Biosight Revenue Growth, Loss Narrows, Cash Flow Positive, Near Breakeven

Innovation, going global, and profitability have become the general consensus among entrepreneurs and investors regarding the future development of the domestic biopharmaceutical industry following the "roller coaster" changes of the past two to three years.

From the perspective of the capital market, the performance of the innovative drug sector in the Hong Kong stock market in recent years has been less than satisfactory. The market's valuation attitude towards this sector has shifted from deflating valuation bubbles to irrational undervaluation. As the sector's valuation continues to adjust, it has reached a historical low, providing a good opportunity for investors seeking value to lay out their investments.

At the current juncture, overseas research and development of innovative drugs is still thriving, and domestically, the industry has begun to receive support from the latest policies and stable market demand, making the industry's prospects increasingly bright. As the industry is about to emerge from the bottom, it is essential for investors to closely monitor individual stocks that are at the forefront of product technology innovation globally, have won the trust of a wide range of international customers, and whose enterprises have achieved or are close to achieving profitability.

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Recently, Biocytogen released its semi-annual financial report for 2024, showing a good growth trend and is about to become profitable. Unlike other biotechnology companies, Biocytogen is positioned to become a birthplace for new global drugs. Its financial report this time provides us with an observation window, which may reveal some unique development perspectives and ideas.

1. Cash flow from operating activities turned positive for the first time, and profitability is gradually being released.

Looking directly at the performance data, the financial report shows that Biocytogen achieved a revenue of about 410 million yuan in the first half of the year, a year-on-year increase of 25.6%. Among them, the antibody discovery business revenue was 120 million yuan, a year-on-year increase of 33.9%; the model animal sales business continued to maintain rapid growth, achieving revenue of about 180 million yuan, a year-on-year increase of 52.6%; these two businesses have become the core driving force for performance growth. Looking at the regional market, overseas business continued to show rapid growth, achieving revenue of 290 million yuan, a year-on-year increase of 70.0%, with overseas sales revenue accounting for 71.5%.

While revenue is growing rapidly, the company's net losses have also been effectively controlled, with a net loss of 50.673 million yuan in the first half of the year, narrowing by 73.3% year-on-year.

In addition to the rapid growth of various businesses, the improvement in the company's performance is also supported by the joint effect of two key factors. First, the company's large-scale R&D investment phase has ended, and R&D expenses have decreased significantly compared to the same period last year; second, the company continues to improve asset utilization and operational efficiency, strengthen cost and expense control, and the results of cost reduction and efficiency improvement are significant, with continuous improvement in operational capabilities.

The financial report shows that in the first half of the year, the company's R&D expenses were 160 million yuan, a year-on-year decrease of 34.8%; general and administrative expenses were 100 million yuan, a year-on-year decrease of 12.7%.

It is even more worth mentioning that in the first half of the year, Biocytogen's cash flow from operating activities turned positive for the first time, reaching 29.608 million yuan, which not only indicates the continuous strengthening of the company's profitability but is also a direct reflection of the company's self-blood-making ability. For subsequent growth, Biocytogen has given a positive expectation, "believing that the second half of 2024 is expected to achieve profitability, and the whole year can achieve a goal close to breaking even."In the first half of the year, the operating cash flow turned positive, with losses narrowing significantly to about 50 million yuan. There is a strong likelihood of profitability in the second half of the year. Coupled with over 400 million yuan in cash on hand at the end of the first half, it can be said that Biocytogen has successfully come ashore and is expected to become another biopharmaceutical company listed under the 18A chapter that achieves profitability through continuous business growth, following the likes of Fosun Hanzhong, Gui Chuang Tongqiao, Ascentage Pharma, and BeiGene.

2. The antibody licensing business enters a period of explosive growth, driving the underlying logic of performance.

So, where does Biocytogen's confidence in setting this profit target come from?

This requires a look at the company's recent strategic layout and business progress.

In simple terms, Biocytogen's business layout over the past few years has fully reflected the strategies of innovation and going global. Continuous innovation, with globally competitive antibody licensing business and innovative animal model services, has become the core driver of the company's business growth. The continuous cultivation of overseas markets has entered a harvest period, and the rapid growth of overseas business has become the largest contributor to performance growth.

In my view, the most valuable and growth potential business is undoubtedly the antibody molecule licensing business.

The reason is that the company, relying on its unique RenMice technology platform, has carried out a large-scale antibody drug development project - the "Thousands of Mice, Ten Thousand Antibodies" plan, which has been completed in stages. It has successfully established a library of over 400,000 ready-to-use antibody molecules and more than 40 potential clinical candidate compounds.

The company has made it clear that it will no longer engage in independent drug research and development, but will instead focus on advancing research and development through licensing or transfer with partners. After three to four years of development, Biocytogen's antibody molecule licensing cooperation has spread across key countries and regions in Asia-Pacific and Europe and America, gaining widespread recognition from domestic and international pharmaceutical clients. As of June 30th of this year, the company has signed approximately 150 drug cooperation development/licenses/transfer agreements, of which about 50 were newly signed in the first half of 2024, showing a rapid growth.

With the advancement of research and development of more cooperative products, in addition to the initial payment, Biocytogen will receive milestone payments at different stages of research and development or commercialization. With the rapid increase in the number of cooperative transactions, the current disclosed total transaction amount is about tens of billions of yuan. These potential benefits will play a key role in enhancing the overall performance in the future. This means that the company's antibody drug development projects are entering a period of intensive result realization, driving the company's profitability to be gradually released in the future.

Just looking at the projects disclosed by the company in 2024 is enough to reflect its innovative R&D technology and the influence and competitiveness in the global market.For instance, in the ADC field, the company has reached an agreement with SOTIO, granting SOTIO the option to obtain a license for a variety of fully human bispecific antibodies generated using Biocytogen's proprietary RenLite® platform, which SOTIO will utilize for the development of next-generation ADCs targeting solid tumors. The agreement also includes an option for SOTIO to use Biocytogen's proprietary ADC platform. The potential total transaction value could reach up to $325.5 million (approximately 2.3 billion yuan), along with a low single-digit percentage royalty fee based on net sales.

Biocytogen has granted IDEAYA Biosciences (Nasdaq: IDYA) an exclusive global license option for a potentially first-in-class B7H3/PTK7 topoisomerase inhibitor payload bispecific antibody drug conjugate (BsADC) project. The potential total transaction value could reach $406.5 million (approximately 2.9 billion yuan), which includes $100 million in clinical development and regulatory milestone payments.

In addition to the leading antibody molecule transfer and development, Biocytogen's innovative animal model business also possesses global competitiveness, jointly constructing the company's dual driving force for performance growth and continuously expanding its global influence.

In the field of innovative animal models, the company relies on a powerful gene editing technology platform to continuously independently develop over 3,300 high-quality new animal models. It also relies on top-tier animal housing facilities that exceed the highest global production standards, continuously providing first-class gene-edited innovative animal models to customers worldwide. In the future, Biocytogen is expected to become the preferred supplier of innovative animal models that meet the most cutting-edge R&D needs of pharmaceutical clients both domestically and internationally.

In terms of overseas market expansion, the company is also continuously expanding and adjusting its overseas sales team, focusing on China, the United States, Europe, and the Asia-Pacific regional markets to ensure more effective service to the needs of customers in different regions, enhancing global market coverage and penetration.

3. Conclusion

It is evident that over the past two years, alongside the adjustment of the domestic biotechnology industry, Biocytogen has assessed the situation and responded decisively, making significant strides in turning losses into profits and is on the verge of becoming profitable. The company has entered a new phase of value realization, with its profit potential being rapidly demonstrated and unleashed.

With the steady development of the company's various business segments and the continuous exploration of market potential, it can be anticipated that the prospect of Biocytogen achieving profitability has become increasingly clear, which is expected to drive a further increase in valuation levels.