The commercialization of the product has become difficult to support alone, has the identity of Hong Kong stock through CARSGEN-B(02171) become the biggest negative factor within the year?

For CARSGEN-B (02171), the most important milestone event in 2024 is the successful commercialization of the core product CT053 in March of this year. However, the commercialization of the first product did not bring further valuation leaps in the secondary market for the company, instead it resulted in a continuous decline in the stock price. Observing that on September 5th, during trading hours, the stock price of Kejie Pharmaceutical touched a new low of 2.48 Hong Kong dollars, setting a new record low since its listing. If we calculate based on the highest price of 7.53 Hong Kong dollars on March 1st when the product was approved, the stock price range has experienced a maximum drop of 67.07% in the six months of repeated fluctuations and declines. After reaching the low price, the stock price of Kejie Pharmaceutical slowly rose, and as of the closing on September 24th, the company's stock price had risen to 3.15 Hong Kong dollars, and the market value had also returned to 1.8 billion Hong Kong dollars. However, as a Hong Kong stock connect enterprise, Kejie Pharmaceutical currently appears to be on the brink of losing its connect status. Can Kejie Pharmaceutical win this "Hong Kong stock connect defense battle" before the results of the next regular review on February 25th next year? After the stock price hit a new low, the battle for the stock connect had begun For Kejie Pharmaceutical, the stock price has been declining since the beginning of this year, falling by more than 50% from the beginning of the year. Currently, the company's market value is only 1.789 billion Hong Kong dollars, and the pressure to maintain the stock connect status is evident. It is understood that the reasons for delisting from the stock connect mainly include: Hong Kong stocks are no longer part of the Hang Seng Composite Index due to adjustments in related indices; Hong Kong stocks that are part of the Hang Seng Composite Small-Cap Index and have an average month-end market value of less than 4 billion Hong Kong dollars over the past twelve months (also known as the "review period") are not listed as H-shares of A+H listed companies on the Hong Kong Stock Exchange, and are delisted from the stock connect. Kejie Pharmaceutical is one of the Hong Kong stocks that are part of the Hang Seng Composite Small-Cap Index, and the current rule is that the average month-end market value during the review period is less than 4 billion Hong Kong dollars. Hang Seng Index Company is expected to announce the quarterly review results of the Hang Seng Index series as of December 31, 2024 by mid to late February next year, and the related changes are expected to take effect in early March 2025. For Kejie Pharmaceutical, the current market value is already far below the "stock connect threshold". According to calculations, the average month-end market value of Kejie Pharmaceutical during the review period from January to now is 2.948 billion Hong Kong dollars, which is 10.52 billion Hong Kong dollars lower than the 4 billion Hong Kong dollars stock connect threshold. In other words, for Kejie Pharmaceutical to continue to maintain its stock connect status during the review period at the end of December this year, the company would need to bring the market value back to nearly 6.115 billion Hong Kong dollars, or around 10.69 Hong Kong dollars per share to successfully maintain the connection. Based on the current stock price, Kejie Pharmaceutical would need to increase its share price nearly 2.5 times and maintain steady growth as much as possible, indicating the high difficulty ahead. Therefore, if Kejie Pharmaceutical cannot quickly raise its stock price and market value during the review period, the probability of being delisted from the stock connect is high. According to the rules, once a company is delisted from the stock connect, mainland investors cannot make purchases and can only sell their holdings of the company's stock. In other words, as the company is delisted from the stock connect, mainland investors not only cannot contribute to liquidity, but may also become selling pressure. As of September 23rd, the proportion of Kejie Pharmaceutical's stock connect holdings was as high as 21.07%. Once the company is delisted from the stock connect, the selling pressure from over 20% of shares could further negatively affect the stock price. Core product struggling alone, leading to "5 consecutive declines" after the interim report After the close of trading on August 28, Kejie Pharmaceutical disclosed its financial report for the first half of 2024. Subsequently, the company's stock price experienced "5 consecutive declines" from August 29 to September 4, indicating investors' pessimism about Kejie Pharmaceutical's performance. Data shows that during the reporting period, Kejie Pharmaceutical achieved revenue of approximately 6 million RMB, mainly from the sales of its core product Sikaize (Zivokiorinsay Injection, CT053). However, this revenue is calculated based on the factory price, not the terminal market price. During the reporting period, Kejie received 52 orders from Huadong Medicine, but due to the necessary time period for CAR-T production, there were discrepancies between the number of orders received from Huadong Medicine and the number delivered at the factory. However, 6 million in revenue is obviously insufficient to cover the large expenditure of a Biotech company. Although the current net loss of 352 million RMB is reduced compared to the 404 million RMB net loss in the same period last year, the current net loss still stands at 352 million RMB. In terms of cash flow, Kejie Pharmaceutical's cash and bank balances in the first half of this year were 1.653 billion RMB, a decrease of approximately 197 million RMB compared to the previous period. It is expected that the cash and cash equivalents and deposits at the end of this year will not be less than 1.35 billion RMB, and assuming no further cash inflows, the current cash is sufficient to support Kejie Pharmaceutical's research and commercial operations until 2027. In terms of product development pipeline, the company has independently developed 9 differentiated candidate products, involving popular targets such as BCMA, Claudin18.2, GPC3, covering hematologic tumors and solid tumors. Its core product Sikaize has been approved for marketing in China for relapsed or refractory multiple myeloma. In addition, there are 12 pipelines in the clinical stage. However, the commercialization progress of the above products varies, and currently, only Sikaize that has been marketed and the expected CT041 for this year NDA can generate sales revenue for Kejie Pharmaceutical in the short term. If the "stock connect" expectation is taken into account, only Sikaize can support the stock price during the review period. However, the market clearly does not buy into the 600,000 revenue for a quarter. In reality, this product has shown promising clinical performance. The results of the phase II clinical trial (LUMMICAR-1) of Zivokiorinsay for relapsed or refractory multiple myeloma were orally reported at EHA in 2024. Results showed an ORR of 92.2% among 102 patients, with a relief rate of 91.2% at VGPR or above, a CR/sCR rate of 71.6%, and with further improvements inThe follow-up period has been extended, and a trend of deepening reactions has been observed.Domestic CAR-T has shown good clinical performance, and with extensive commercial promotion, it can bring considerable income to manufacturers. Legend Biotech and its Carvykti have proven this point. In the first half of this year, Legend Biotech's total revenue reached 281 million U.S. dollars, an increase of 155.8% year-on-year. However, compared to the international commercialization combinations of Legend Biotech and Johnson & Johnson, the domestic commercialization combinations of KJY Pharmaceutical and Huadong Medicine are rapidly progressing in product layout, but there is obviously still a large gap in sales. Financial reports show that as of July 31 this year, sai Kai ze has been included in nearly 20 provinces or cities' public and commercial insurance programs, with medical institutions covering 19 provinces and cities and over 100 in number, and the company has received a total of 52 orders from Huadong Medicine. As for overseas expansion, KJY Pharmaceutical's two core products are currently in a stagnant state in the U.S. clinical trials, making it difficult to demonstrate their commercial value in the short term. It can be seen that unless there is a sudden positive news that drives a sharp increase in stock prices, KJY Pharmaceutical, with linear growth, may not be able to escape the fate of being kicked out of the Hong Kong Stock Connect this round. However, it should be noted that the inclusion or exclusion from the Hong Kong Stock Connect is just an external factor affecting the stock price for KJY Pharmaceutical. As the company has now entered the commercialization stage and is expected to achieve commercialization of two products in the coming years, there is a strong possibility of internal growth and continuous financial optimization. The company is also expected to see its value reassessed at this stage, so it is not impossible for KJY to re-enter the Hong Kong Stock Connect in the future.