Healthcare

• Pacific Smiles (PSQ AU), an operator of dental centers, has announced – and immediately rejected – a non-binding proposal from Genesis Capital Manager.
• Genesis, holder of 18.75% of shares out, has offered A$1.40/share, by way of a Scheme. That’s a less-than-inspiring 17.1% premium to last close. 
• PSQ calls the Offer “opportunistically timed”. That has merit, after the share price recently touched a multi-year low.  Separately, PSQ is seeking a new CEO after Mckenzie resigned in August.

• The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND and NORTHBOUND flows were both sells, respectively, but liquid Hs with H/A pairs OUT-perform As on average by 100+bp. Liquidation by overseas investors feels finished. 
• Time to go long Hs vs As for the new year at 52wk wide discounts. 3 Short H/A pairs now switched to long. 3 new pairs long this week. 

• The Quiddity Mainland Connect NORTHBOUND Monitor. Like the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor. Lots of Flows/Position Tables and Charts to play with.
• Last week saw NORTHBOUND net sell RMB 18.6bn of A-shares on slightly lighter activity. Friday saw large NORTHBOUND net buys early in the day but ended a net sell.
• Looking at the change in the weekly position charts over the last year is striking (easiest in the Sectors table to start). Still. 

• TSE data (April 2022-October 2023) shows that the correlation between TOPIX and ROE for prime market listed companies is extremely low, while the correlation between TOPIX and BPS is high.
• It may be that a company that can sustainably increase cash flow and build up net assets is more trustworthy than a temporary increase in profits.
• It’s presumed that the company increased EPS to the extent that it did not reduce ROE and implemented a certain degree of shareholder return to slow the increase in BPS.

• Recent business updates of WuXi Bio led to a decline in WuXi AppTec’s share price and changed investors’ expectations for CXO. Now is the time to adjust forecasts.
• We analyzed the growth rate of various business of WuXi AppTec in 2024. In a neutral scenario, growth next year could fall short of management’s guidance.Reversal in 2025 is uncertain.
• If WuXi AppTec “unexpectedly” receives blockbuster orders, which are large enough to hedge against the downward trend of WuXi AppTec’s other businesses, then it will help to change performance expectations.

• 2023 NRDL negotiation results were released. We’re seeing the rules of NRDL renewal negotiations tilt toward innovative drugs, leading to lower price reduction, but there has been no fundamental change.
• The record-breaking US$8.4 billion deal involving BMS and Sichuan Biokin Pharmaceutical (688506 CH) (SystImmune) is not without risk, though. We still recommend to remain rational.
• The issue facing Shanghai Haoyuan Chemexpress (688131 CH) is higher revenue but lower margins. Valuation will likely experience further declines due to lock-up expiry and share reduction.

• In 3Q23, Boryung Pharmaceutical (003850 KS) reported 15% YoY growth in revenue to KRW208B, driven by 7% YoY growth in prescription drugs, the slowest growth in the last three years.
• Prescription drug revenue growth slowed due to the huge shortfall in revenue from the diabetes drug Trulicity caused by supply shortage. We expect slowdown in Trulicity revenue is temporary.  
• Despite losing patent protection in February 2023 on ARB monotherapy, Kanarb drug family is showing no fatigue due to increasing preference for combination drugs in the market.  

• HCG reported a strong Q2FY4 with revenue growth of 16% YoY and 5.7% QoQ. EBITDA margin expanded 120bp QoQ to reach 17.8%.
• Emerging centers are scaling up well with revenue growing at 29% YoY in Q2FY24. Matured centers’ revenue also grew at a healthy pace of 13% YoY.
• HCG is continuing to upgrade infrastructure of existing hospitals. It added 3 robotic surgery machines across 3 centers. It operationalized 4 new LINACs and plans to install six more LINACs. 

• An increasing number of companies rehire senior employees until age 65 to address labor shortages and pass on skills, but there are challenges in retaining senior employees and maintaining loyalty.
• Daikin is expected to be effective in motivating senior employees and passing on skills in terms of extending employment to age 65 without lowering wages. 
• Daikin’s board members are older, so they fully understood that age was not an obstacle to senior employee success. On the other hand, Daikin faces many challenges in diversity.

• Volpara Health  (VHT AU), which makes software enabling the early detection of breast cancer, has announced it has entered into a Scheme Implementation Deed with South Korea’s Lunit (328130 KS).
• Lunit is offering Volpara shareholders A$1.15/share, in cash, a 47.4% premium to last close. Cornerstone investors with 25.92% of shares out are supportive. As is Volpara’s board.
• The Scheme Meeting is expected to be held in 2Q24. The transaction requires NZ’s OIO approval.

• Volpara Health Technologies (VHT AU) has entered a scheme implementation deed with Lunit (328130 KS) at A$1.15 per share, a 48.4% premium to the undisturbed price of A$0.775 (13 December).
• The offer is subject to several conditions, such as shareholder and OIO approval. Irrevocables and directors represent 33.30% of outstanding shares. 
• Barring a competing offer, this is a done deal, as the offer is attractive. At the last close and for the end of May payment, the gross/annualised spread is 5.0%/11.6%.

• Local news reported two positive developments for Zai Lab’s FcRn inhibitor Efgartigimod: (1) Rival CSPC/HarbourBio withdrew BLA for competing drug Batoclimab (HBM9161), (2) Efgartigimod was included in 2024 NDRL;
• We raise Zai Lab’s 2024 top line by 8.8% but keep non-GAAP operating loss largely unchanged；
• We raise TP by US$2 to US$20 and maintain SELL.

• Astellas Pharma (4503 JP) has been reporting a couple of positive developments over the last one month. These are right steps toward achieving sustainable and accelerated growth in long-term.
• Astellas received European Commission approval for Veoza for the treatment of moderate to severe vasomotor symptoms associated with menopause. This potential blockbuster drug has already been launched in the U.S.
• Astellas is acquiring Propella Therapeutics for $175 million. Propella’s clinical-stage lead candidate can be a challenger to the current standard-of-care in prostate cancer treatment.

• Rain Oncology (RAIN) is being bought out for $1.16 + CVR worth up to $0.17/share.
• This seems like a worse deal than the $1.25 + CVR Tang was offering, but ok, I will take it.
• Usually these CVR’s should be valued at a large discount to their upper value, so I see no reason to hang around in this one so closing this one for a 15% gain at $1.

• A company that does’t include a cash flow statement in its 1Q and 3Q financial summaries, which will now be mandatory, is a company that is reluctant to disclose information.
• Management groups have called for making quarterly disclosure voluntary. This time, a hand has been dealt with a compromise proposal to unify quarterly reports and financial statements in securities reports.
• While the risk of dropping quarterly disclosure in the near future is small, the major problem is that some managers are still reluctant to disclose information.

• Diseases with complex mechanisms like NASH are unlikely to be solved by drugs with a single target, but compared with THR-β and GLP-1s, our view on HTD1801’s prospects is negative.
• HTD1801 faces high R&D failure risk and challenges in obtaining the final approval for NASH indication. For T2DM indication, the current intense competitive landscape has dimmed its future commercialization prospects.
• Several original shareholders have already cashed out in advance, indicating that they are not optimistic about the prospects of HighTide. The valuation premium space after IPO could be lower-than-expected.

Recce Pharmaceuticals raised A$11.0m (gross) in September and October. Most of the proceeds (A$6m) will be directed towards the company’s clinical programmes for lead anti-infective candidate RECCE® 327 (R327), including the ongoing Phase I/II study of the IV formulation in healthy volunteers and in patients with uncomplicated or recurrent urinary tract infections (UTIs). This study continues to advance, with the company recently dosing healthy subjects with the 3,000mg dose over a 15-minute infusion period, following a favourable safety review of this dose over a 30-minute infusion. We model that Recce is currently funded into CY24 and expect the company to seek additional funding, which may come from partnerships or non-dilutive arrangements. Following minor adjustments to our forecasts, we now obtain an rNPV valuation of A$551.1m (or A$2.71 per share), versus A$562.4m previously.

• Alkem Laboratories Ltd (ALKEM IN) is flying high on strong Q2 numbers. The shares rallied 23% since the company announced Q2FY24 result in early November, widely outperforming Nifty Pharma index.
• In Q2FY24, revenue grew 12% YoY, and gross margin expanded 380bps to 61.4% backed by lower raw material cost and lower intensity of price erosion in US market.
• For the U.S. business, Alkem is looking at high-single-digit growth in dollar terms for FY24. The company has reiterated FY24 gross margin guidance at 59.0–59.5%.

• Shineway’s performance growth in 23Q1-Q3 slowed obviously. The big decrease in sales growth of injection products and TCM formula granule products would drag down the overall revenue growth in 23H2. 
• Due to TCM formula granules VBP, the 60%-75% gross profit margin level is hard to sustain. TCM formula granules business would enter an era of low profits but high sales.
• Shineway’s cash balance is RMB5.4 billion, but market value is about RMB5.39 billion. So, Shineway is undervalued. The Company’s two dividends next year could reach RMB50 cents per share.

Immix presented encouraging new data at the American Society of Hematology (ASH) 2023 meeting for its Nexcella subsidiary’s lead CAR-T asset, NXC-201, in amyloid light chain amyloidosis (ALA) patients. The update corresponds to 10 ALA patients treated with NXC-201, for which the overall response rate (ORR) stands at 100% (10/10). NXC-201 also maintains its competitive safety profile among this group, including no cases of neurotoxicity and only low-grade cytokine release syndrome associated with short onset and duration. The results to date are supportive of NXC-201 potentially becoming the first outpatient CAR-T therapy, in our view, offering a potentially desirable treatment option for a fragile patient population. While the current data come from the NEXICART-1 trial based in Israel, with the Investigational New Drug (IND) application in ALA patients recently accepted by the FDA, we believe the enrolment of patients at US trial sites (NEXICART-2) will be a key milestone for the clinical progression of NXC-201. Management has communicated that it intends to submit a Biologics License Application to the FDA once 30–40 ALA patients have been treated.

OSE Immunotherapeutics (OSE) has shared a positive update on the FIRsT clinical trial assessing FR104/VEL-101 (an anti-CD28 monoclonal antibody) as a maintenance therapy for kidney transplant patients. Long-term maintenance therapy in kidney transplant patients remains an ongoing medical need that has seen little progression in the last 20 years. Although OSE is in the early stages of clinical development, we believe there could be a significant opportunity. Encouragingly, the results show no safety concerns with FR104/VEL-101 treatment (seven patients for 12 months post-transplantation, and one ongoing at four months) and no cases of acute rejection, both of which are key objectives for this Phase I/II trial. While the FIRsT study involves a relatively small group size (eight evaluable patients), we believe the update is encouraging, and note that Veloxis Pharmaceuticals (OSE’s partner for this programme) is already preparing for a subsequent Phase II trial involving a larger patient population. We expect full results from the FIRsT study after all patients have completed the 12-month treatment protocol, most likely in H224.

• Sigma Healthcare (SIG AU) has announced a potential merger with Chemist Warehouse Group (CWG) to create a leading healthcare wholesaler, distributor and retail pharmacy franchisor.
• With a market cap of ~A$8.5bn and a free float market cap of ~A$4bn, the merged company will make the cut for inclusion in the S&P/ASX 200 (AS51 INDEX). 
• Inclusion in the S&P/ASX 100 Index looks just out of reach at the moment as does inclusion in some large global indices.

• Privately-Held Chemist Warehouse’s (CWG) “transformational merger” with pharmaceutical wholesaler and franchisor Sigma Healthcare (SIG AU) will result in CWG’s shareholders holding 85.75% of the merged company. 
• CWG shareholders will receive A$700mn in cash plus new Sigma shares. Sigma will also undertake a $400mn equity raising to fund working capital needs.
• Sigma has the backing of its largest shareholder HMC. The risk to completion pivots off ACCC approval. 

• A group of shareholders is looking to raise around US$600m via selling a 6.9% stake in Mankind Pharma.
• MP is a pharmaceutical company engaged in developing, manufacturing and marketing a range of pharmaceutical formulations across various acute and chronic therapeutic areas, as well as several consumer healthcare products.
• We have looked at the IPO and lock-up release earlier. In this note, we talk about the other deal dynamics.

• Pharmaron’s performance has shown a clear downward trend this year, and the growth in 23Q4 may be even lower. That means this year’s results could fall short of management’s expectations.
• The essence of unsatisfactory profit margin is due to low capacity utilization/management efficiency.The underlying reason is the sharp decline in drug R&D demand due to the deterioration of financing environment.
• Pharmaron seems ill-prepared in peptide CDMO, and its performance would further lag behind Wuxi AppTec in the future. Pharmaron may not be able to contribute alpha during industry downturns.

• The New and Better (5mos old) A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• Hs with H/A pairs under-perform their As on average by 70+bp. Liquid HK H/A Pairs saw H/As -66bp. H/A Pair intracorrelation is down but it feels like liquidation.
• SOUTHBOUND and NORTHBOUND flows were buys, and sells, respectively, but Hs have had two bad weeks in a row, and high premia A/H pairs have seen premia rise significantly.

• Max Healthcare Institute (MAXHEALT IN) has entered into a share purchase agreement for acquisition of a 550-bedded Sahara Hospital in Lucknow, Uttar Pradesh for an enterprise value of INR9.4B (~$113M).
• The Hospital currently serves ~2 lakh patients every year, with FY24 revenue run rate of INR2B. It has a renowned center of excellence for Neurosciences.
• The Hospital has a potential to quickly ramp up beds in existing building and expand medical programs such as oncology, transplants, robotics, etc.  

• Now that the pandemic has passed, Yiling’s performance has to face a sharp decline due to the high base before, but in our view, the situation is not so bad.  
• According to the management,sales of cardiovascular and cerebrovascular products would gradually increase to make up for the sales decline of Lianhua Qingwen, which would still be higher than pre-pandemic level.
• About 15-20% performance growth is still reachable in the future. PE of 20-30 is a reasonable range for Yiling. Being included in CSI 300 Index helps to improve the liquidity.

• China’s innovative drug sector remains a liquidity driven sector, as investible choices are limited, which include Akeso and BeiGene as our BUY ideas.
• We also notice positive change in Innovent but opt to keep rating unchanged;
• We upgrade BeiGene from SELL to BUY and maintain SELL on RemeGen, Innovent, JUNSHI and ZaiLab. We discontinued coverage on Legend Biotech.

• We summarized some important opportunities and trends that we think would emerge in the pharmaceutical industry in the future.
• Considering the current unfavorable financing situation of Biotech in the domestic primary market, we anticipate that there would be significant discounts in the sale of equity in the future.
• Topchoice has not yet out of trouble. Most of its business diversification could end in failure. It is difficult to support high valuation only by one hospital and one region.