Akeso Inc.: Navigating a New Era in the Hong Kong Drug Market

Overview of Akeso Inc.

Akeso Inc. (9926.HK) is experiencing a renewed interest in its stock after recently publishing an annual report that showed surprising strengths amid a challenging financial landscape. Despite a notable drop in overall revenue, which sank by 53% to 2.12 billion yuan ($290 million), the company’s drug sales hit an all-time high, surging by 25% from the previous year to more than 2 billion yuan.

Financial Highlights

• Revenue Decline: The substantial revenue drop was largely due to a drastic reduction in licensing income, from 2.92 billion yuan in 2023 to just 122 million yuan last year.
• Losses Reported: Akeso reported an annual loss of 510 million yuan compared to a profit of 1.94 billion yuan the previous year.
• Drug Sales Growth: The increase in drug sales emphasizes the stability and health of the company’s core business, overshadowing the decline in licensing revenue.

Investors responded positively to the results, pushing Akeso’s share price up by 18% over the three trading days following the announcement. This indicates a market perception that values long-term growth in drug sales more than short-term profitability.

Akeso’s Product Portfolio

Akeso boasts six commercially available products, including:

• Cadonilimab: A PD-1/CTLA-4 bi-specific antibody launched in 2023, which is notable for being the first of its kind for cancer immunotherapy.
• Ivonescimab: A PD-1/VEGF bi-specific antibody approved in May 2024 that has already demonstrated superior performance compared to Merck’s Keytruda in clinical trials.

Sales Performance

Although the company did not break down sales figures by product, early indications suggest that cadonilimab and ivonescimab are contributing meaningfully to revenue growth. In the first half of 2024, drug sales rose from 940 million yuan to about 1.1 billion yuan in the second half, shedding light on the company’s performance trajectory.

Price Implications

Despite the promising drug sales, ivonescimab’s treatable segment faces challenges. Each unit is priced at 2,299 yuan, making annual treatment costs potentially reach 500,000 yuan. While the patient base for this treatment is vast, affordability remains an issue.

Government Support and Future Prospects

Two of Akeso’s key products have gained inclusion in China’s national health reimbursement plan, allowing for lower hospital prices. This governmental support enhances accessibility and could lead to increased sales.

Future Guidance

During an earnings call, Chairman Xia Yu refrained from providing specific sales forecasts, indicating that an unexpected surge in demand could complicate supply predictions.

Research and Development Efforts

Despite the financial hurdles, Akeso is committed to streamlining its operations. The company reduced its R&D expenditure by 5.29% year-on-year to 1.19 billion yuan. This decrease is attributed to an expansion of its internal clinical team that allows for more efficient, in-house research. The firm is currently involved in over 50 ongoing projects, with 24 products under clinical trials worldwide.

International Expansion Plans

Market Potential for Ivonescimab

Investment bank Goldman Sachs has highlighted ivonescimab’s potential, suggesting it could become a leading treatment in the field of PD-1/L1xVEGF bi-specific antibodies, with projected peak sales reaching $53 billion by 2041. This extraordinary projection indicates a significant upside if the drug’s clinical trials succeed.

Collaborations and Clinical Trials

Akeso is advancing its clinical aspirations through partnerships, such as an agreement with Summit for collaborative trials including Pfizer’s antibody-drug conjugates for various solid tumors. Anticipation is building for the results from a multicenter Phase 3 study slated for release mid-year.

Financial Stability

As of the end of 2024, Akeso had cash and financial products totaling 7.34 billion yuan, offering a robust financial cushion to continue its development efforts. Although the stock currently trades at a high price-to-sales (P/S) ratio of roughly 34 times, which is significantly higher than competitors, strategic advancements could justify this valuation.

As Akeso proceeds with clinical testing and product launches, the healthcare market will closely monitor the company’s developments to gauge whether it can maintain its momentum in a highly competitive industry.

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