Zhongan International has reiterated its 'Buy' rating for SINO BIOPHARM (01177), setting a target price of HKD 9.40. This target price is based on a DCF model (WACC: 10.01%, perpetual growth rate: 2.0%). The firm expects revenue growth rates for SINO BIOPHARM for 2025E/26E/27E to be +19.1%/+4.4%/+10.6%, with adjusted net profit growth rates of +81.3%/-30.0%/+11.3%. Due to cautious considerations, potential external licensing contributions to revenue and profits have not been factored in yet.

Key observations from Zhongan International highlight that SINO BIOPHARM presented the Phase II clinical results of its PDE3/4 inhibitor TQC3721 at the European Respiratory Society conference in 2025. The clinical results indicated that TQC3721 can rapidly improve patients' lung function and symptoms. For 240 moderate to severe Chinese COPD patients treated with TQC3721 for four weeks, the FEV1 (forced expiratory volume in one second) peak was higher by 100ml and 147ml compared to the placebo group in the 3mg and 6mg groups, respectively. In both the LAMA and LABA/LAMA subgroups, the 6mg group showed an FEV1 peak that exceeded the placebo group by 239ml and 109ml, respectively. Additionally, the FEV1 AUC (0-12h) for the 6mg group was 87ml higher than that of the placebo group, and the SCRQ (St. George's Respiratory Questionnaire) score improved by 5.09 units compared to placebo.

TQC3721 demonstrated good safety and tolerability, with no significant side effects observed in the gastrointestinal, cardiovascular, or liver and kidney function during the clinical trials. As the second most advanced PDE3/4 inhibitor globally and currently the only one in Phase III clinical trials, the firm believes TQC3721 has the potential to become a blockbuster drug with substantial licensing potential. Clinical data suggests TQC3721 exhibits best-in-class potential, evidenced by the 6mg group's FEV1 peak being 147ml higher than placebo after four weeks, consistent with Ensofen's 12-week clinical data (146/147ml). The FEV1 AUC (0-12h) was also higher than the placebo by 87ml, aligning with Ensofen's 12-week data (87/94ml).

Notably, all participants in the TQC3721 clinical trials had undergone COPD medication treatment, with 30% of patients using LAMA (long-acting muscarinic antagonist) and 70% simultaneously using both LABA (long-acting beta2 agonist) and LAMA medications, while around 38% of Ensofen's trial participants were treatment-naïve. This means that the baseline of patients enrolled in TQC3721’s clinical trials was more severe. Considering that COPD patients generally use LABA, LAMA, or ICS (inhaled corticosteroids) in real life, the firm believes TQC3721’s FEV1 data indicates a significant potential to enhance real-world clinical benefits for COPD patients. Clinical data also show that in the subgroup treated with LAMA, the 6mg group had an FEV1 peak that was 239ml higher than the placebo group, significantly exceeding Ensofen’s 135ml.

The PDE3/4 drug market shows immense potential with a favorable competitive landscape. COPD is one of the most common respiratory diseases, with nearly 480 million sufferers globally and over 100 million in China. It ranks as the third leading cause of death worldwide and has a severe impact on the global economy and healthcare system. Verona's Ensofen was approved by the FDA in June 2024, marking the first new mechanism COPD drug in over 20 years and remains the only PDE3/4 inhibitor approved to date. Ensofen's sales were USD 71 million and USD 103 million in Q1 25 and Q2 25, respectively, showing sequential growth of 95% and 44%. Merck announced a USD 10 billion acquisition of Verona in July this year, highlighting the substantial market potential for PDE3/4 inhibitors. As the second most advanced and currently unique PDE3/4 inhibitor in Phase III clinical trials, TQC3721 is seen to possess substantial potential for overseas licensing.