Innovation, going global, and profitability are the common consensus among entrepreneurs and investors for the future development path of the domestic biopharmaceutical industry after the roller coaster ride of the past two to three years.

From the perspective of the capital market, the performance of the Hong Kong stock market's innovative drug sector in recent years has been unsatisfactory. The market's valuation attitude towards this sector has shifted from overvaluation bubble to irrational undervaluation. With the continuous adjustment of sector valuation, it has reached a historical low, providing a good opportunity for value-seeking investors to position themselves.

At the current stage, overseas innovative drug research and development is still thriving, and the domestic market has also gradually received support from the latest policies and stable market demand, making the industry's prospects even brighter. As the industry is about to emerge from the bottom, it is important for investors to focus on those individual stocks that are in a globally leading position in product technology innovation, have gained broad customer trust on the international stage, and have already achieved or are close to achieving profitability.

Recently, BeiGene released its 2024 interim financial report, showing a good growth trend and will soon achieve profitability. Different from other biotechnology companies, BeiGene is positioned as a global source of new drugs. This financial report provides us with an observation window, perhaps allowing us to discover unique perspectives and ideas for development.

1. Operating cash flow turning positive, profitability gradually released

Looking at the performance data, the financial report shows that in the first half of the year, BeiGene achieved revenue of approximately 0.41 billion yuan, a year-on-year increase of 25.6%. Among them, the revenue from antibody discovery business was 0.12 billion yuan, a year-on-year increase of 33.9%; the animal model sales business continued to maintain high growth, achieving revenue of approximately 0.18 billion yuan, a year-on-year increase of 52.6%. These two businesses have become the core driving forces behind the performance growth. In terms of regional markets, the overseas business continues to show rapid growth, achieving revenue of 0.29 billion yuan, a year-on-year increase of 70.0%, with overseas sales revenue accounting for 71.5%.

While achieving rapid revenue growth, the company has also effectively controlled its net loss, with a net loss of 50.673 million yuan in the first half of the year, a year-on-year narrowing of 73.3%.

In addition to the rapid growth of various businesses, the improvement in the company's performance is also due to the combined effect of two key factors. Firstly, the large-scale R&D investment phase of the company has ended, and R&D expenses have significantly decreased compared to the same period last year. Secondly, the company has continued to improve asset utilization and operational efficiency, strengthen cost and expense control, and achieve significant results in cost reduction and efficiency improvement, leading to a continuous improvement in operational capabilities.

According to the financial report, in the first half of the year, the company's research and development expenses were 0.16 billion yuan, a year-on-year decrease of 34.8%; general and administrative expenses were 0.1 billion yuan, a year-on-year decrease of 12.7%.

It is worth mentioning that in the first half of the year, the operating cash flow of Baiotu turned positive for the first time, reaching 29.608 million yuan. This not only indicates the continuous strengthening of the company's profitability, but also directly reflects the company's self-financing capability. For future growth, Baiotu has given a positive outlook, stating, "We believe that profitability is expected to be achieved in the second half of 2024, with the full year achieving a goal close to breakeven."

In the first half of the year, the operating cash flow turned positive, with losses significantly narrowed to approximately 50 million yuan. The company is expected to achieve profitability in the second half of the year. Coupled with cash in hand exceeding 0.4 billion yuan at the end of the first half, Baiotu can be said to have successfully taken off and is poised to become another 18A biotechnology company that achieves profitability through sustained business growth, following in the footsteps of Henlius, Genetron, Asymchem, Beigene, among others.

2. The antibody licensing business enters a boom period, driving the support logic for performance.

So, what gives Baiotu the confidence to achieve this profitability target?

This depends on the company's recent strategic layout and business progress.

In simple terms, Baiotu's strategic positioning and business development in recent years have vividly embodied the two 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. Continued cultivation in overseas markets has entered the harvest period, with rapid growth in overseas business becoming the biggest contributor to performance growth.

In the author's view, the most valuable business with growth potential is undoubtedly the antibody molecule licensing business.

The reason is that the company's large-scale antibody drug development project, the "Thousand Mice and Ten Thousand Antibodies" program, based on its unique RenMice technology platform, has been completed in stages, successfully establishing over 0.4 million spot-type antibody molecular libraries and more than 40 potential clinical candidate compound molecules.

The company has clearly stated that it will no longer conduct independent drug research and development, but will instead shift to R&D through authorization or transfer in collaboration with partners. After three to four years of development, the Baosight antibody molecule authorization cooperation has spread to key countries and regions in the Asia-Pacific and Europe and the United States, and has gained wide recognition from domestic and foreign pharmaceutical customers. As of June 30th of this year, the company has signed a cumulative total of about 150 drug co-development/authorization/transfer agreements, including about 50 newly signed agreements in the first half of 2024, showing rapid growth.

With the advancement of more collaborative product development, in addition to the down payment, Baosight will receive R&D or commercialization milestone payments at different stages. With the rapid growth of the number of cooperative transactions, the current disclosed total transaction amount is about hundreds of millions yuan, and these potential earnings will play a key role in improving the overall performance in the future. This also means that the company's antibody drug development project is entering a phase of intensive achievements, driving the gradual release of the company's profit potential.

Just looking at the projects that the company disclosed the amount of cooperation in 2024 is enough to reflect its innovative R&D technology and the influence and competitiveness in the global market.

For example, in the ADC field, the company has reached an agreement with SOTIO to grant SOTIO the option to license a variety of fully human bispecific antibodies produced using Baosight's proprietary RenLite platform, which SOTIO will use for the next generation of targeted solid tumor ADC development. The agreement also includes an option that allows SOTIO to use Baosight's proprietary ADC platform. The potential total transaction amount is as high as 0.3255 billion US dollars (about 2.3 billion yuan), as well as a low single-digit percentage royalty based on net sales.

Baosight has granted IDEAYA Biosciences (Nasdaq: IDYA) the exclusive global license option for the pioneering B7H3/PTK7 topoisomerase inhibitor payload bispecific antibody-drug conjugate (BsADC) program. The potential total transaction amount is 0.4065 billion US dollars (about 2.9 billion yuan), including 0.1 billion US dollars in clinical development and regulatory milestone payments.

In addition to leading antibody molecule transfer development, Baosight's innovative animal model business also has global competitiveness, jointly building the company's dual-wheel performance growth points and continuously expanding its influence globally.

In the field of innovative animal models, relying on its powerful gene editing technology platform, the company has continuously independently developed over 3,300 high-quality novel animal models, and relying on a world-class animal facility that exceeds the highest global production standards, it continues to provide first-class gene editing innovative animal models to global customers. In the future, Baosight is expected to become the preferred innovative animal model supplier to meet the cutting-edge research and development needs of domestic and foreign pharmaceutical customers.

In terms of expanding into overseas markets, the company is also constantly expanding and adjusting its overseas sales team, with a focus on the Chinese, American, European, and Asia-Pacific markets, to ensure the ability to more effectively serve the needs of customers in different regions and improve the coverage and penetration of the global market.

In conclusion, the results achieved in the first quarter demonstrate that AI capabilities have brought new opportunities to the company. With the continuous increase in the penetration rate of large models, continuous enhancement of product performance, diversification of landing scenarios, and further expansion of overseas business, Cheetah Mobile is expected to welcome a broader development space.

It is evident that in the past two years, with the adjustment of the domestic biotechnology industry, Beigene has responded decisively and made great strides in turning losses into profits, and is about to achieve profitability. The company has entered a new stage of value realization, and its profit potential is being rapidly reflected and released.

With the steady development of the company's various business sectors and the continuous exploration of market potential, it can be expected that the prospects for Beigene to achieve profitability have become increasingly clear, and it is expected to further drive the valuation level.