Hana Securities on the 22nd said regarding Alteogen's 2% royalty contract structure that "both the scale and pace of cash inflows will slow." It maintained a buy rating and lowered its target price to 580,000 won from 640,000 won. Alteogen's previous closing price was 373,500 won.
The previous day, after the quarterly report of customer Merck disclosed Alteogen's royalty terms, the stock plunged 107,500 won (22.35%) to close at 373,500 won in transaction. That was because the 2% royalty fell short of the market's expectation of the 4% to 5% range.
Kim Seon-a, a Hana Securities analyst, explained the contract structure as follows: "The royalty structure is to receive the total contract payment of $1 billion (about 1.46 trillion won) in installments at each point when certain sales targets are reached, and then receive 2% of sales as royalties."
However, while noting that the royalty rate itself is low, the total contract size is on the high side given that Alteogen's upfront payments for technology transfer deals had generally been in the $20 million to $25 million (about 27 billion to 34 billion won) range.
Despite the large total contract payment, the timing and pace of cash inflows will be slower than previously expected. Kim said, "Previously, Keytruda-related licensing revenue had a structure of receiving a 3.2% royalty upon product launch, and was estimated at a total of $1.5 billion (about 2.19 trillion won) from 2025 to 2029," adding, "This time, we are lowering the total licensing revenue estimate to $940 million (about 1.37 trillion won)."
Hana Securities presented 2029 as the basis year for calculating the target price. Kim said, "2029 is the time when Alteogen is expected to receive the full $1 billion (about 1.46 trillion won) in Keytruda-related sales milestones, and when subcutaneous (SC) Keytruda sales are estimated to reach $10 billion (about 14.6 trillion won)," and added, "We set the target price at 580,000 won by discounting the profit estimate at that time with a weighted average cost of capital (WACC) of 8.4%."
Finally, Kim added, "The most important variables for a share-price rebound are the frequency and size of additional technology transfer agreements."