Bright performance did not boost the stock price, what is the true value of INNOCARE (09969) core product?

Positive third quarter financial report data, however, did not boost the stock price of INNOCARE (09969) as expected. One week after the release of the Q3 financial report, the company's stock price slightly increased and quickly fell back, closing below 7 Hong Kong dollars on the 15th, lower than the price level a week ago. Public information shows that INNOCARE was established in August 2015, primarily focusing on the research and development of new drugs for malignant tumors and autoimmune diseases. The company is currently listed on the "A+H" market. Benefiting from the rapid increase in sales of Obrutinib, the company has further raised its full-year product sales guidance to a year-on-year increase of over 45%, showing strong sales growth momentum. As the company's most popular product, Obrutinib has brought considerable profits to the company since its launch in January 2021, with sales revenues of 566 million yuan and 670 million yuan in 2022 and 2023, respectively. In the first three quarters of 2024, Obrutinib's total revenue was 693 million yuan, a year-on-year increase of 45.0%, exceeding last year's full-year sales revenue, with a quarterly revenue growth rate of 75.5% in Q3. However, despite the high growth rate, the success of Obrutinib has not yet reversed INNOCARE's loss situation, with a net loss of 285 million yuan in the first three quarters, a year-on-year decrease of 47.1%. Market investors have not shown the expected enthusiasm for INNOCARE, indicating that behind Obrutinib's "glory," there are still concerns about adverse factors. Licensed exclusively for MZL indication, what is the value? Public information shows that as of the first half of 2024, INNOCARE has 13 products in research and development, with 2 products entering the commercialization stage. In addition to the core product Obrutinib, Tafasitamab is also progressing towards domestic listing and is expected to be launched next year. In recent positive news, with the implementation of the new national medical insurance directory, all three indications of Obrutinib received medical insurance coverage in 2024, including adult patients with r/r CLL/SLL, adult patients with r/r MCL, and adult patients with r/r MZL who have received at least one prior treatment. Of these, the most attention-grabbing is the approval of the MZL indication for Obrutinib, making it the first and only BTK inhibitor approved for the MZL indication in China, and it has been listed as a first-line treatment option for MZL in the "Chinese Society of Clinical Oncology (CSCO) Lymphoma Diagnosis and Treatment Guidelines 2024." It is understood that MZL is a relatively rare disease, more common in the elderly, and its incidence rate is increasing year by year. Compared to other types of lymphoma, MZL has a relatively short treatment history, and patient treatment choices have been very limited. The first Chinese MZL White Paper released in September this year pointed out that currently, common first-line systemic treatment regimens for MZL mainly consist of immunotherapy and chemotherapy-free regimens that focus on targeted therapy, which are gradually becoming a new trend in the treatment of MZL. Previously, drugs commonly used for the treatment of MZL such as Rituximab, Ofatumumab, BTK inhibitors, and PI3K inhibitors were not covered by medical insurance, and patients often had to bear treatment costs of up to tens of thousands of yuan on their own. Therefore, with Obrutinib's MZL indication receiving medical insurance coverage, this drug is expected to rapidly increase in sales, driving the stock price and performance to new highs. Subsegment contests are becoming fierce, is there hidden concern in the market prospects of Obrutinib? As the current revenue pillar of INNOCARE, the market prospects of Obrutinib may not be as smooth as imagined. When looking at the overall market landscape, the answer to this question seems to be clouded with uncertainty. It is understood that Obrutinib belongs to BTK inhibitors, and BTK is a key kinase in the BCR (B-Cell Receptor) pathway, playing a crucial role in the signaling cascade of the B cell antigen receptor (BCR), which is essential for the proliferation and survival of malignant B cells in lymphoma. Since BTK regulates cell proliferation, survival, and migration in various B cell malignancies, the BTK target has become one of the most promising targets involving B cell and macrophage activation. However, in the subsegment of BTK inhibitors, Obrutinib is not the only player. Data shows that there are currently 6 approved BTK inhibitors globally, including the first-generation Ibrutinib, the second-generation Acerta Pharma-developed Acalabrutinib, Zanubrutinib, Tirabrutinib, Obrutinib, and the third-generation Pirtobrutinib. Compared to the first-generation product Ibrutinib, second-generation products led by Obrutinib have improved efficacy and safety. Specifically, among similar drugs, Acerta Pharma's Acalabrutinib is the highest-selling drug among second-generation BTK inhibitors worldwide, reaching 2.057 billion USD in 2022, with a year-on-year sales growth of 33% to 1.185 billion USD in the first half of 2023; BEIGENE's Zanubrutinib (Brukins) has been approved for marketing in multiple countries in Europe and America and is the BTK inhibitor with the most approved indications, achieving global sales of approximately 501 million USD in the first half of 2023. Unlike the first and second-generation BTKis, which are covalent inhibitors, the third-generation BTKis are non-covalent inhibitors, with the prototype drug being Pirtobrutinib developed by Lilly. Data shows that Pirtobrutinib has great potential in terms of safety and resistance. In preclinical studies, Pirtobrutinib is 300 times more selective to BTK than other kinases. As it is a non-covalent inhibitor, it has a significantly prolonged half-life and does not exhibit significant resistance. In the past year, Pirtobrutinib has received FDA approval twice.Accelerated approvals are for the treatment of relapsed/refractory MCL patients who have received at least 2 prior lines of systemic therapy, including BTK inhibitors, and for the treatment of CLL/SLL adult patients who have previously received at least 2 lines of therapy including both BTK and BCL-2 inhibitors. GlobalData predicts that ibrutinib will dominate the CLL BTK inhibitor market in 2032, accounting for 60% of demand, with sales expected to reach $3 billion annually.In April of this year, Sanofi announced that the BTK inhibitor Rilzabrutinib (SAR444671/PRN-1008) has achieved its primary endpoint in the Phase III LUNA 3 study for the treatment of adult patients with persistent or chronic immune thrombocytopenia (ITP). They plan to submit a marketing application for Rilzabrutinib to the FDA by the end of this year. If Rilzabrutinib is approved, it will become the 7th BTK inhibitor to be marketed globally and the first BTK inhibitor approved for ITP indication. Compared to its competitors, the approval time for Obtuinib is significantly later, and it has not yet received FDA approval, lagging behind the second-generation products Acalabrutinib and Zanubrutinib. With new related drugs entering the market, Obtuinib's market share may gradually be squeezed. On the other hand, Obtuinib has faced many obstacles in expanding its indications. Two years ago, Obtuinib caused a stir due to poor clinical data: due to a limited number of cases of drug-induced liver injury, Obtuinib's Phase II clinical trial for the treatment of multiple sclerosis (MS) was suspended by the FDA; that same year, Biogen Inc. terminated its global development and commercialization agreement and licensing agreement with INNOCARE for Obtuinib. According to the original agreement, Biogen was supposed to make a one-time non-refundable and non-deductible upfront payment of 125 million US dollars to INNOCARE, with a potential maximum of 812.5 million US dollars in sales milestone payments. The termination of the agreement undoubtedly indicates that the future sales milestone payments have been "flushed down the drain," and it also raises questions about the true clinical efficacy of Obtuinib. INNOCARE's product pipeline mainly focuses on six major autoimmune diseases, including multiple sclerosis (MS), systemic lupus erythematosus (SLE), primary immune thrombocytopenia (ITP), atopic dermatitis (AD), psoriasis, and vitiligo. Regarding its core product Obtuinib, according to the latest news, the FDA has agreed to conduct a Phase III clinical trial of Obtuinib for the treatment of primary progressive multiple sclerosis (PPMS); the overseas Phase III clinical plan for secondary progressive MS (SPMS) has not been fully determined yet, but it is expected to officially start in the first half of next year; the Phase III clinical trial for the treatment of ITP with Obtuinib is expected to complete clinical trials and submit a marketing application by 2025; the Phase IIb clinical trial for the treatment of SLE has already completed patient enrollment. Currently, the 6 BTK inhibitors that have been approved for marketing are all used to treat hematologic malignancies. With the market competition becoming more intense, many companies are starting to explore applications in other indications, such as the autoimmune diseases sector that INNOCARE is focusing on. According to Huachuang Securities statistics, there are over 20 BTK inhibitors being explored in the autoimmune diseases sector, focusing on diseases such as MS, chronic spontaneous urticaria, systemic lupus erythematosus, rheumatoid arthritis, and others. Besides Novartis' Remibrutinib, Sanofi's other BTK inhibitor Tolebrutinib is targeting MS and is currently in Phase III clinical trials; Biogen's BIB091 for MS, AbbVie's Elsubrutinib for systemic lupus erythematosus and rheumatoid arthritis are in Phase II clinical trials. The research and development of BTK inhibitors in the autoimmune diseases sector are flourishing, and INNOCARE cannot rely solely on Obtuinib. Considering the company's heavy reliance on a single product for its performance and the risk of a slowdown in Obtuinib's future sales revenue growth, the company's stock price growth has seemingly peaked, which seems to be within reason.