RemeGen reported revenue of RMB347m in 1H23. Sales of RC18 saw strong recovery to RMB180m+ (+45%+ QoQ) in 3Q and RC48 maintained its steady QoQ growth momentum to RMB150m+. Net loss narrowed from RMB380m in 2Q23 to RMB328m in 3Q23. The management maintained its guidance of RMB1.25bn drugs sales in 2023. Maintain BUY rating and TP of HK$53.
　　Key Factors for Rating
　　Topline beats: RemeGen announced its 3Q23 results, with sales up 37% QoQ to RMB347m, beating our expectation despite ongoing anti-graft activities. Recovering from COVID-19 disruption and sales restriction/ capacity limitation in 1H23, sales of RC18 increased by 45%+ QoQ to RMB180m+ in 3Q, while RC48 maintained its steady QoQ growth momentum to RMB150m+ in 3Q. The management maintained its guidance of RMB1.25bn drug sales in 2023. Gross margin further improved from 72.4% in 2Q23 to 76.3% in 3Q23. R&D expenses, admin expenses and selling expenses changed by +9%, -7%,-1% QoQ, with expenses ratio decreasing by -23ppts, -11ppts, and -21ppts to 91%, 23% and 55%, respectively. Net loss narrowed from RMB380m in 2Q23 to RMB328m in 3Q23. As of 3Q23, RemeGen has RMB791m cash and has secured RMB4.9bn of loan credit, as per management.
　　Commercialisation on track: As of 3Q23, RC18 has 700+ salesperson, including 100+salesperson covering nephrology departments and 50+ covering neurology departments. Summing up, RC18 has covered 2,300 hospitals and has been admitted to 750 hospitals (+150 hospitals in 3Q). RC48 has 600+ salesperson, covering 2,000+ hospitals, and has been admitted to 630 hospitals (vs. 600+ hospitals as of 1H23). About NRDL negotiation this year, given that both RC18 and RC48 are qualified for simplified renewal this year, the management expects minor or no price cut this year.
　　Commercialisation strategy of RC48 amid competition: ADC field has attracted investors’ interest, while the competition in the field has become fiercer. Investors are concerned about competition from drugs such as Enhertu (T-Dxd) and Enfortumab Vedotin (Nectin-4). During the conference call, the management shared that for BC (breast cancer), given its better safety profile and no cross-resistance with Enhertu, RC48 will focus on Enhertu failed/unsuitable patients. For UC (urothelial cancer), RC48 has its advantage in terms of safety profile and efficacy in earlier line or perioperative treatment compared to EV. Besides, RemeGen is actively exploring the innovative target to avoid homogeneous competition and different payloads other than MMAE such as topoisomerase inhibitors.
　　Valuation
Post result, we fine-tuned our 2023E/24E/25E revenue by +6%/0%/+1% as we lifted sales estimates of RC18 on indication expansion while lowered sales forecast of RC48 on fiercer competition. Maintain 12-month DCF TP of HK$53 and BUY rating (WACC: 10.9%, terminal growth: 4.0%).
　　Key Risks for Rating
　　(i) Slower-than-expected sales ramp-up of RC18 and RC48; (ii) delay or failure of major clinical trials; and (iii) change of key management.