CMB International: Maintains SINO BIOPHARM (01177) at a buy rating with a target price of 9.4 Hong Kong dollars.

China Merchants International issued a research report stating that it maintains a buy rating on SINO BIOPHARM (01177) with a target price of 9.4 Hong Kong dollars. The target price based on DCF is 9.40 Hong Kong dollars (WACC: 10.01%, perpetual growth rate: 2.0%). The bank expects SINO BIOPHARM's revenue growth in 2025E/26E/27E to be +19.1% / +4.4% / +10.6%, and adjusted net profit growth to be +81.3% / -30.0% / +11.3%. For cautious consideration, the bank has temporarily not considered the potential contribution of foreign authorization to revenue and profit. China Merchants International's key points are as follows: SINO BIOPHARM announced the phase II clinical results of its PDE3/4 inhibitor TQC3721 at the 2025 European Respiratory Society Congress. The clinical results show that TQC3721 can rapidly improve lung function and symptoms in patients. After 4 weeks of treatment with TQC3721, the FEV1 (forced expiratory volume in 1 second) peak values of severe Chinese COPD patients in the 3mg/6mg groups were 100ml/147ml higher than the placebo group. In the LAMA and LABA/LAMA subgroups, the FEV1 peak values in the 6mg group were 239ml and 109ml higher than the placebo group. The FEV1AUC (0-12h) of the 6mg group was 87ml higher than the placebo group, and the SGRQ (Saint George's Respiratory Questionnaire) score improved by 5.09 units compared to the placebo group. TQC3721 demonstrated good safety and tolerability, with no significant side effects observed in the digestive, cardiovascular, and hepatic and renal function aspects during clinical trials. As the second PDE3/4 inhibitor with the furthest development progress globally and the only one currently in phase III clinical trials, the bank believes that TQC3721 has the potential to become a blockbuster drug and also has the potential for significant foreign authorization. Clinical data shows that TQC3721 has the best potential in its class. After 4 weeks of treatment, the FEV1 peak value of the TQC3721 6mg group was 147ml higher than the placebo group, consistent with the 12-week clinical data of the tiotropium group (146/147ml. Non-head-to-head data comparison, same below). The FEV1AUC (0-12h) was 87ml higher than the placebo, also at the same level as the 12-week data of the tiotropium group (87/94ml). It is worth noting that all participants in the TQC3721 clinical trial had received COPD drug treatment, with 30% using LAMA (long-acting anticholinergic drugs), and 70% using both LABA (long-acting beta2 agonists) and LAMA drugs, while approximately 38% of participants in the tiotropium group's clinical trial were newly diagnosed patients. Therefore, the baseline of patients enrolled in the TQC3721 clinical trials was worse. Considering that COPD patients generally use LABA, LAMA, or ICS (inhaled corticosteroids) drugs in real life, the bank believes that the FEV1 data of TQC3721 indicates its huge potential to improve real clinical benefits for COPD patients. Clinical data also shows that in the LAMA drug subgroup, the FEV1 peak value of the TQC3721 6mg group was 239ml higher than the placebo group, significantly higher than the tiotropium group's 135ml. The PDE3/4 drug market has huge potential and a good competitive landscape. COPD is one of the most common respiratory diseases, with nearly 480 million people worldwide affected, and over 100 million in China alone. As the third leading cause of death globally, COPD severely impacts the global economy and healthcare system. Verona's tiotropium was approved by the FDA in June 2024, becoming the first new mechanism COPD drug approved by the FDA in over 20 years, and the only PDE3/4 inhibitor approved to date. Tiotropium sales were $71 million and $103 million in 1Q25/2Q25, with a sequential growth of 95% and 44%, respectively. In July of this year, Merck announced a $10 billion acquisition of Verona, reflecting the huge market potential of PDE3/4 inhibitors. As the second global and only PDE3/4 inhibitor in phase III clinical trials, the bank believes that TQC3721 has significant potential for significant foreign authorization.