Innovent: We Are Positive on Its Slightly Dilutive Share Placement; Valuation Unchanged

Narrow-moat Innovent’s 01801 share placement at approximately HKD 34.66 per share (net of fees) sent its share price down as much as 8% on the morning of Sept. 12 following the news release. We believe the market is overly concerned with the move as it raises worries over its financial position, which we think is unfounded. Also, the dilution to earnings is minimal. The issuance raises Innovent’s total enlarged number of shares by 4.2%-4.4%, so the total dilutive effect is less than 1%. We are seeing Innovent’s share price recover from the initial negative reaction.

We think the share issuance, at around a 9.5% discount to its prior close, is prudent given the uncertainty of how long the biotech funding environment will remain challenging. Raising cash now, even at a slightly dilutive level, will allow the firm to speed up the development of its pipeline and to spend on the sales ramp-up of mazdutide, a crucial pipeline drug for its midterm prospects while maintaining a healthy financial cushion. Our fair value estimate is unchanged at HKD 43.50.

The share placement can raise approximately HKD 2.36 billion, net of fees. Sixty percent of the net issuance will go to research and development for the early-to-mid stage of its global pipeline, and 30% will go to commercialize mazdutide, a GLP1R/GCGR dual agonist for obesity and diabetes. As mentioned in our Aug. 25 update, we believe one of the most significant catalysts for Innovent is the approval filing for mazdutide, hopefully in 2024 or early 2025.