Maintain a “buy” rating and target price: US stocks at $275, Hong Kong stocks at HK$165, and A shares at RMB 175.
Benefiting from the fact that overseas sales of zebutinib exceeded expectations, 1Q24 product revenue and net loss were better than expected:
1Q24 achieved total revenue of US$752 million (+67.9% YoY, +18.5% QoQ), including product revenue of US$747 million (+82% YoY, +18.5% QoQ), which was significantly better than our expectations, mainly driven by significantly stronger overseas sales of zebutinib than expected, and better-than-expected sales of tiralizumab and Amgen products; net loss of US$251 million (-27.9% YoY, -31.7% QoQ), which fell short of our expectations and Bloomberg mainly benefited The revenue was stronger than expected, and the R&D expense ratio and sales administration expense ratio were further reduced due to the effect of scale. Adjusted non-GAAP operating loss for the first quarter was US$147 million, down 46.5% year over year. The gross margin of 1Q24 products was 83.3%, up 3.2 percentage points from 1Q23, and was relatively stable. 1Q24 R&D expenses were US$461 million (+12.7% YoY, -6.8% QoQ), showing a slight increase in R&D efficiency; 1Q24 sales administration expenses increased slightly month-on-month (+30.1% YoY, +2.6% QoQ). Considering the expansion of revenue scale and rapid growth in overseas sales, we believe this shows a further improvement in the company's operating efficiency.
Sales of zebutinib in the US and Europe increased by 153% and 243%, respectively: 1Q24 zebutinib achieved a total revenue of US$489 million (+131% YoY, +18.3% QoQ), of which US revenue was US$352 million (+153.2% YoY, +12.2% QoQ), benefiting from the increase in TN CLL market share and the leading market share position of R/R CLL emerging patients. Management said zebutinib has become the product with the largest market share among new R/R CLL patients, and the gap between TN CLL and Acalabrutinib is gradually narrowing; European revenue was US$67 million (+243% YoY), benefiting from continued market share growth and the inclusion of many places in health insurance (including the first time in France that zebutinib CLL, WM, MZL indications were included in medical insurance reimbursement). Revenue in China was US$57 million (+19.3 YoY, +15.3% QoQ), thanks to increased sales of approved indications. Looking ahead, as new CLL patients gradually replace old patients, the company believes that long-term zebutinib is expected to surpass ibutinib. In addition to existing hematoma indications, zebutinib is currently being explored for two self-exempt indications, including lupus nephritis (LN) and membranous nephropathy (MN), which are in phase III and phase II, respectively. It is expected that this year, partial data from phase 3 LN data and phase 2 data will be read out.
The development progress is in line with expectations, and the next pipeline focuses on BCL2 and BTK CDAC: (1) Currently, four registered clinical trials of Sonrotoclax (BCL-2) are continuing to advance (including global phase 3 TN CLL, global phase 2 R/R MCL, R/R WM, and China phase 2 R/R CLL). The company believes Sonrotoclax has best-in-class potential. The EHA conference and ASH conference are expected to read Sonrotoclax phase 1 data on various hematomas within the year, and phase 2 MCL CLL data is expected in 2025. (2) BGB-16673 (BTK CDAC) has initiated two extended cohort studies, R/R MCL (potentially available for registration) and R/R CLL, and phase III clinical trials of R/RCLL will be initiated before the end of 2024. Based on Phase 1's excellent data and efficient clinical progress rate (currently 220 patients have been enrolled), management is confident that BTK CDAC will speed up the review and launch. Management believes that BGB-16673 is at least one year ahead of foreign competitor Nurix in terms of progress.
More clinical data will be matured in the future, and the possibility of carrying out head-to-head clinical trials with Eli Lilly's Pirtobrutinib is not ruled out later. It is expected that the first phase of BGB-16673 data will be read out at the 2024 EHA conference. Other early R&D highlights include CDK4, Pan-KRAS, PRMT5, EGFR CDAC, B7H3ADC (self-developed), CEA ADC (self-developed), FGFR2b ADC (self-developed), and B7H4 ADC (introduced).
Other updates: (1) Tilerizumab: Overseas commercialization The main task this year is to discuss medical insurance reimbursement access with different countries and regions when indications are approved one after another. Currently, the overseas sales team is relatively small. (2) The US Patent and Trademark Office has indicated that the company will prove that the Pharmacyclics patent is more likely to be invalid, and a judgment is expected within 12 months. Currently, there is no progress in the AbbVie patent lawsuit.
The 2024 catalysts include: (1) Sonrotoclax (BCL-2) phase 1 MM, MDS, AML potential data readout; (2) BTK CDAC phase 1 data readout and launch of R/R CLL phase 3 international clinical trial; (3) lung cancer cohort data for combined use with tirilizumab and osperimab (TIGIT), including concurrent data with targets such as OX40, HPK1, and LAG3; (4) nidatumab (HER2 double) submitting 2L BTC indications A marketing application was applied in China, and a combination treatment cohort with tirelizumab was discovered, including LAG-3 and OX40 targets.
Maintaining the “buy” rating and target price: We raised our 2024/2025/2026E revenue forecast by 4.9%/5.3%/4.6% respectively, while slightly raising our R&D sales expenses forecast, which was already too conservative, leading to a slight increase in the 2024/25E net loss forecast and a 28% increase in the 2026E net profit forecast. Based on the DCF valuation model (WACC and assuming a sustainable growth rate of 8.1% and 3.0%, respectively), we maintain target prices for US stocks, Hong Kong stocks, and A shares, which are US$275/HKD/RMB 175, respectively, corresponding to a market value of US$28.7 billion.
Investment risk: Sales of core commercial products fall short of expectations; delays in clinical/review processes.