Akeso marks profit milestone with swift rights issue

Buoyed by bumper earnings, the biotech has announced a share placement to raise HK$1.17 billion to invest in developing its portfolio of anti-cancer drugs

Key Takeaways:

• Akeso swung to an annual profit of 1.94 billion yuan, boosted by licensing income of 2.92 billion yuan
• The next highly anticipated product in the firm’s drug pipeline is ivonescimab, the first PD-1/VEGF bispecific antibody to enter Phase III clinical trials

By Molly Wen

Chinese drug company Akeso Inc. (9926.HK) has pushed its way into profit in the biopharma industry’s most competitive arena, developing new ways to help the immune system defeat cancer.

In its latest annual results, the company made advances on two fronts, with a big jump in income from drug licensing rights and increased revenue from product sales.

Revenues for 2023 surged more than five times to 4.53 billion yuan ($628 million), propelling the accounts from a loss to a profit of 1.94 billion yuan.

Emboldened by the results, Akeso shrugged off a dip in its share price and took the opportunity to issue another set of shares to fund more drug research.

The company draws its revenues from product sales and technology licensing. Combined sales of its two approved anti-cancer products, cadonilimab and penpulimab, rose 48% to 1.63 billion yuan last year.  Cadonilimab is a bispecific antibody targeting the PD-1/CTLA-4 immune checkpoints while the other drug is a PD-1 monoclonal antibody.

While overall product sales are rising, the biggest profit impact came from a licensing-out agreement with U.S. pharmaceutical company Summit Therapeutics (SMMT.US) that bumped up Akeso’s tech partnership revenue to 2.92 billion yuan.

Without the licensing windfall, the company’s net loss for 2023 would have narrowed to 788 million yuan from 1.43 billion yuan the previous year, still pointing to progress in its commercialization efforts.

The company’s share price, which had been boosted by positive earnings guidance a few weeks earlier, fell 3.7% to HK$49.95 the day after the results, when the wider pharma sector was struggling.

Analysts are upbeat about the company’s earnings outlook from here. Citibank recently revised up its Akeso revenue forecast by 10% this year and 6% for 2025, expressing optimism about the commercial prospects for the bispecific drug ivonescimab, which is going through clinical trials. Results for the new PD-1/VEGF drug are due for release in the second quarter.

Akeso is clearly confident about demand for its shares. Two days after the earnings, the company announced a rights issue, aiming to distribute 24.80 million shares to at least six investors. Priced at HK$47.65 per share, a 6% discount to the previous day’s closing price, the placement would yield an estimated HK$1.17 billion ($150 million).

The company said 65% of the funds would be directly invested in R&D projects, with the aim of advancing multiple pre-clinical programs, developing an advanced antibody drug conjugate (ADC) platform, and accelerating global clinical trials of drugs such as cadonilimab. Another 25% would be used to further commercialize cadonilimab and the drug candidate ivonescimab.

In fact, Akeso is not short of money. Its current assets reached 5.68 billion yuan at the end of 2023, while the year’s investment in R&D was 1.25 billion yuan and marketing expenses came in at 890 million yuan. In other words, the company has cash on hand to support operations for at least the next two to three years. But it chose this moment to raise funds for future R&D, cashing in on the positive earnings news.

This is the company’s third rights issue since its Hong Kong IPO in April 2020. Including its latest equity foray, the company will have raised more than 5 billion yuan, including 2.31 billion yuan from the IPO, 1.07 billion yuan from a January 2021 placement and 520 million yuan from a right issue in July 2022.

How sustainable are its profits?

At present, Akeso’s flagship product cadonilimab is the world’s first approved bispecific antibody for cancer immunotherapy.  As a single drug with two targets, it can be more effective than PD-1 monoclonal antibodies or combined treatments such as PD-1+CTLA-4 therapies, with potentially fewer adverse effects.

Sales of the flagship drug rose 149% to 1.36 billion yuan last year.  However, the drug was not approved for use against recurrent or metastatic cervical cancer, in cases where initial treatment by other means had failed, until June 2022. The drug brought in 546 million yuan in the second half of 2022, rising to 606 million yuan in the first half of 2023 and 750 million yuan in the second half. The fact that the drug is not covered under China’s health insurance program could be a factor in the still modest sales growth of 20%.

Sales of Akeso’s PD-1 monoclonal antibody penpulimab, contracted out to Chia Tai Tianqing Pharmaceutical Group, are doing less well. Last year, sales of the drug fell 56% to about 273 million yuan after a surge of 164% in 2022. The drug could be losing traction in the extremely competitive market for PD-1 monoclonal antibodies.

The company’s next hotly anticipated drug is ivonescimab, the world’s first PD-1/VEGF bispecific antibody to have entered Phase III clinical trials. The drug targets the PD-1 protein and aims to suppress tumor growth at the same time through the VEGF pathway.  The rights to develop and commercialize the drug in the United States, Canada, Europe and Japan have already been licensed to Summit Therapeutics. Akeso plans to market the drug for 16 conditions including cancers of the lung, pancreas, breast and liver, and is conducting Phase III clinical trials for use against non-small cell lung cancer. Chinese regulators have designated the drug a breakthrough therapy, indicating it could mark a significant advance from existing treatments in some cases.

Meanwhile, cadonilimab is undergoing multiple clinical trials and studies for use as a single drug and in combination with other products, for tumors of the stomach, lung, liver and pancreas, as well as cervical cancer. Six of the studies are in the Phase III stage and drug sales would be expected to increase as more applications are approved.

The scale of Akeso’s revenue leap last year is notable, but the drug developer would not have turned a profit without the one-off licensing payment. From the valuation point of view, its price-to-earnings (P/E) ratio is about 17.3 times, higher than the 12.8 times for Henlius Biotech (2696.HK), another established company in the PD-1 field. Akeso will need to achieve healthy momentum in its drug sales this year to stay on a profitable track.

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