Innovent Biologics: Transferring Coverage, Moat Rating Lowered to None, Fair Value Estimate Unchanged

We transfer coverage of Innovent Biologics 01801 with a change in its moat rating to none from narrow. The change in moat rating is driven by the potential threat of value destruction should its next core drug, Mazdutide, fail to obtain regulatory approval. Our view on Innovent’s strong research and development capabilities is unchanged. Specifically, we still consider its core assets Tyvyt, a PD-1 inhibitor, and three biosimilars of bevacizumab (Avastin), adalimumab (Humira), and rituximab (Rituxan) as the near-term growth drivers of Innovent’s earnings.

Our fair value estimate for Innovent is unchanged at HKD 43.5 per share. Our fair value estimate is largely driven by revenue from its core assets. For its PD-1 asset Tyvyt, the anchor for its oncology section, our risk-adjusted peak revenue is CNY 3.4 billion. For its GLP-1R/GCGR dual agonist asset Mazdutide, the anchor for its non-oncology section, our risk-adjusted peak revenue is CNY 7.0 billion. GLP-1R is the receptor for the glucagon-like peptide 1 (GLP-1) hormone, which is critical to signaling insulin creation in the human body, according to the National Center for Biotechnology Information. GCGR is a glucagon receptor that is critical to blood glucose level control in the human body. Mazdutide is in clinical phase 3 and, according to the company, is expected to be launched in late 2024 or early 2025.

Following the huge popularity of obesity drugs globally, we believe excitement over Mazdutide’s potential has led Innovent’s share price higher. In our view, the potential positives are largely priced in and Innovent is fairly valued.