For SciClone Pharmaceuticals-B (02171), the most important milestone event in 2024 is the successful commercialization of the core variety CT053 in March this year. However, the commercialization of the first product did not bring further valuation leap on the secondary market to the company, instead it led to a continuously declining stock price.

Zhijing Finance APP observed that on September 5th, during the trading session, Kojay Pharmaceuticals' stock price touched a low of 2.48 Hong Kong dollars, setting a new low since its listing. If we use the highest price of 7.53 Hong Kong dollars on March 1st when its product was approved as the reference point, under the repeated fluctuations and declines over the past six months, Kojay Pharmaceuticals' stock price has experienced a maximum decline range of 67.07%.

After touching the bottom price, Kojay Pharmaceuticals' stock price slowly rebounded. As of the close on September 24th, the company's stock price has risen to 3.13 Hong Kong dollars, and the market cap has also returned to 1.789 billion Hong Kong dollars.

However, as a Hong Kong Stock Connect company, Kojay Pharmaceuticals has evidently reached the edge of being delisted. Before the results of the next regular review on February 25th next year are announced, can Kojay Pharmaceuticals win this "Hong Kong Stock Connect defense battle"?

After the stock price hit a new low after listing, the battle for delisting has begun.

For Kojay Pharmaceuticals, the company's stock price has been declining all the way since the beginning of this year, with a drop of over 50% from the beginning of the year to now. Currently, the company's market cap is only 1.789 billion Hong Kong dollars, and the pressure of being delisted is obvious.

Intelligence Financial APP learned that the situation of Hong Kong stocks through train mainly includes: Hong Kong stocks through train stocks no longer belong to the Hang Seng Composite Index components due to adjustments in related indices; Hong Kong stocks through train stocks that belong to the Hang Seng Composite SmallCap Index components, the stocks adjustment inspection date is the average month-end market value of Hong Kong stocks in the previous twelve months (also known as the "review period") lower than HK$4 billion (the market value is calculated based on the actual listing time for companies listed for less than twelve months), and not listed in Hong Kong by A+H listed companies in the Hong Kong Stock Exchange H shares, will be removed from the Hong Kong stocks through train stocks.

Legend Pharmaceuticals, a stock through train stock that belongs to the Hang Seng Composite SmallCap Index components, currently applies the criterion of the average month-end market value of Hong Kong stocks being lower than HK$4 billion during the review period. It is expected that the Hang Seng Index Company will announce the quarterly review results of the Hang Seng Index series as of December 31, 2024 in late February next year, and the related changes are expected to take effect in early March 2025.

For Legend Pharmaceuticals, the current market value is far below the 'through train threshold.' According to the Intelligence Financial APP calculation, during the review period from January to the present year, Legend Pharmaceuticals' average month-end market value of Hong Kong stocks was 2.948 billion Hong Kong dollars, which is 1.052 billion Hong Kong dollars lower than the HK$4 billion threshold.

In other words, for Legend Pharmaceuticals to continue to retain its Hong Kong stocks through train status in the review period ending in December of this year, it means the company needs to increase its market value to nearly 6.115 billion Hong Kong dollars, or around HK$10.69 per share to successfully meet the 'through train' criteria.

Based on the current stock price calculation, Legend Pharmaceuticals needs to nearly double the stock price and increase it as steadily as possible. The high level of difficulty is evident. Therefore, if Legend Pharmaceuticals cannot quickly raise the stock price and market value during the review period, there is a high probability of being removed from the Hong Kong stocks through train.

According to the rules, once a company is removed from the Hong Kong stocks through train, mainland investors cannot buy, and can only sell the company's shares they hold. In other words, as a company is removed from the Hong Kong stocks through train, mainland investors not only cannot contribute to the liquidity but also become a selling pressure. As of September 23, Legend Pharmaceuticals' stake in the Hong Kong stocks through train was as high as 21.07%. If the company is removed from the Hong Kong stocks through train, the selling pressure of over 20% of the shares may further negatively impact the stock price.

Core stocks struggling alone, post semi-annual report triggers '5 consecutive declines'

After the market closed on August 28th, Legend Pharmaceuticals disclosed its 2024H1 financial report. Subsequently, the company's stock price experienced '5 consecutive declines' from August 29th to September 4th over 5 trading days, indicating that investors' outlook on Legend Pharmaceuticals' performance is not optimistic.

According to the data, during the reporting period, Keji Pharmaceutical achieved an income of approximately RMB 6 million, mainly from the sales of its core product Saikai Ze (Zevoprio cyclophosphamide injection, CT053). However, this income is calculated based on the ex-factory price, not the end-market price. During the reporting period, Keji received a total of 52 orders from Huadong Medicine, but due to the necessary time cycle for CAR-T production, there is a discrepancy between the number of orders received from Huadong Medicine and the number delivered ex-factory.

However, the income of 6 million is clearly insufficient to cover the substantial expenses of a biotech company. Although it has reduced compared to the net loss of 0.404 billion yuan in the same period last year, the current net loss is still 0.352 billion yuan.

From the perspective of cash flow, Keji Pharmaceutical had a cash and bank balance of 1.653 billion yuan in the first half of this year, a decrease of approximately RMB 0.197 billion compared to the previous period. It is expected that the cash and cash equivalents and deposit expectations at the end of this year will be no less than 1.35 billion yuan. Without considering subsequent cash inflows, the current cash is sufficient to support Keji Pharmaceutical's research and commercial operations until 2027.

In terms of product development pipeline, the company has independently developed 9 differentiating candidate products, involving multiple hot targets such as BCMA, Claudin18.2, GPC3, covering indications including hematologic and solid tumors. Its core product, Saikai Ze, has been approved for listing in China, targeting relapsed or refractory multiple myeloma. In addition, there are 12 pipeline candidates in clinical stages.

However, the commercialization progress of the above products varies. Currently, only Saikai Ze, which is already on the market, and the expected CT041 NDA this year can generate sales income for Keji Pharmaceutical in the short term. If we include the expectation of Botong, only Saikai Ze can support the stock price during the trial period. However, the market clearly does not approve of the 6 million yuan income in a quarter.

In fact, the clinical performance of this product is impressive. Results of the phase II clinical trial (LUMMICAR-1) of Zevoprio cyclophosphamide for relapsed or refractory multiple myeloma were orally reported at EHA in 2024. The results showed an ORR of 92.2% among 102 patients, with a VGPR or higher relief rate of 91.2%, a CR/sCR rate of 71.6%, and a trend of deepening response observed with extended follow-up.

Domestic CAR-T therapies demonstrate good clinical performance, and extensive commercialization can bring substantial income to manufacturers, as proven by Legend Biotech and Carvykti. In the first half of this year, Legend Biotech's total revenue reached 0.281 billion USD, a 155.8% year-on-year increase.

However, compared to the international commercialization combination of Legend Biotech and Johnson & Johnson, the domestic commercialization combination of SciClone Pharmaceuticals and Huadong Medicine is rapidly advancing in product layout, but there is obviously a large gap in sales. The financial report shows that in terms of commercialization landing, on July 31 this year, Saizex was included in the Huimin Insurance and commercial insurance of nearly 20 provinces or cities, with medical institutions certified and backup arrangements covering 19 provinces and cities nationwide, with a total of 52 orders received from Huadong Medicine. As for going global, the two core products of SciClone Pharmaceuticals are in a stalemate in US clinical trials and it is difficult to reflect commercial value in the short term.

It can be seen that unless there is a sudden bullish push to drive the stock price sharply higher, SciClone Pharmaceuticals under linear growth may not be able to escape the fate of being kicked out of the Hong Kong stock connect this round. However, it should be pointed out that the impact of entering and exiting the Hong Kong Stock Connect on SciClone Pharmaceuticals is only an external factor affecting the stock price. Since the company has now entered the commercialization stage and is expected to achieve the commercialization efforts of two products in the coming years, it has strong internal growth potential and the possibility of continuous financial optimization. The company is also expected to undergo a self-reevaluation at this stage and SciClone Pharmaceuticals could potentially re-enter the Hong Kong stock connect during this phase.