BeiGene achieved a major milestone in 3Q24 by surpassing US$1bn in revenue, driven by global sales of zanubrutinib (+93% YoY) and moderate growth of tislelizumab. However, signs of market slowdown are emerging, as US sales growth decelerated to 5% QoQ, and other regions like Europe showed more stable increases. Its cost control measures improved non-GAAP operating income by 35% QoQ, achieving two consecutive quarters of operating profits. Beigene is advancing an extensive oncology pipeline, including new modalities, positioning itself for future growth. Maintain BUY and TP of HK$152/US$253 for HK/ADR shares.

Key Factors for Rating

While sales growth remained strong in 3Q24, signs of market slowdown are emerging. In 3Q24, BeiGene achieved a significant milestone, surpassing US$1bn in revenue for the first time, primarily driven by the strong global sales of zanubrutinib, which grew 93% YoY to US$690m, and US sales contributing US$504m (+90% YoY), accounting for 51% of total sales. Tislelizumab's global sales reached US$163m, up 13% YoY, with potential for expanded indications in the US and Europe. However, global zanu sales grew 8% QoQ, and US sales showed a slower pace, rising only 5% QoQ. Other regions, like Europe, experienced a more gradual growth of 20% QoQ. Tisleli sales also grew by a modest 3% QoQ, reflecting challenges in maintaining rapid growth in mature markets, even as emerging markets continue to fuel overall sales growth. Despite these challenges, BeiGene's cost control efforts have been effective, with a 35% QoQ increase in non-GAAP operating income. The company achieved two consecutive quarters of non-GAAP operating profits.

Pipeline expansion on new modalities positioning for future growth. BeiGene is making substantial investments in bispecific antibodies, protein degradation agents (CDAC), and antibody-drug conjugates (ADC), which are expected to drive future revenue, particularly in the areas of solid tumours and autoimmune diseases. In lung cancer, BeiGene's first trispecific antibody, BG- T187 (EGFR/MET), along with other promising candidates like BGB-58067 (MTA- cooperative PRMT5), hold best-in-class potential. The company is also advancing multiple innovative therapies in gastral and breast cancer, such as BGB-B2033 (GPC3/4-1BB) and BGB-43395 (CDK4i), as well as in immunology, such as BGB- 45035 (IRAK4 CDAC).

Upcoming milestones. In hematologic malignancies, the global PhIII MRCT of Sonrotoclax (BCL-2i) combo zanubrutinib for TN CLL is expected to complete enrolment of 640 patients in 1Q25. The PhIII trial of BTK CDAC for r/r CLL will initiate in 1H25. In solid tumours, eight new molecular entities (NMEs) entered clinical trials in 9M24, and the company expects over 10 NMEs to enter clinical trials by the end of 2024, including first-in-class and best-in-class drugs.

Key Risks for Rating

1) Delay or failure on clinical development of key products; 2) patent disputes;

3) breakdown of key partnerships.

Valuation

Factoring in the slower sales growth, we lowered our earnings forecasts for Beigene. Maintain DCF-TP (WACC: 11.8% and terminal growth 3.5%) of HK$152/US$253 for HK/ADR shares and BUY rating.