Tectonic Therapeutic Inc: A Positive Trial Could Still Disappoint - Initiate at Neutral

With relaxin competitor noise fading, focus turns to a challenging APEX readout. We initiate coverage of Tectonic Therapeutic (TECX) with a Neutral rating and $26 PT. The key catalyst for TECX is the 1Q27 Phase 2 APEX readout for TX45, a long-acting relaxin, in Group 2 pulmonary hypertension associated with heart failure with preserved ejection fraction (PH-HFpEF). Based on our KOL checks and other research, we believe the study is likely to achieve its primary endpoint of pulmonary vascular resistance (PVR). However, six-minute walk distance (6MWD), which we expect to be the key Phase 3 registrational endpoint, remains a tougher hurdle and, in our view, there are roughly even odds of achieving a meaningful ~15-20m improvement in the Phase 2. In addition, we are not yet convinced that TX45 can sidestep relaxin safety concerns such as worsening congestion. For PH-HFpEF, we model $380M risk-adjusted 2035 sales (vs cons at $1B) and $2.8B in unadjusted 2035 sales (vs cons at $2.9B).