AKESO seeks new financing in the cold winter | Jianzhi Research

In the midst of the financing cold wave in 18A, AKESO (09926) has chosen to conduct a secondary offering, with a 6% discount indicating optimistic market feedback.

On March 21st, the day after the 2023 financial report, AKESO announced that the company will sell a total of 24.8 million shares to at least six placing agents at a price of HKD 47.65 per share. This price represents a slight discount of approximately 6.02% compared to the previous day's closing price of HKD 50.70. This offering accounts for 2.86% of the expanded share capital, and if all shares are subscribed, the net proceeds are expected to reach HKD 1.17 billion.

AKESO stated that this funding will provide strong support for the company's future development, especially in the research and development field.

Market Opinions Differ on AKESO's Additional Financing

Since its listing on the Hong Kong Stock Exchange in April 2020, AKESO has demonstrated its strong fundraising capabilities through a series of capital market operations.

During its initial public offering (IPO), the company successfully raised HKD 2.313 billion. Subsequently, in January 2021, AKESO raised an additional HKD 1.065 billion through a share placement. In 2022, AKESO maintained its market activity by raising HKD 522 million through a share placement in July. With the successful fundraising of HKD 1.17 billion today, AKESO's cumulative fundraising on the Hong Kong stock market now exceeds HKD 5.07 billion.

Furthermore, in December 2022, AKESO announced its plan to conduct a secondary listing on the Sci-Tech Innovation Board.

However, due to the tightening policies on the listing of unprofitable biopharmaceutical companies on the Sci-Tech Innovation Board, the uncertainty of AKESO's listing plan on the board remains, and the listing window is yet to be clarified. It is believed that against this backdrop, AKESO has opted for this share placement on the Hong Kong stock market.

In 2023, AKESO achieved a revenue of HKD 4.526 billion and a profit of HKD 1.942 billion.

As of the end of 2023, AKESO's total cash and other short-term financial assets in fixed deposits amounted to HKD 4.9 billion, compared to HKD 2.29 billion in the same period last year. Additionally, the R&D expenditure in 2023 was HKD 1.254 billion, and the marketing expenses were HKD 890 million This means that, without considering the assumption of multiple additional clinical trials, based on a 23-year investment scale, AKESO's cash can support 2 years of operation.

However, there is a significant difference of opinion in the market regarding AKESO's fundraising this time.

One group of investors believes that AKESO will receive a large upfront payment in 2023, with funds sufficient to support until the product reaches the self-hematopoiesis stage, continuing to raise funds without enough emphasis on shareholder returns.

Another group of investors believes that in the current severe market environment faced by biopharmaceutical companies, being able to raise funds now, even at a small discount, is evidence of the company's excellent quality. At the same time, fundraising activities are a precautionary measure. If the company waits until it really needs money to raise funds from the market, the company will only passively accept more conditions, lose negotiation leverage, and forced fundraising will become a high probability event. At that time, the damage to shareholders will be greater.

Similarly, in the US stock market, there are cases of fundraising after product progress data updates or post-earnings. Last year, the legendary biopharmaceutical company with high sales growth in the US market also issued new shares.

From the perspective of the secondary market, investor sentiment is optimistic, and AKESO's stock price on the 21st fluctuated slightly.

Clear use of funds, ADC will be the focus of the next stage of research and development

Regarding this fundraising, AKESO clearly stated that 65% of the proceeds from the placement will be directly invested in research and development, including advancing multiple preclinical projects into the IND (Investigational New Drug) stage, developing an advanced ADC (Antibody-Drug Conjugate) platform, and accelerating global clinical trials of drugs such as Cardenili (AK104, PD-1/CTLA-4) and Lefali (AK117, CD47). In addition, 25% of the funds will be used for the commercialization process of Cardenili and Ivosi, while the remaining 10% will be used for other general corporate purposes to ensure the company's operational flexibility and adaptability.

During yesterday's investor conference call, AKESO stated that the company is actively advancing the development of its Antibody-Drug Conjugate (ADC) platform, with an ADC product expected to enter the clinical stage by the end of the year. At the same time, they are also exploring the combination of dual antibodies and ADC.

In terms of production capacity layout, AKESO stated that the company is carefully planning the production capacity of ADC. AKESO has built new production facilities within the existing Health Technology Industrial Park, ensuring that the production capacity can meet both clinical and commercial needs while avoiding overinvestment in capacity In 2023, AKESO has achieved remarkable commercial success. Its cornerstone product, the PD-1/CTLA-4 dual antibody Cardinilumab, has achieved impressive sales performance in the market, with annual sales reaching 1.358 billion RMB, a significant increase of 149% year-on-year.

As a key product of AKESO, Cardinilumab has made progress in several key areas this year. New drug applications (NDA) for first-line gastric cancer and first-line cervical cancer are in progress, while phase III clinical trials for adjuvant therapy of hepatocellular carcinoma and first-line treatment of PD-L1 negative non-small cell lung cancer are progressing efficiently. In addition, a phase III clinical study for gastric cancer progressing after PD-1/L1 treatment with the combination of VEGFR2 monoclonal antibody Pulosizumab has been initiated.

Depivozi (PD-1/VEGF), another important product of AKESO, is currently undergoing 6 phase III clinical studies, with 4 of them being head-to-head comparisons with PD-1 monoclonal antibodies.

Key data includes 2 international multicenter phase III clinical studies led by partner Summit Therapeutics. It is expected that the phase III data for AK112 for the treatment of TKI-resistant indications will be read out soon. The head-to-head data with K drugs is a key focus of the market and a crucial factor for entering the U.S. market.

Looking ahead, in the second half of 2024, the overseas HARMONi study is expected to complete enrollment, and the domestic head-to-head study with Tislelizumab is also expected to complete enrollment.

AKESO's refinancing strategy demonstrates its strategic layout for future development and financial stability. This action is crucial for maintaining the company's research and development momentum and market competitiveness as key data is about to be released.

However, for small shareholders, the company's management should also provide clearer return expectations and guidance to enhance the confidence of small shareholders