Innovent Bio hopes for plus-sized profits from obesity drug

Key Takeaways:

• Sales approval for the company’s anti-obesity drug mazdutide may drag out beyond this year, potentially allowing rival products to gain a market advantage
• The executive in charge of Innovent’s R&D activities dropped a bombshell on the eve of the earnings release, announcing his retirement

By Molly Wen

It has developed a promising weight-loss drug and is raking in revenues from an anti-cancer injection. But the latest earnings from Innovent Biologics Inc. (1801.HK) could not excite investors, despite some strong headline figures.

It turns out that the potentially game-changing obesity drug may not hit the market before the end of the year, dampening hopes for swift profits. Added to that, an outsized net loss and the sudden departure of the firm’s R&D chief also took the shine off half-year results.

Innovent Bio reported on Aug. 28 that its revenues jumped 46% to 3.95 billion yuan ($560 million) in the first half of the year from the corresponding period of 2023. Drug sales made up most of the turnover, leaping 55% to 3.81 billion yuan, driven by demand for the anti-cancer injection sintilimab and income from newly launched drugs.

However, the bottom line sank deeper into the red. The company’s net loss surged 182% to 393 million yuan, which was attributed to adverse changes in investment values, foreign exchange factors and tax credits. Excluding non-recurring items, Innovent trimmed its loss by 15.9% to 160 million yuan.

For the stock market, the overall effect was mildly bearish. Innovent’s share price sagged for two sessions after the results, falling 3.7%.

On the plus side, Innovent has achieved robust commercial returns with 11 products approved for marketing. Gross margin rose 1.8% percentage points to 84.1% in the first half on higher drug output and lower production costs. Innovent did not disclose specific product sales, but data released by its drug partner Eli Lilly LLY showed that sintilimab revenue rose 45.6% to $240 million in the first six months of the year.

Innovent can boast a product range spanning cancer treatments and drugs for disorders of the immune system, metabolism and vision. However, at least six of those drugs have been licensed from other developers, limiting the firm’s revenue share to sales within China and requiring ongoing payouts to the original researchers. That explains why profit growth lags far behind the pace of revenue expansion.

Innovent said in its earnings release it had six product applications under review by China’s pharmaceutical regulators and expected its portfolio of approved drugs to increase by the end of the year. Two drugs targeting lung cancer are on track to get the green light in the second half of 2024. But the widening product range is pushing up development costs. R&D spending rose 51.7% to 1.40 billion yuan in the first half of 2024, with cash reserves exceeding 10 billion yuan as of the end of June.

One of the hotly anticipated products in the pipeline is mazdutide, a dual-action drug targeting obesity and diabetes. The GLP-1R/GCGR drug is designed to reduce appetite and modulate the way food is metabolized. Chinese regulators accepted applications for the drug to be used for weight loss and diabetes earlier this year, but the approvals process may not be completed by the end of the year, based on progress outlined in the earnings report.

Meanwhile, Eli Lilly’s dual-action drug tirzepatide has already gained Chinese approval for the same two medical conditions and is due to hit the market in the fourth quarter. Hence, hopes for Innovent’s mazdutide to grab a chunk of the market are riding on the approval timeline.

Shock departure

Meanwhile, executive changes at Innovent have also raised eyebrows. On the eve of the earnings release, it was announced that the president in charge of R&D, Liu Yongjun, had retired from the company. Liu’s duties had included drug strategy, commercial cooperation and international business. Now R&D falls under the remit of founder and CEO Michael Yu. Liu joined Innovent less than four years ago after serving as global head of R&D at Sanofi, achieving the highest profile of any Chinese scientist in the international field of innovative drugs.

Innovent did not elaborate on the circumstances of Liu’s departure, but clues could lie in the company’s shifting strategy. Cancer immunotherapy drugs being developed by Innovent, including several monoclonal antibodies and a dual antibody, have gradually receded from view in the years since Liu joined the company and did not feature in financial reports after 2023.

Innovent is now shifting its focus towards cardiovascular and metabolic drugs, covering a wide range of conditions including hyperlipidemia, diabetes mellitus, hyperuricemia, obesity and thyroid-related eye diseases. The company’s first product in this category, a tafolecimab injection, was approved last year and two other drugs, mazdutide and teprotumumab, are being prepared for launch.

Innovent set up a new department in the first half of the year to drive its cardiovascular and metabolic drugs business, with staff dealing with medical affairs, sales and marketing ahead of planned product launches in 2025. However, tafolecimab is now facing fierce competition from other drugs designed to reduce dangerous lipid levels in the blood. Innovent’s product, based on a cholesterol-lowering PCSK9 inhibitor, needs to be injected every six weeks at a cost of around 12,000 yuan a year. But an alternative treatment from the multinational drug company Novartis, which was approved after tafolecimab, enjoys the clinical benefit of being injected just two times a year. In addition, Hengrui Pharmaceuticals (600276.SH) and Akeso (9926.HK) have filed marketing approvals for similar products.

At the results presentation, Yu reiterated a target of reaching 20 billion yuan of Chinese sales in 2027, from an expected portfolio of 20 commercial products by then. Innovent’s price-to-sales (P/S) ratio stands at about 8 times, higher than the 6 times for fellow innovative drug maker BeiGene BGNE.

Investors will be keen to see if Innovent, as an established player with consistent returns from its anti-cancer drugs, can back up its success with other blockbuster products.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.