[Edaily Reporter Minji Son ] Foreign securities firm UBS has withdrawn the “Sell” rating it had assigned to Alteogen Inc.(196170)after approximately one year. In its first analysis report last year, UBS had raised concerns about the stock being overvalued by conservatively estimating the pace of market adoption for the subcutaneous (SC) formulation of Keytruda. However, it revised its assessment after actual sales following the U.S. launch significantly exceeded market expectations.

However, while acknowledging the initial commercial success of Keytruda SC, the firm cited the potential for the widespread adoption of hyaluronidase technology and intensifying competition as risk factors. This is why the investment rating remains “Neutral” rather than “Buy.”

Kitruda SC Gains Foothold in the U.S.… UBS Revises Outlook

According to the pharmaceutical and biotech industry on the 12th, UBS upgraded its investment rating on Alteogen Inc. from “Sell” to “Neutral” on the 6th. It also raised the target price from 250,000 won to 310,000 won. UBS had initially initiated coverage on Alteogen Inc. in August of last year with a target price of 270,000 won and a “Sell” rating.

This change in opinion was driven by a combination of a stock price correction and the faster-than-expected market penetration of Keytruda SC. In its report, UBS stated, “With Alteogen Inc.’s stock price having corrected by 33% from last year’s high, positive and negative factors are now relatively evenly reflected in the current stock price,” adding, “The fact that the shift to Keytruda’s SC formulation is beginning to gain momentum in the U.S. is positive for Alteogen Inc.’s short-term monetization.”

It also noted, “According to expert interviews conducted with major U.S. oncology centers, insurer policies—such as the denial of insurance claims for the intravenous (IV) formulation in some cases—appear to be facilitating the expanded adoption of Keytruda SC ahead of the IV formulation’s patent expiration in 2028.”

In fact, sales of Keytruda SC—“Keytruda Qurex”—sold in the U.S. reached $463 million (approximately 660 billion won) in the second quarter of this year, a 262% increase from the previous quarter ($128 million). This also exceeded market expectations of $283 million by about 64%. Keytruda Qurex received approval from the U.S. Food and Drug Administration (FDA) in September of last year and was launched in the third quarter of that year. It is reported that the U.S. insurance billing code (J-code) has been in effect since April 1, and prescriptions are expanding.

The share of the subcutaneous (SC) formulation in U.S. Keytruda sales has already reached double digits (10.6%). If this trend continues, Merck (MSD) appears on track to achieve its goal of transitioning 30–40% of U.S. Keytruda usage to the SC formulation by around 2028.

This differs significantly from the assumptions UBS made in its initial report. At the time, UBS estimated the Keytruda SC conversion rate at 4% this year and 9% next year. In other words, it anticipated that the conversion rate would remain in the single digits even about two years after launch.

Concerns Over SC Market Generalization… What It Will Take to Move from “Neutral” to “Buy”

The issue is that UBS is still drawing a line regarding Alteogen Inc.’s long-term outlook. While it has shifted its short-term assessment of Keytruda SC to positive, it does not highly value Alteogen Inc.’s SC platform as a whole. This suggests that an improvement in short-term earnings outlook alone is insufficient to warrant a shift to a “Buy” rating.

UBS analyzed, “If biotech companies, biosimilar firms, or pharmaceutical companies secure their own hyaluronidase by the 2030s, the entire SC platform technology could become commoditized,” adding, “In this case, competition would intensify, contract terms would become less favorable than before, and new business development could slow down.”

The firm also cited the lack of disclosure regarding specific sales-stage milestones and royalty rates as a risk. This is because, even if sales of Keytruda SC increase, it is difficult for external observers to accurately estimate when and to what extent that growth will be reflected in Alteogen Inc.’s earnings.

Consequently, while UBS raised its net income estimate for this year by 17%, it lowered its net income forecasts for 2027 and 2028 by 4% and 13%, respectively, citing factors such as increased research and development (R&D) costs.

However, industry observers point out that market expansion and the emergence of new competing technologies should be viewed as separate issues. The analysis suggests that the fact the subcutaneous (SC) conversion technology—which was primarily applied to certain blockbuster drugs—is now spreading to be adopted from the early stages of new drug development, thereby expanding the overall market, is actually a positive development.

They also predicted that the competition expected to arise after the expiration of Halozyme’s existing patents would differ from the market in which Alteogen Inc. specializes. While follow-on technologies utilizing Halozyme’s PH20 are likely to target the biosimilar market, Alteogen Inc. is focusing on the innovative new drug market, where the effect of patent extensions is crucial.

Alteogen Inc. officials explained, “While various platforms may be developed, the most likely to emerge in the near term are biosimilars utilizing Halozyme’s PH20,” adding, “Innovative pharmaceutical companies are likely to prefer substances with valid patents because they also consider the benefit of extending patent protection through subcutaneous (SC) formulations.” The official added, “Given that Halozyme targets biosimilars and Alteogen Inc. targets innovative pharmaceuticals as their primary markets, it is difficult to view them as direct competitors.”

For UBS to upgrade its “Neutral” rating to “Buy,” it will likely need to confirm whether expectations for Keytruda SC can translate into long-term value for Alteogen Inc.’s entire platform. In particular, it will be necessary to verify that the initial sales growth of Keytruda SC leads to sustained prescription growth and the inflow of milestone payments.

An industry insider stated, “It must become clear that the increase in Keytruda SC sales is driving an overall rise in the value of Alteogen Inc.’s platform,” adding, “If technical capabilities and economic viability are repeatedly demonstrated in follow-up products—such as Daiichi Sankyo’s Enhertu SC—the factors discounting Alteogen Inc.’s long-term growth potential will be largely resolved.”

Subsequent licensing agreements and clinical progress are also expected to bolster the company’s long-term growth trajectory.

Seo Geun-hee, an analyst at SamsungSecurities, said, “The number of global licensing agreements has expanded to a cumulative total of nine,” adding, “Among the three new agreements this year, those with GSK (Zemperi) and Biogen (two products plus one option) have been finalized, while the undisclosed partner remains confidential as the agreement involves the application of a new modality.”

She added, “All three partners have been preparing for clinical trials even before the agreements were signed, so development is proceeding rapidly; the partner that signed an agreement in August is scheduled to begin clinical trials by the end of this year or early next year.”