Beigene generated total revenue of US$929m in 2Q24, up 56% YoY and 24% QoQ, mainly driven by stronger sales growth of zanubrutinib (up 107% YoY and 30% QoQ) with US$637m sales in 2Q strongly beating our expectation. We expect the momentum to sustain and zanu to achieve full-year sales of US$2.8bn+. As total operating expenses mildly increased by 10% YoY in 2Q24, significantly slower than revenue increase, Beigene achieved 66% YoY decrease in net loss as well as an adjusted net profit of US$48m in 2Q24, exceeding our expectation. The company may be close to breakeven within this year with cash reserves of c.US$2.6bn. We lifted our revenue forecasts for Beigene by 25-27% for 2024-26, to reflect higher-than-expected zanu sales, while raising our operation expenses forecasts by 8%-22% for 2024-26 to reflect operation expansion vitality of the company. After fine tuning WACC upwards and terminal growth downwards, our DCF model derived a new TP of HK$152/US$253 for HK/ADR shares. Reiterate BUY.
　　Key Factors for Rating
　　2Q24 topline growth strongly beat driven by soared sales of zanubrutinib. Beigene generated total revenue of US$929m in 2Q24, up 56% YoY and 24% QoQ, mainly driven by stronger sales growth of zanubrutinib (BTKi, up 107% YoY and 30% QoQ) with US$637m sales in 2Q strongly beating our expectation. Among zanu revenue, sales in the US was US$479m, up 114% YoY, and US$64m in China, up 32% YoY. The sales gap between China and the US has expanded from c.5x in 2023 to c.7.5x in 2Q24. We expect the momentum to sustain and zanu to achieve full-year sales of US$2.8bn+. Tislelizumab's sales in 2Q was up 6% YoY and 9% QoQ to US$158m, slowing down in China, and we keep eyes on its global launch in EU and the US. The US PDUFA date for 1L ESCC has been delayed. In-licensed products from Amgen recorded revenue of US$90m, maintaining stable growth at 25% QoQ.
　　A turning point reached with adjusted net profit realised in 2Q24, exceeding our expectation. Beigene’s GPM in 2Q24 continues to increase, up more than 1ppt from 1Q to 85%, primarily due to proportionally higher sales mix of global zanubrutinib compared to other products in the portfolio. As total operating expenses mildly increased by 10% YoY and 1% QoQ in 2Q24, significantly slower than the 56% YoY revenue increase, Beigene achieved 66% YoY decrease in net loss as well as an adjusted net profit of US$48m in 2Q24, exceeding our expectation. The company may be close to breakeven within this year with cash reserves of c.US$2.6bn.
　　Solidified leading hematology portfolio. For sonrotoclax (BCL2i), it was granted accelerated approval by US FDA for r/rMCL, and Beigene is enrolling patients for the potential registration studies for r/rMCL and WM, as well as the global PhIII study of sonrotoclax (combo zanu vs venetoclax combo obinutuzumab) in 1L(TN) CLL. We expect data readouts for sonrotoclax from PhII studies for r/rMCL and r/rCLL in 2025. For BGB-16673 (BTK degrader), Beigene has initiated the expansion cohorts for r/rMCL (registration potential) and r/rCLL. We expect Beigene to initiate a PhIII study for r/rCLL by YE2024.
　　Key Risks for Rating
　　1) Delay or failure on clinical development of key products; 2) patent disputes; 3) breakdown of key partnerships.
　　Valuation
　　We lifted our revenue forecasts for Beigene by 25-27% for 2024-26, to reflect higher-than-expected zanu sales, while raising our operation expenses forecasts by 8%-22% to reflect operation expansion vitality of the company. After lifting WACC from 11.1% to 11.8%, and lowering terminal growth from 4.0% to 3.5%. Our DCF model derived a new TP of HK$152/US$253 for HK/ADR shares. Reiterate BUY.