sac-TMT combined with pembrolizumab data strengthen the Buy case for Kelun Pharmaceutical

Overview

This report is Goldman Sachs' company research update on Sichuan Kelun Pharmaceutical, and its core conclusion is to maintain a Buy rating. The report focuses on Kelun Biotech's sac-TMT combined with pembrolizumab in first-line PD-L1-positive NSCLC, as well as the impact of these data on the re-rating of Kelun Pharmaceutical's innovative-drug value and the parent company's valuation recovery.

Core views

Goldman Sachs believes Kelun Pharmaceutical's investment case is driven by two factors: first, Kelun Biotech's innovative-drug pipeline continues to receive clinical validation, and the value of the parent company's stake should be more fully reflected; second, the traditional infusion, API, and generics businesses remain stable cash cows and, after volume-based procurement pressure is absorbed, are expected to stabilize and improve operating efficiency. ASCO-related data further increase market confidence in the broader potential of sac-TMT in first-line NSCLC, and upcoming data such as Lung06 will be an important catalyst.

Analysis framework

The report combines top-down analysis of clinical catalysts with bottom-up SOTP valuation: clinically, it focuses on PFS, OS, subgroup consistency, and safety in OptiTROP-Lung05; on valuation, it separately values the infusion and generics business, API-related investments, the SSY investment, and the innovative-drug business, while applying a holding-company discount.

Methodology notes

• Valuation methodSOTP

  Sum-of-the-parts valuation

  Goldman Sachs' 12-month Rmb46 target price is based on the SOTP method, including a five-year exit P/E for the infusion and generics business, the market value of holdings related to the API business, the SSY investment, a DCF valuation of Kelun Biotech's innovative-drug business, and a 20% holding-company discount.

• Valuation methodDCF

  Discounted cash flow

  The innovative-drug business is valued using the DCF method to reflect the potential value of future commercialization cash flows from the pipeline.

• Research frameworkGS Factor Profile

  Goldman Sachs factor profile

  This framework compares a stock with the market and industry peers across growth, financial returns, valuation multiples, and composite factors, serving as an investment background analysis tool.

• M&A assessmentM&A Rank

  M&A likelihood score

  Goldman Sachs rates the probability that a covered company becomes a potential acquisition target on a scale from 1 to 3, where 1 indicates high probability, 2 indicates medium probability, and 3 indicates low probability; low-probability names are usually not included in the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sichuan Kelun Pharmaceutical 002422.SZ

  The research subject and Buy-rated name

  Strengths

  Advancing innovative-drug pipeline, stable cash flows from traditional businesses, and valuation at a low percentile versus the past five years.

  Weaknesses

  Traditional businesses are still affected by volume-based procurement and pricing pressure, and the release of innovative-drug value depends on clinical and commercialization progress.

  Comparison

  The report believes its innovation value and recovery in the parent company's traditional businesses together support return potential versus the coverage universe.

  Risks

  Slower-than-expected innovative-drug R&D or commercialization, falling API prices, and the inclusion of infusion products in national volume-based procurement.

• Kelun Biotech 6990.HK

  Kelun Pharmaceutical's innovative-drug subsidiary and one of the core sources of value

  Strengths

  Positive sac-TMT combined with pembrolizumab data in first-line PD-L1-positive NSCLC, strengthening pipeline credibility.

  Weaknesses

  Some OS follow-up remains immature, and mature PFS data and Lung06 data are still pending.

  Comparison

  The report notes that this combination may continue to be discussed competitively relative to PD-1/VEGF-based regimens.

  Risks

  Future data below expectations, or regulatory and commercialization progress below expectations.

• Chuanning Bio 301301.SZ

  API-business-related equity holding of Kelun Pharmaceutical

  Strengths

  Included in the SOTP valuation, reflecting the investment value of the API business.

  Weaknesses

  The report does not cover this company, and falling API prices are one of the downside risks for Kelun Pharmaceutical.

  Comparison

  Part of segment value rather than a core covered name in the report.

  Risks

  Lower API prices or worsening industry supply-demand conditions.

• SSY 2005.HK

  Investment held by Kelun Pharmaceutical

  Strengths

  Included in the SOTP valuation as an equity holding investment.

  Weaknesses

  The report does not cover this company, and disclosure is limited.

  Comparison

  An investment market-value item within the sum-of-the-parts valuation.

  Risks

  Stock price volatility at the investee affects SOTP value.

Key data

• RatingBuyGoldman Sachs maintains a Buy rating.
• 12-month target priceRmb46Based on the SOTP method.
• Current priceRmb32.39Price information shown on the report cover page.
• Implied upsideabout 42.0%Estimated from the Rmb46 target price and the Rmb32.39 current price, excluding dividends.
• OptiTROP-Lung05 PFS HR0.35sac-TMT combined with pembrolizumab used in first-line EGFR wild-type, PD-L1 TPS ≥1% NSCLC.
• OptiTROP-Lung05 OS HR0.55Follow-up remains relatively immature, but the direction is positive.
• Dosing safety4mg/kg Q2WGrade 3 or above stomatitis was in the single digits, and the discontinuation rate was low.
• Infusion and generics valuation multiple13x 2026E forward P/EThe target multiple is in line with global peers.
• Holding-company discount20%Used in the SOTP valuation.
• Chuanning Bio stake72.19%Included in the valuation as an API-business-related investment.
• SSY stake23.07%Included in the valuation as an investment item.

Impact & implications

The implication of this report is that valuation recovery at Kelun Pharmaceutical depends not only on improving traditional businesses, but increasingly on the clinical validation and commercialization expectations of its innovative-drug assets. If sac-TMT combined with pembrolizumab continues to show efficacy and safety advantages in future data, it could improve market pricing of Kelun Biotech's pipeline value and further drive a re-rating of the parent company's holdings.

Risks

• Slower-than-expected innovative-drug R&D or commercialization.
• Falling API prices.
• Infusion products being included in national volume-based procurement.
• Mature PFS, OS, or Lung06 data for sac-TMT falling short of current expectations.
• The holding-company discount or insufficient market recognition of the value of the innovative-drug subsidiary.

What to watch

• Mature PFS and OS data for sac-TMT combined with pembrolizumab in first-line PD-L1-positive NSCLC.
• Lung06 study data.
• Commercialization ramp of Kelun Biotech's innovative drugs.
• Changes in API prices.
• Updates to national volume-based procurement policy for the infusion business.
• Progress in operating efficiency and cash flow recovery at the parent company.