Research published by Blue Lotus Research on January 25, 2024

 

(5 Pages, 4 graphs and tables)
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We believe RemeGen has bottom fishing value because its Systemic Lupus Erythematosus (SLE) drug Telitacicept (RC18) has already been approved for sale in China. Earliest data read in US clinical trial for IgA Nephropathy is already available, with SLE data read available in C3Q24 and MS in C4Q24; We don’t think a leading biotech from the wealthy city of Yantai will run out of cash. We assume RemeGen will be able to mitigate its liquidity problem. We thus upgrade RemeGen to BUY and keep TP of HK$34 unchanged. Why is RemeGen running out of cash? Slow monetization of two selling drugs, RC18 and RC48 (Disitamab Vedotin) (ADC), amid high selling cost is the key reason. Before C1H22, RemeGen had the lowest sales marketing cost ratio in the industry, but after C1H22 the company chose, wrongly, to push sales through higher marketing, which failed. Further, RemeGen is slow to recognize the value of ex-China clinical data, which leads to its US clinical trials starting relatively late. But these are tactical issues.   Why are we positive on RC18? Benlysta (Belimumab) (GSK), the main SLE treatment approved by FDA in 2011, had climbing sales in recently years, selling likely ~US$1.7bn in 2023. Saphnelo (anifrolumab-fnia)(AstraZeneca), the SLE treatment approved in 2021, selling likely ~US$230mn in 2023. Benlysta and Saphnelo are the only two SLE-treating competitors on the market today for a disease that affects 3-4mn people worldwide. SLE drugs have a high failure rate. Besides SLE, RC18 is also being clinical trialed for Myasthenia Gravis (MG).   How much can we expect if RC18 is licensed out? We believe RemeGen likely needs to run a head-to-head clinical trial against Benlysta or Saphnelo to fetch a good sum for RC18. Without this happening, we pencil in a US$100mn upfront, US$500mn total value estimate for RC18. We do notice that standalone clinical trials showed RC18 had better efficacy than rivals.   Good time to accumulate shares Trading at 10x 2024 PS, we expect RemeGen to achieve sustainable breakeven in 2029.

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