After a year and a half on the market, 3D Medicines (01244) has experienced a mountain and trough in its stock price, with a rollercoaster ride.
On December 15, 2022, 3D Medicines successfully landed on the Hong Kong Stock Exchange with an offer price of HK$24.98, and the company's share price rose repeatedly for more than half a year, rising to a record high of HK$131.5 on July 13, 2023, with a market value of more than HK$33 billion. However, the company's share price then turned downward and fell to an all-time low of HK$4.68 on 3 October 2023. Since then, the company's share price has continued to consolidate at a low level, and as of the close of trading on May 10, 2024, the company's share price closed at HK$6.75, with a market capitalization of HK$1.743 billion, which is only 5% of its peak.
From being favored by capital to the stock price plummeting, what has 3D Medicines experienced?
Behind the roller coaster of stock prices
Zhitong Financial APP noticed that on the eve of the stock price diving on July 14, 2023, the company announced that it planned to place 2.15 million shares to 6 placees at a price of HK$108 per share, raising about HK$232.2 million. This placement price is 332.35% higher than the issue price of 3D Medicines at the time of its IPO.
It is worth noting that although this placement price is higher than the company's IPO issue price, it is still much lower than its closing price in the last five trading days at that time. In addition, stretching the timeline, 3D Medicines' stock price has been trading sideways from the end of March to the beginning of May, with an average daily volume of around 500,000-800,000 shares, but since then, the company's stock price has risen sharply in just two months while maintaining this trading size, and reached a new high the day before the placement. As a result, there has been a lot of controversy in the market, with some investors questioning the possibility of using inside information to trade.
This "coincidence" caused the market's confidence and trust in 3D Medicines to collapse in an instant, and the company's stock price plummeted, falling by nearly 50% in a single month in the three months from July to September 2023.
On September 30, 2023, the next trading day after the lifting of the ban on some of the original shares, the company's stock price plunged again. Specifically, on October 3, 2023, the company's shares were sold sharply by cornerstone investors, with a short selling ratio of 16.2% on the same day, and the company's stock price fell 62.78% in a single day, once hitting a price trough of HK$4.68.
The day after the crash, on October 4, the company issued a repurchase plan, and under the share repurchase authorization, the company was allowed to repurchase up to 25,605,700 shares, accounting for 10% of the total number of issued shares on the day of the company's annual general meeting. 3D Medicines said it implemented the share buyback program without affecting its continued growth, stressing that the current share price does not reflect its intrinsic value and the company's actual business prospects.
Business fundamentals have been hit by multiple shocks
From the perspective of performance fundamentals, it seems that 3D Medicines still struggles to regain investor confidence with just one commercial product.
Founded in 2014, 3D Medicines is a biopharmaceutical company in the commercialization stage, according to Zhitong Financial APP. The Company develops and commercializes oncology drug candidates and products through in-house discovery, licensing and co-development with partners.
As of December 31, 2023, the Company has established a pipeline of 12 drugs or drug candidates. Among them, Envida ® (envafolimab, subcutaneous PD-L1) has been approved and commercialized in Chinese mainland and Macau. In 2023, Envida's ® sales revenue will be 635 million yuan (RMB, the same below), a year-on-year increase of 11.9%. As the company's only commercialized product, this part of the revenue happens to be the company's total revenue for the whole year.
Zhitong Financial APP learned that envafolimab was approved in China in November 2021. As the first approved domestic PD-L1 antibody, envafolimab is an anti-PD-L1 monoclonal antibody that can be used for subcutaneous injection, unlike most products with the same target. As the most concerned PD-1 at that time, envafolimab achieved a revenue of 567 million yuan in the first full year of commercialization, and the market is expected to hit the revenue level of 1 billion yuan in the future with its convenient drug delivery methods and new indication expansion.
However, this core product is not manufactured in-house by 3D Medicines. It is reported that envafolimab is a PD-L1 antibody drug independently developed by Alphamab Alphamab, which was introduced by 3D Medicines in 2016 and began to be jointly developed, according to the agreement, 3D Medicines is entitled to 51%, and Alphamab Oncology Group is entitled to 49% of the profit before tax generated by the global sales of envafolimab in the field of oncology treatment. In other words, 3D Medicines can only take half of the profit made by envafolimab.
At that time, some analysts questioned that compared with Biotech, 3D Medicines was more like a pharmaceutical businessman who relied on License-in to impress the capital market.
At the same time, with the increasing "involution" of the PD-1/PD-L1 track, it seems that it is unknown when the revenue target of 1 billion yuan will be reached. PD-L1 is a representative product of domestic innovative drugs, and there are many PD-L1 products that have been approved for marketing in China. As of the end of March 2024, 17 PD-1 products have been marketed in mainland China, including 11 PD-1 and 6 PD-L1, involving more than 10 tumor types and related pan-tumor types.
In the indication of MSI-H/dMMR, the competitive landscape of PD-1/PD-L1 antibodies is also not optimistic. Up to now, including envafolimab, there are five products, including Merck's pembrolizumab, BeiGene's tislelizumab, Henlius' HLX-10, and Lepu Biopharma's putelimab. Under the homogenization and involution of domestic pharmaceutical companies, the PD-1 industry has fallen into a fierce price war, and the price reduction pressure of medical insurance negotiations has also made it more and more difficult to break through the sales threshold of envafolimab. Under various risks, the imagination given to 3D Medicines' future performance has been impacted.
In addition, the rest of the company's products under development are still in the preclinical/I/II phase stage with unknown certainty, which is difficult to support the company's performance in the short term.
Can "going overseas" be the antidote to the company's performance?
In this context, 3D Medicines seems to have chosen to "go overseas" in order to open the ceiling of the company's performance.
According to the announcement, 3D Medicines and Jiangsu Alphamab Oncology have entered into a license agreement with Glenmark, a pharmaceutical company listed in India, agreeing to grant Glenmark an exclusive license and sublicense for the oncology indication of KN035 (envafolimab injection) to develop KN035 in India and the Asia-Pacific region (except Singapore, Thailand and Malaysia), the Middle East and Africa, Russia, the CIS and Latin America to commercialize KN035 in all areas of oncology use.
Under the terms of the license agreement, Jiangsu Alphamab Oncology and 3D Medicines will receive a total of US$700.8 million of non-refundable upfront payments and milestone payments subject to progress and royalties based on net sales of KN035.
For the collaboration, 3D Medicines said it will enable Glenmark's existing team and resources to quickly establish a favorable market position for envafolimab in the region, and the implementation of the license agreement will have a positive impact on the commercialization of envafolimab in the region.
Zhitong Financial APP learned that in recent years, the enthusiasm of mainland medicine to go overseas has been high, and the cooperation intention of multinational pharmaceutical companies has also hit a new high. According to the information disclosed by the Insight database, from 2020 to 2023, the transaction value of external licensing projects of mainland pharmaceutical companies has increased year by year, with US$7.891 billion, US$15.676 billion, US$31.151 billion, and US$47.267 billion, respectively. Looking forward to 2024, Great Wall Securities, China Merchants Securities, etc. have analyzed and pointed out that the number of Chinese pharmaceutical companies going overseas will remain high.
However, it should be noted that with the increase in commercial cooperation, uncertainty has also begun to emerge, and since 2023, a number of local pharmaceutical companies have successively terminated overseas licensing cooperation due to various reasons such as "not adapting to the water and soil". Some analysts have pointed out that whether a drug can "go overseas" depends on whether it can solve the unmet clinical needs of the local area, whether it is original innovation, and how to adapt to the rules of the game in overseas markets are also the focus of attention.
Industry insiders said that in the long run, innovative drugs going overseas cannot simply be sold, and the fate is pinned on partners, or they should establish their own marketing channels around the world in a down-to-earth manner, so as to strive for a steady stream of stable profits in the world.
All things considered, the collapse of 3D Medicines' share price is not surprising under multiple shocks. Under the multiple risks such as the time required for subsequent commercial products and the uncertain prospects of the overseas market, it seems that the company will still be difficult to turn around in the short term.