RemeGen announced 1H24 revenue of Rmb740m (+76% YoY) and net losses of Rmb780m (vs -Rmb703m in 1H23), in line with our expectation. The strong revenue growth is mainly driven by the sales ramp up of key products, including RC18 (telitacicept) and RC48 (disitamab vedotin). Its R&D expenses reached Rmb806m (+49% YoY) and its selling expenses reached Rmb390m (+11% YoY), with selling expenses ratio down 30.9 ppts to 52.7% in 1H24. Given the continuous R&D investments on innovative pipelines and uncertainties of BD opportunities, we lower our EPS forecast of from -Rmb2.02 to -Rmb2.72 in 24E, from -Rmb1.09 to -Rmb1.55 in 25E, and from Rmb0.21 to -Rmb0.25 in 26E. We lower our target price from HK$47 to HK$21. With 42% upside, we maintain our BUY rating.
　　RC18’s new indication of RA approved by the NMPA. With a sales team of c.800 people for RC18, RC18 has been listed in over 900 hospitals. In July 2024, the company received NMPA’s full approval for RC18 for the treatment in combination with methotrexate of adult patients with moderate to severe active rheumatoid arthritis (RA) who have not responded well to methotrexate, becoming the second approved indication of RC18 in China. In addition, the phase III trial of RC18 for the treatment of generalized myasthenia gravis (gMG) in China reached its primary study endpoints recently, which is expected to submit the BLA in 2024E. Meanwhile, RC18 is also under phase III trials in China for pSS and IgAN, with the enrollment been completed in May of 2024. As for the clinical trials in overseas market, RC18 is now under a global multi-center phase III trial for SLE in the US. In addition, the company has recently completed the FPI for phase III trial of RC18 for MG in the US.
　　Multiple studies of RC48 ongoing. In 1H24, RC48 has been listed in over 700 hospitals, with an oncology sales team of c.600 people. In terms of RC48’s clinical trials for UC in China, RC48’s combo with PD-1 for 1L UC is under phase III clinical trial with patient enrollment completed in this August. In addition, RC48’s combo with PD-1 is under phase II trial of neoadjuvant therapy for MIBC. As for the GC, RC48’s combo with PD-1 and chemotherapy or with PD-1 and Herceptin for 1L HER2-expressing or non-expressing GC is under phase II trial. As for the BC, the phase III trial of RC48 for the treatment of HER2-positive advanced BC patients with liver metastasis reached the primary study endpoints, which is expected to submit the BLA in 2024E. In addition, as for the RC48’s global development, RC48’s monotherapy for 2L UC is under phase II trial. Meanwhile, RC48 is under phase III trial of RC48’s combo with PD-1 for 1L UC, with patient enrolment ongoing.
　　Continuous development of other pipelines. RC88 (mesothelin ADC) is under phase II trial for the treatment of patients with ovarian cancer, carcinoma tubae and primary peritoneal cancer (PROC). In addition, RC248 (DR5 ADC) is under phase I dosage escalation stage for various tumors, with the FPI by the end of June 2024. RC278 is a novel ADC product under preclinical stage for the treatment of various tumors. In terms of the non-ADC pipelines, RC148 (PD-1/VEGF, bispecific antibody) is under phase I trial for the monotherapy for the treatment of advanced malignant solid tumors and is under phase II trial for the combo therapy with ADCs for multiple solid tumors. In addition, RC198 (IL-15/IL-15Rα) is under phase I trial for the treatment of advanced solid tumors.
　　Maintain BUY. Given the continuous R&D investments on innovative pipelines and uncertainties of BD opportunities, we lower our EPS forecast of from -Rmb2.02 to -Rmb2.72 in 24E, from -Rmb1.09 to -Rmb1.55 in 25E, and from Rmb0.21 to -Rmb0.25 in 26E. We lower our target price from HK$47 to HK$21. With 42% upside, we maintain our BUY rating.
　　Risks: R&D failure of key pipeline; rising competitions of key pipeline; lower-than-expected sales ramp-up.