HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Thematic (Sector/Industry)

<ul>
<li>This year's NRDL negotiations could be a turnaround. If the final result really shows a moderate price decline, it will be “a landmark event” for the innovative drug industry.</li>
<li>Starting from 23Q2, with the peak of respiratory disease/COVID-19 outbreak past, the demand for related TCM would weaken. Then, the pullback of TCM would really begin.</li>
<li>Even if biotech initially tells the story of becoming a biopharma to obtain financing, it will not be realized in the end.</li>
</ul>


This year's NRDL negotiations could be a turnaround. If the final result really shows a moderate price decline, it will be “a landmark event” for the innovative drug industry.
Starting from 23Q2, with the peak of respiratory disease/COVID-19 outbreak past, the demand for related TCM would weaken. Then, the pullback of TCM would really begin.
Even if biotech initially tells the story of becoming a biopharma to obtain financing, it will not be realized in the end.


China Healthcare Weekly (Jan.1) - NRDL Negotiation Turnaround, Pullback of TCM, Biotech Sales System

Equity Bottom-Up

Sichuan Kelun Pharmaceutical / Equity Bottom-Up

<ul>
<li>Merck entered into an agreement with Kelun to develop seven new ADC candidates. Merck will pay an upfront payment of US$175 million, with milestone payments worth up to US$9.3 billion.</li>
<li>It's a strong signal that Merck gives up acquiring Seagen and fully embraces Kelun. Merck may not just simply recognize Kelun’s ADC candidates but is optimistic about its ADC platform/technology.</li>
<li>Chinese pharmaceutical enterprises are becoming more pragmatic and peaceful in licensing cooperation, which has more trend significance for the development of industry than the value of a product or an enterprise. </li>
</ul>


Merck entered into an agreement with Kelun to develop seven new ADC candidates. Merck will pay an upfront payment of US$175 million, with milestone payments worth up to US$9.3 billion.
It's a strong signal that Merck gives up acquiring Seagen and fully embraces Kelun. Merck may not just simply recognize Kelun’s ADC candidates but is optimistic about its ADC platform/technology.
Chinese pharmaceutical enterprises are becoming more pragmatic and peaceful in licensing cooperation, which has more trend significance for the development of industry than the value of a product or an enterprise. 


Merck Puts Eye-Popping $9.3B in ADC Deal with Kelun - The "New Story" Is About to Begin

<ul>
<li>Due to huge negative policy impact, the prospects of Kelun’s traditional businesses would be lackluster. However, the deal with MSD has completely changed Kelun's investment logic. </li>
<li>For the two ADC drugs in the deal, there is a great chance for SKB264 to be eventually druggable. Kelun’s ADC technology is also keeping up with the times. </li>
<li>We deep dive the valuation of Kelun. The market's perception of Kelun is still at the level of traditional businesses. The potential of its ADC pipeline hasn’t been priced in.</li>
</ul>


Due to huge negative policy impact, the prospects of Kelun’s traditional businesses would be lackluster. However, the deal with MSD has completely changed Kelun's investment logic. 
For the two ADC drugs in the deal, there is a great chance for SKB264 to be eventually druggable. Kelun’s ADC technology is also keeping up with the times. 
We deep dive the valuation of Kelun. The market's perception of Kelun is still at the level of traditional businesses. The potential of its ADC pipeline hasn’t been priced in.


Sichuan Kelun Pharmaceutical (002422.CH) - The Deal with Merck Brightens the Outlook; A Dark Horse?

Equity Capital Markets

<ul>
<li>The NRDL negotiation has completely changed the pricing method and valuation logic of innovative drugs. Based on the 3D Alphamab Simcere Agreements, 3D Medicines would have limited profits from envafolimab.</li>
<li>The majority candidates are based on license-in model. The intention to “pile up” a nice pipeline based on license-in model before IPO is obvious. 3D Medicines’s R&amp;D capability is questionable.</li>
<li>The overall quality and core competitiveness of 3D Medicines are not high. Mr. Market is not friendly to the valuation of companies based on license-in model. </li>
</ul>


The NRDL negotiation has completely changed the pricing method and valuation logic of innovative drugs. Based on the 3D Alphamab Simcere Agreements, 3D Medicines would have limited profits from envafolimab.
The majority candidates are based on license-in model. The intention to “pile up” a nice pipeline based on license-in model before IPO is obvious. 3D Medicines’s R&amp;D capability is questionable.
The overall quality and core competitiveness of 3D Medicines are not high. Mr. Market is not friendly to the valuation of companies based on license-in model. 


Pre-IPO 3D Medicines (3DM HK) - Some Points Worth the Attention; Our Thoughts on Valuation

<ul>
<li>Our forecast of the total peak sales of BRUKINSA, tislelizumab and the rest commercialized products is about RMB10 billion, which is not enough for BeiGene to turn losses into profits. </li>
<li>BeiGene has the highest R&amp;D/academic ability among domestic pharmaceutical enterprises,but BeiGene cannot be assessed according to the standards of Chinese pharmaceutical enterprises due to its fundamentally different cost structure/breakeven point.</li>
<li>The current market value has already priced in the success of TIGIT project to some extent. In other words, the upward elasticity may be limited. But BeiGene deserves long-term follow.</li>
</ul>


Our forecast of the total peak sales of BRUKINSA, tislelizumab and the rest commercialized products is about RMB10 billion, which is not enough for BeiGene to turn losses into profits. 
BeiGene has the highest R&amp;D/academic ability among domestic pharmaceutical enterprises,but BeiGene cannot be assessed according to the standards of Chinese pharmaceutical enterprises due to its fundamentally different cost structure/breakeven point.
The current market value has already priced in the success of TIGIT project to some extent. In other words, the upward elasticity may be limited. But BeiGene deserves long-term follow.


BeiGene (6160.HK/BGNE.US) 22Q3 - The Price of Being an “Outlier”

China

Jiangsu Hengrui Medicine Co., Ltd. develops, manufactures, and markets a variety of medicines and medicine packing materials. The Company's products include anti-tumor medicines, pain-killers, anti-infection medicines, aluminum foil, and other related products.

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Jiangsu Hengrui Medicine (600276 CH)

China Healthcare Weekly (Jan.1) - NRDL Negotiation Turnaround, Pullback of TCM, Biotech Sales System

This year's NRDL negotiation could be “a landmark event” for innovative drug industry.Pullback of TCM may really begin from 23Q2.We analyzed...

Xinyao (Criss) Wang

Merck Puts Eye-Popping $9.3B in ADC Deal with Kelun - The "New Story" Is About to Begin

After Merck gives up acquiring Seagen and fully embraces Kelun for the 3rd time, Kelun's outlook further brightened. Compared with Akeso/Summit...

Xinyao (Criss) Wang

Sichuan Kelun Pharmaceutical (002422.CH) - The Deal with Merck Brightens the Outlook; A Dark Horse?

The market's perception of Kelun is still at the level of traditional business, without pricing in the growth potential of ADC pipeline.We deep...

Xinyao (Criss) Wang

Pre-IPO 3D Medicines (3DM HK) - Some Points Worth the Attention; Our Thoughts on Valuation

The overall quality/core competitiveness of 3D Medicines isn't high. Its pipeline is mainly based on license-in model, which is not favored by Mr....

Xinyao (Criss) Wang

BeiGene (6160.HK/BGNE.US) 22Q3 - The Price of Being an “Outlier”

Sales of current commercialized products isn't enough for BeiGene to turn loss into profit. BeiGene is fundamentally different from any other China...

Xinyao (Criss) Wang

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