Short-term pressure on product sales; ASCO 2026 in focus

Short-term pressure on product sales;ASCO2026 infocus Target PriceHK$34.87(Previous TPHK$37.43)Up/Downside54.0%Current PriceHK$22.64 3SBio reportedrevenue of RMB17.7bn (+94.3% YoY)in 2025,drivenby theRMB9.4bn out-licensing income from Pfizer for 707.However, product salesdeclined by 10.3% YoY to RMB8.0bnamidChina's VBP and reimbursementcontrolheadwinds.Excluding the licensing income, R&D and administrativeexpense ratios rose~4ppts and~2ppts, respectively, reflectingaccelerated clinicalinvestmentsand one-off share-based compensation.We expect 3SBio willmaintainhigh R&D investment to accelerate pipeline progress.Whilecommercializedproducts, particularly TPIAO, are likely to remain under pressurein 2026E, weview 707 as the primary valuation anchor,driven by Pfizer’saggressive global developmentprogress. China Healthcare Jill WU, CFA(852) 3900 0842jillwu@cmbi.com.hk Cathy WANG(852) 3916 1729cathywang@cmbi.com.hk Pfizerisrapidly advancing707 globally.Pfizerhas registeredtenglobaltrialsfor 707(as shown in Fig.4)and started enrollment inseven, includingthePhase 3 studies in1LNSCLC and1LmCRC.Two additional Phase 3 trialsareplanned for 2026E, including1LmUC and1LEC, according to Pfizer.Weexpect the rapid clinical progress will triggernear-termmilestone payments,significantlydriving 3SBio's earnings.Beyond milestones,3SBio is alsobenefitingfromsupplying drug substance for Pfizer’s clinical studies, whichdroveCDMO revenue growth of 46.3% YoYin 2025.Near-term catalystsincludetheupdated China Phase 2 data in NSCLC and EC at ASCO2026. Stock Data Enrichedpipelines to supportfutureBDpotential.3SBio has built a broadpipeline of27candidates, withseveralcandidatesalreadyobtainingtheUSFDA INDs, such as SSS67 and SSS68.SSS67targetsboth ActRIIA andActRIIB receptorstoregulatefat metabolismandmuscle synthesis pathwaysand therebyachievingthe dual effects of reducing fat and increasing musclemass.SSS68 is a long-acting April/BAFF BsAb targeting IgAnephropathy. Wethink these candidates with FDA INDsdemonstrated 3SBio’sglobal R&Dstrategyand may support 3SBio’s future out-licensingdeals. New products may help offsettraditional products headwinds.Recentapprovals, including NuPIAO (long-acting rhEPO), 608 (IL-17A), and SSS20(eltrombopag), alongside NRDL inclusion for oral paclitaxel, are expected togeneraterevenue in 2026E and help partially offset traditional productdeclines, in our view. Maintain BUY.We lower our near-term product sales forecast to reflectongoing pressure on traditional products,particularly ahead of TPIAO's finalNRDL renewal negotiations in late 2026E.However, given Pfizer’s rapid globaldevelopmentprogress, we raise our milestone payments forecast in 2026E.Totally, we lower our 2026E revenue forecast by 4%.Therefore, we revise ourtarget price to HK$34.87(WACC: 10.11%, terminal growth rate: 2.0%), basedon a10-year DCF.However, we think 707's global blockbuster potentialremains the dominant upside driver and thus maintain BUY.Earnings Summary Source: FactSet Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part,certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensationwas, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong KongSecurities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGMRatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important DisclosuresTher