BeiGene’s product sales surged 82% YoY in 2Q23 to US$554m, mainly driven by zanubrutunib’s sales burst of 139% YoY and 46% QoQ to US$308m. In 1H23, zanubrutinib’s sales surged 123% YoY to US$520m, while imbritinib dropped 19% YoY and acalabrutinib rose 30% YoY. We believe that zanubrutinib is strengthening its position worldwide, and is well on track of becoming a billion-dollar product this year.Operating expenses increased 15% YoY to US$818m in 2Q23 while product revenue achieved high growth. Significant improvement in operating leverage led to a reduction in net loss in 2Q23. Based on 2Q23 results, we lifted our 2023/24 revenue forecasts for BeiGene by 6%/5%, and expense ratio estimates by 6%/6%. We estimate product revenues of US$2.1bn/2.7bn for 2023/24. The stock is trading at 8x 2024E P/S. Maintain BUY and TP of HK$199/US$329 for HK/ADR shares.
　　Key Factors for Rating
　　Sizzling zanubrutinib sales drove topline growth. BeiGene’s 2Q23 product revenue was US$554m, up 82%, mainly driven by strong sales of zanubrutinib (BTKi), tislelizumab (PD-1) and in-licensed products from Amgen. Sales of tislelizumab in China totaled US$150m in 2Q23, up 43% YoY and 30% QoQ, driven by an increase in new patient demand from reimbursement of new indications as a leading PD-1 inhibitor. US sales of zanubrutinib totaled US$224m in 2Q23, up 153% YoY, as the adoption for patients with CLL/SLL accelerated and use across all FDA-approved indications continued to expand. Zanubrutinib sales in China totaled US$49m, up 32% YoY, driven by increased market value share as the BTK leader in China. Imbrutinib’s global market share has been squeezed by acalabrutinib and zanubrutinib. In 1H23, imbritinib sales dropped 19% YoY while acalabrutinib rose 30% YoY and zanubrutinib surged 123% YoY.
　　Significant improvement in operating leverage led to a reduction in net loss. Operating expenses increased 15% YoY to US$818m in 2Q23 while product revenue grew 82% YoY, driving significant operating leverage. Net loss in 2Q23 was US$381m, and US$566m in 2Q22. Cash on hand was US$3.5bn as of 30 June 2023, and US$4.5bn as of 31 December 2022.
　　Key catalysts in 2H23: Data readouts for 1) zanubrutinib from ALPINE PFS long-term follow-up data, 2) sonrotoclax (BCL2i) from PhI/II studies, and 3) BGB-16673 (BTK degrader) from PhI study. Regulatory actions for tislelizumab (PD-1) including: 1) BLA approvals in the US for 2L ESCC, in the EU for 2L ESCC, and in China for 1L HCC, 2) BLA filings for 1L ESCC and GC in NVS territory.
　　Pipeline progress on 1) sonrotoclax (BCL2i) to initiate global PhIII trial in CLL in combination with zanubrutinib, 2) ociperlimab (TIGITi) to complete enrollment in AdvanTIG-302 trial in NSCLC, and 3) CCR8, DGKζ, PVRIG, CDK4i to initiate first-in-human trials.
　　Key Risks for Rating
　　1) Delay or failure on clinical development of key products; 2) patent disputes; 3) breakdown of key partnerships.