HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

<ul>
<li>The 9th national VBP is drawing near. As all drugs under national/provincial VBP are scheduled to be executed before 2025/12/31, there should be new policies in 2026 and beyond.</li>
<li>The capabilities of Chinese pharmaceutical companies in ADC field have at least stepped onto a platform to compete with international giants, which is clearly more progressive than during PD-1 era.</li>
<li>We analyzed key points of Ovctek. Its investment logic has changed and centralized procurement will break investors' expectations for Ovctek’s future performance growth. Valuation may continue to be under pressure.</li>
</ul>


The 9th national VBP is drawing near. As all drugs under national/provincial VBP are scheduled to be executed before 2025/12/31, there should be new policies in 2026 and beyond.
The capabilities of Chinese pharmaceutical companies in ADC field have at least stepped onto a platform to compete with international giants, which is clearly more progressive than during PD-1 era.
We analyzed key points of Ovctek. Its investment logic has changed and centralized procurement will break investors' expectations for Ovctek’s future performance growth. Valuation may continue to be under pressure.


China Healthcare Weekly (May.26)- 9th National VBP, China's Strength in ADC Field, Ovctek, Eyebright

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Oil & Natural Gas Corp / Technical Analysis

<ul>
<li>MSCI EM (EEM-US) has continued to hold above our $37-$37.50 line-in-the-sand, meaning we are constructive from a price perspective.</li>
<li>We have maintained an underweight to emerging markets, and we are overweight developed international (MSCI EAFE, Europe, Japan) as discussed in in <em>Int’l Compass</em> and <em>ETF Pathfinder</em> reports throughout 2023.</li>
<li>Still, there are plenty of attractive countries and Sectors within the EM landscape, which is what we are focusing on today.</li>
</ul>


MSCI EM (EEM-US) has continued to hold above our $37-$37.50 line-in-the-sand, meaning we are constructive from a price perspective.
We have maintained an underweight to emerging markets, and we are overweight developed international (MSCI EAFE, Europe, Japan) as discussed in in Int’l Compass and ETF Pathfinder reports throughout 2023.
Still, there are plenty of attractive countries and Sectors within the EM landscape, which is what we are focusing on today.


EM Strategy: MSCI EM Financials & Energy Improving-Overweight; Overweights: Taiwan, India, Mexico

Sichuan Kelun Pharmaceutical / Equity Bottom-Up

<ul>
<li>The real foothold of a pharmaceutical company lies in  “Development” rather than “Research”. After the clinical development has reached the first-class level, what remains is the vision of the leaders.</li>
<li>For China biotech, we think they would go through four stages- Stage 1 (2015 – 2019), Stage 2 (2019 - present), Stage 3 (2026-2028) and Stage 4 (starting from 2030).</li>
<li>If without Merck’s deal, Kelun’s profit improvement was mainly due to effective cost control. If Kelun could maintain double-digit revenue growth, with net profit margin around 10%, it’s already good.</li>
</ul>


The real foothold of a pharmaceutical company lies in  “Development” rather than “Research”. After the clinical development has reached the first-class level, what remains is the vision of the leaders.
For China biotech, we think they would go through four stages- Stage 1 (2015 – 2019), Stage 2 (2019 - present), Stage 3 (2026-2028) and Stage 4 (starting from 2030).
If without Merck’s deal, Kelun’s profit improvement was mainly due to effective cost control. If Kelun could maintain double-digit revenue growth, with net profit margin around 10%, it’s already good.


China Healthcare Weekly (Apr.28) - Four Stages of China Biotech, The Real Foothold of R&D, Kelun

Equity Capital Markets

<ul>
<li>Kelun-Biotech did not get widespread attention until it reached three license and collaboration agreements with Merck, with upfront and milestone payments totaling up to US$11.8 billion.</li>
<li>The remaining products have limited investment value. After Kelun-Biotech out-licensed all of its valuable core assets in pipeline, it could mainly remain at the stage of biotech in the future.</li>
<li>The original core R&amp;D team members have left, which means the "root of Kelun-Biotech is broken”. The lack of sustainable follow-up R&amp;D capability would have negative impact on valuation performance.  </li>
</ul>


Kelun-Biotech did not get widespread attention until it reached three license and collaboration agreements with Merck, with upfront and milestone payments totaling up to US$11.8 billion.
The remaining products have limited investment value. After Kelun-Biotech out-licensed all of its valuable core assets in pipeline, it could mainly remain at the stage of biotech in the future.
The original core R&amp;D team members have left, which means the "root of Kelun-Biotech is broken”. The lack of sustainable follow-up R&amp;D capability would have negative impact on valuation performance.  


Pre-IPO Kelun Biotech - Debut Is the Peak, and Then It Wanes?

Thematic (Sector/Industry)

<ul>
<li>China unveiled the "No. 1 central document", providing a good opportunity for domestic healthcare enterprises to develop rural medical market - Its market size cannot be ignored.</li>
<li>The 8th national VBP has been officially launched last week. Pfizer is the most affected of all foreign big pharma, which would have certain impact on its China business. </li>
<li>We have noticed that the unified medical insurance code of traditional Chinese medicine (TCM) formula granules is accelerating, which seems to be paving the way for the future VBP.</li>
</ul>


China unveiled the "No. 1 central document", providing a good opportunity for domestic healthcare enterprises to develop rural medical market - Its market size cannot be ignored.
The 8th national VBP has been officially launched last week. Pfizer is the most affected of all foreign big pharma, which would have certain impact on its China business. 
We have noticed that the unified medical insurance code of traditional Chinese medicine (TCM) formula granules is accelerating, which seems to be paving the way for the future VBP.


China Healthcare Weekly (Feb.24) - No. 1 Central Document, 8th National VBP, TCM Formula Granules

China

Sichuan Kelun Pharmaceutical Co., Ltd. manufactures pharmaceutical products. The Company's products include large infusion products, tablets, capsules, antibiotic injection, lyophilized powder for injection, and traditional Chinese medicine.

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Sichuan Kelun Pharmaceutical (002422 CH)

China Healthcare Weekly (May.26)- 9th National VBP, China's Strength in ADC Field, Ovctek, Eyebright

The 9th national VBP is coming, but policy could change from 2026.We see positive factors in the performance of Chinese company in ADC field, who...

Xinyao (Criss) Wang

EM Strategy: MSCI EM Financials & Energy Improving-Overweight; Overweights: Taiwan, India, Mexico

MSCI EM Financials & Energy Improving -- Upgrading to Overweight; MSCI EM Technology remains an Overweight. Top Country Overweights: Taiwan, India,...

Vermilion Research

China Healthcare Weekly (Apr.28) - Four Stages of China Biotech, The Real Foothold of R&D, Kelun

The real foothold of pharmaceutical company is “Development” rather than “Research”. China biotech will go through four stages: 2015-2019, 2019...

Xinyao (Criss) Wang

Pre-IPO Kelun Biotech - Debut Is the Peak, and Then It Wanes?

After out-licensing all valuable core assets to Merck, Kelun-Biotech's remaining pipeline has limited value. As core R&D team have left, the lack...

Xinyao (Criss) Wang

China Healthcare Weekly (Feb.24) - No. 1 Central Document, 8th National VBP, TCM Formula Granules

China unveiled "No. 1 central document" to enhance the development of rural medical market. The 8th national VBP is coming. Pfizer is under heavy...

Xinyao (Criss) Wang

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