Global Healthcare Analyst

Tina Banerjee

Equity Bottom-Up

Shares of <a href="https://www.smartkarma.com/entities/intuitive-surgical-inc" target="_blank" data-smartkarma-citation="entities:15853:1" rel="noopener">Intuitive Surgical (ISRG US)</a> corrected ~10% from its 52-week high price of $362 achieved in early September. We believe the correction reflects investors’ fear on the pace of recovery of the elective surgeries globally, especially in the U.S. Amidst this backdrop, the company’s Q3 results announcement on October 19 will be a closely watched event. During their Q2 results announcement, management raised 2021 procedure growth (a key performance parameter) guidance to 27–30% y/y from 22–26% y/y announced during Q1 results announcement. So, outlook on procedure growth guidance for the remainder of the year and early trend into Q4 will the major catalysts for the shares.  Shares of Intuitive Surgical have historically been trading at a high multiple, at par with other high growth ideas such as <a href="https://www.smartkarma.com/entities/abiomed-inc" target="_blank" data-smartkarma-citation="entities:7767:1" rel="noopener">Abiomed Inc (ABMD US)</a>, <a href="https://www.smartkarma.com/entities/align-technology-inc" target="_blank" data-smartkarma-citation="entities:2817:1" rel="noopener">Align Technology (ALGN US)</a>, <a href="https://www.smartkarma.com/entities/idexx-laboratories-inc" target="_blank" data-smartkarma-citation="entities:14856:1" rel="noopener">IDEXX Laboratories (IDXX US)</a>, and <a href="https://www.smartkarma.com/entities/illumina-inc" target="_blank" data-smartkarma-citation="entities:8015:1" rel="noopener">Illumina Inc (ILMN US)</a>. Intuitive’s large market opportunity, especially in the international market, less than 10% penetration of its TAM, near monopolistic market positioning, and high switching cost justify its premium valuation. However, the valuation is always questioned amidst the upcoming competition. As Intuitive’s patent expired, big players including <a href="https://www.smartkarma.com/entities/medtronic-plc" target="_blank" data-smartkarma-citation="entities:14982:1" rel="noopener">Medtronic Plc (MDT US)</a> and <a href="https://www.smartkarma.com/entities/johnson-johnson" target="_blank" data-smartkarma-citation="entities:1132:1" rel="noopener">Johnson &amp; Johnson (JNJ US)</a> are vying to take some share through acquisitions of surgical robot start-up entities. This insight analyzes multiple upcoming competition in the soft tissue surgical robotic market and how Intuitive Surgical is expected to maintain its global leadership amid the competition.

Shares of Intuitive Surgical (ISRG US) corrected ~10% from its 52-week high price of $362 achieved in early September. We believe the correction reflects investors’ fear on the pace of recovery of the elective surgeries globally, especially in the U.S. Amidst this backdrop, the company’s Q3 results announcement on October 19 will be a closely watched event. During their Q2 results announcement, management raised 2021 procedure growth (a key performance parameter) guidance to 27–30% y/y from 22–26% y/y announced during Q1 results announcement. So, outlook on procedure growth guidance for the remainder of the year and early trend into Q4 will the major catalysts for the shares.  Shares of Intuitive Surgical have historically been trading at a high multiple, at par with other high growth ideas such as Abiomed Inc (ABMD US), Align Technology (ALGN US), IDEXX Laboratories (IDXX US), and Illumina Inc (ILMN US). Intuitive’s large market opportunity, especially in the international market, less than 10% penetration of its TAM, near monopolistic market positioning, and high switching cost justify its premium valuation. However, the valuation is always questioned amidst the upcoming competition. As Intuitive’s patent expired, big players including Medtronic Plc (MDT US) and Johnson &amp; Johnson (JNJ US) are vying to take some share through acquisitions of surgical robot start-up entities. This insight analyzes multiple upcoming competition in the soft tissue surgical robotic market and how Intuitive Surgical is expected to maintain its global leadership amid the competition.

Intuitive Surgical (ISRG US): Global Leadership to Continue Amid Upcoming Competition

Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Capital Markets

New Horizon Health  / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/new-horizon-health-limited" target="_blank" data-smartkarma-citation="entities:31039:1" rel="noopener">New Horizon Health (NHH HK)</a> has announced terms of its US$263MM IPO with a pre-money valuation of US$960 million to US$1.17 billion. The updated filings show a strong recovery in volumes from COVID-19 disruptions. We think the valuation is reasonable using undemanding assumptions and would participate in the offering.

New Horizon Health (NHH HK) has announced terms of its US$263MM IPO with a pre-money valuation of US$960 million to US$1.17 billion. The updated filings show a strong recovery in volumes from COVID-19 disruptions. We think the valuation is reasonable using undemanding assumptions and would participate in the offering. 

New Horizon IPO: Only Undemanding Assumptions Needed

JD Health International  / Equity Capital Markets

Healthcare’s presence in Asian capital markets has increased substantially over the last four years on the heels of substantial investments in private markets (VC/PE). Policy reforms and changes in listing rules, most notably in China, have led to an explosion of market cap creation for the sector as the universe of companies has expanded to include innovative companies, most notably pre-revenue biopharmaceutical companies. At the same time, substantial investments in digital healthcare, fueled by the COVID-19 pandemic, adds a new source of listed companies. This Insight focuses on leading unlisted healthcare companies in China, India, and ASEAN that have raised substantial amounts of capital and appear to be candidates for listing.

Healthcare’s presence in Asian capital markets has increased substantially over the last four years on the heels of substantial investments in private markets (VC/PE). Policy reforms and changes in listing rules, most notably in China, have led to an explosion of market cap creation for the sector as the universe of companies has expanded to include innovative companies, most notably pre-revenue biopharmaceutical companies. At the same time, substantial investments in digital healthcare, fueled by the COVID-19 pandemic, adds a new source of listed companies. This Insight focuses on leading unlisted healthcare companies in China, India, and ASEAN that have raised substantial amounts of capital and appear to be candidates for listing.   

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Thematic (Sector/Industry)

The genetic testing industry in China is like a rising star – the favorable policy of precision medicine, the increasing industry scale and the long-term optimism about the growth potential from Chinese private equity firms and venture capitals have indicated tremendous opportunities.

The genetic testing industry in China is like a rising star – the favorable policy of precision medicine, the increasing industry scale and the long-term optimism about the growth potential from Chinese private equity firms and venture capitals have indicated tremendous opportunities.  

Insights on China Genetic Testing Industry

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Burning Rock Biotech / Equity Capital Markets

Burning Rock, a leading precision oncology player in China, is aiming to raise USD 100 million via a listing in the US. The company is the number one next-generation sequencing (NGS) based cancer therapy selection company with a 26.7% share in China by patients tested in 2019.While the company derives most of its revenue from the central lab model, its in-hospital model which is characterized by recurring sales of reagent test kits is also growing rapidly. Looking at the company's disclosure in the IPO prospectus, we think there is a lack of details for the technical specifications of its core products. In addition, we believe that the potential market estimates provided in the prospectus are too aggressive given that the test kits, particularly the big panels, are unlikely to be included in the reimbursement plan in the foreseeable future and hence remain a luxury product. We are of the view that the company has quality pre-IPO investors and management team. In this note, we provide a DCF-based valuation and compare its valuation to the US-listed peers. We value the company at USD 1.1 billion on a pre-money basis.<h2>Our previous coverage on Burning Rock</h2><ul><li dir="ltr"><a href="https://www.smartkarma.com/insights/burning-rock-pre-ipo-leading-precision-oncology-player-but-short-of-disclosure" target="_blank" rel="noopener">Burning Rock (燃石医学) Pre-IPO: Leading precision oncology player but short of disclosure</a></li></ul>

Burning Rock, a leading precision oncology player in China, is aiming to raise USD 100 million via a listing in the US. The company is the number one next-generation sequencing (NGS) based cancer therapy selection company with a 26.7% share in China by patients tested in 2019.While the company derives most of its revenue from the central lab model, its in-hospital model which is characterized by recurring sales of reagent test kits is also growing rapidly. Looking at the company's disclosure in the IPO prospectus, we think there is a lack of details for the technical specifications of its core products. In addition, we believe that the potential market estimates provided in the prospectus are too aggressive given that the test kits, particularly the big panels, are unlikely to be included in the reimbursement plan in the foreseeable future and hence remain a luxury product. We are of the view that the company has quality pre-IPO investors and management team. In this note, we provide a DCF-based valuation and compare its valuation to the US-listed peers. We value the company at USD 1.1 billion on a pre-money basis.Our previous coverage on Burning RockBurning Rock (燃石医学) Pre-IPO: Leading precision oncology player but short of disclosure

Burning Rock (燃石医学) Pre-IPO: Thoughts on Valuation

United States

Illumina, Inc. develops, manufactures and markets integrated systems for the large scale analysis of genetic variation and biological function. The Company provides a comprehensive line of products and services that currently serve the sequencing, genotyping and gene expression markets for genomic research centers, pharmaceutical companies, academic institutions and biotechnology companies.

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Illumina Inc (ILMN US)

Intuitive Surgical (ISRG US): Global Leadership to Continue Amid Upcoming Competition

By leveraging on first-mover advantage and huge installed base, Intuitive Surgical is expected to maintain global leadership in robotic surgery...

Tina Banerjee

New Horizon IPO: Only Undemanding Assumptions Needed

We think the proposed valuation of New Horizon Health's (NHH HK) IPO is reasonable using undemanding assumptions and would participate in the...

Kemp Dolliver, CFA

Asian Healthcare - Coming of Age

This Smartkarma Originals Insight highlights 20 leading unlisted healthcare companies in Asia, mainly in digital healthcare and biopharma, that are...

Kemp Dolliver, CFA

Insights on China Genetic Testing Industry

This article analyzed China genetic testing industry in the perspective of favorable policy, market potential, future trend, investment trend in...

Xinyao (Criss) Wang

Burning Rock (燃石医学) Pre-IPO: Thoughts on Valuation

Burning Rock, a leading precision oncology player in China, is aiming to raise USD 100 million via a listing in the US. The company is the number...

Ke Yan, CFA, FRM

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