There were around 2.20mn cervical cancer patients with HSIL in China in 2022, and around 20% of them may progress to invasive cervical cancer within ten years. Surgery is currently the preferred treatment for HSIL, but surgical treatment may result in infections and complications, and cervical organic damage may cause premature birth and miscarriage. As a drug-device combination photodynamic therapy product, APL-1702 is used as non-surgical treatment that is easy to administer and operate. It has shown good efficacy and safety in phase II clinical trial, and its phase III clinical trial are progressing well. We expect the trial to be completed in 3Q23 and the product to be submitted for NDA in 1Q24, before being approved for marketing in 1H25. APL-1702 is likely to offer a new non-surgical treatment option for HSIL patients after its launch. We estimate its risk-adjusted peak sales revenue to exceed Rmb2.3bn.

Potential risks:

(1) The Company's drug R&D may be slower than expected or fail; (2) the Company's product marketing may fall behind schedule due to prolonged drug reviews; (3) the Company's product commercialization and sales may disappoint; (4) the Company's innovative drugs may fail to be included in the National Reimbursement Drug List (NRDL) or face significant price cuts following health insurance negotiations; (5) the Company's internationalization may miss expectations.

Earnings forecasts, valuation and rating:

With a focus on genitourinary tumors and other major diseases, Yahong Meditech has been deeply engaged in genitourinary pipelines based on its three core technology platforms, and has developed an integrated product mix for diagnosis and treatment, including 12 R&D projects for nine products. Among them, APL-1202, an oral MetAP2 inhibitor for NMIBC, and APL-1702, a photodynamic drug-device combination product for HSIL, have been in phase III or pivotal clinical trials. We expect the trial for APL-1202 to be completed and submitted for NDA in 2023, and expect the drug to be approved for marketing by the end of 2024. We also expect APL-1702 to be submitted for NDA in 1Q24 and marketed in 1H25. The drugs are likely to alter the treatment pattern of corresponding diseases and become blockbusters in related fields. The Company has significant differentiated advantages in several candidates. Using the absolute valuation method, we estimate a fair equity value of Rmb12.110bn for the Company based on the DCF model, corresponding to a target price of Rmb21. We initiate coverage with a “BUY” rating.