Healthcare

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – Eoflow (294090 KS), 111 Inc (YI US), Irc Ltd (1029 HK), Hollysys Automation Technologies (HOLI US), Origin Energy (ORG AU), JSR Corp (4185 JP), Healius (HLS AU). 
• Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Tietto Minerals Ltd (TIE AU), T&K Toka Co Ltd (4636 JP), IJTT Co., Ltd. (7315 JP). 

• WuXi XDC’s shares surged since IPO. Obviously, ADC industry is in a “honeymoon period”. The market is optimistic about ADC due to high certainty and growth visibility in short term.
• Pharmaceutical companies believe this platform would produce blockbuster products continuously. However, if there’s any “persuasive event” to change optimistic expectations on ADC, it’s time for investors to reconsider WuXi XDC.
• “Positive sentiment + non-falsifiable short-term logic” would indeed push WuXi XDC’s shares to a new high. As long as sales of major ADCs are in line with expectations, party continues.

• TSE suggests presenting management strategies without sticking to the medium-term management plan, but the “medium-term management plan briefing” is the only opportunity to hear management policies from the company.
• The primary reason why companies whose stock prices outperform even though they don’t publish medium-term management plan are founding-family companies is that their interests align with those of their shareholders.
• To align management with shareholders, it was also necessary to require CEOs with low stock ownership to increase the ratio of variable compensation and adopt stock grants in director compensation.

• Li Auto (2015 HK) and WuXi AppTec (2359 HK) will be added to the Hang Seng at the close on 1 December taking the number of index constituents to 82.
• Neither inclusion is a surprise. The non-inclusion of primary listed foreign companies is a bigger surprise – that could take place at the next rebalance.
• Estimated one-way turnover is 3.53%, estimated one-way trade is HK$6.88bn (US$882m). Capping leads to buying in Alibaba (9988 HK) and selling in Tencent (700 HK) and HSBC (5 HK). 

• Bangkok Dusit Medical Services (BDMS TB) reported Q3 revenue of RHB26.7 billion, up 11% YoY, driven by international and Thai patients revenue growth of 19% and 9%, YoY, respectively.
• International patient revenues increased from a recovery of fly-in patients from Qatar (+81% YoY), China (+42% YoY), and Cambodia (+11% YoY). Moreover, Thai patient revenue was aided by seasonal epidemics.
• BDMS has revised 2023 hospital revenue growth guidance upward to 9–10% YoY from 6–8% previously. However, EBITDA margin guidance was kept unchanged at ~24%.

• The 2023 NRDL negotiation has officially begun since Friday. Pharmaceutical enterprises predict the price reduction would be more reasonable. But some company representatives were dissatisfactory with first-day negotiation results. 
• Although there’re many optimistic judgments about the improved financing environment in both China and overseas markets, this may not be the case. Based on the data, we remain cautious instead.
• As the disposable glove market gradually shows a warming trend, we are optimistic that Intco Medical would achieve a performance reversal in the future. The current valuation has bottomed out.

• In 1H23, Hygeia Healthcare Group (6078 HK) reported revenue growth of 15% YoY to RMB1,760 million, mainly driven by a 16% YoY growth in hospital business.
• Hygeia’s gross profit margin contracted 20bps YoY to 32.4%. Riding on 5.6x increase in government grant, operating profit jumped 33% YoY to RMB420M, leading to 320bps margin expansion to 23.9%.
• In July, Hygeia acquired Chang’an Hospital for RMB1,660 million. The acquisition will provide Hygeia with greater room to expand its business in the northwest region of the PRC.  

Throughout Q323, Immix shared encouraging updates for the clinical development of lead CAR-T asset NXC-201, including the announcement of orphan drug designation (ODD) in both multiple myeloma (MM) and amyloid light chain amyloidosis (ALA). In October 2023, the company shared positive efficacy and safety updates and we believe the data so far could support NXC-201 as the first outpatient CAR-T therapy, subject to regulatory approval, addressing the myriad of challenges associated with current CAR-Ts. In the quarter, Immix also shared positive interim data for its lead TSTx asset, IMX-110, and we anticipate further updates across Q423 to FY24. Net cash at the end of the period stood at $19.6m, which we estimate should provide an operating cash runway into Q424. As we adjust for our expense estimates based on year-to-date results, update net cash and roll our model forward, our valuation for Immix adjusts to $86.6m or $4.0 per share (from $90.7m or $4.2/share previously).

• Since Corporate Governance Code limits disclosures on climate change to prime market companies, it’ll encourage the transition from Prime to Standard market and discourage the transition from Sandard to Prime.
• While it’ll be interesting to see how many years “Scope 3” disclosures will be mandatory, more attention will be paid to how companies uses the cash from reducing policy shareholdings.
• Although the situation is different than it was in 2000 because few companies are underfunded, attention should be paid to whether retirement benefit trusts will become a refuge for policy-shareholdings.

• Five weeks after shares were suspended, EOFlow (294090 KS) shares resumed trading this morning, the 16 November. Wording is sparse on the resumption.
• One small consolation was that EOFlow may benefit from the temporary ban on short selling. Irrespective, shares have declined ~27% at the open, as I type.  
• Elsewhere, Medtronic Plc (MDT US) provides no guidance. The only other news of note are the various court filings in the District Court of Massachusetts.

• It can be considered that the suspension of EOFlow’s trading and, furthermore, the risk of delisting have been completely eliminated at this point.
• EOFlow emphasizes the possibility of circumventing sales of EOPatch by supplying EOPump to a JV in China. The key factors that initially sparked Medtronic’s interest in EOFlow are still valid.
• If CEO Kim fails to repay a stock collateral loan of ₩20B or secure additional loans, approximately 4% of the total issued shares could be sold in the market.

• WuXi XDC Cayman (1877628D HK) priced its IPO at HK$20.60 per share to raise the gross proceeds of US$470 million. The shares will start trading tomorrow.
• We previously discussed the IPO in WuXi XDC IPO: The Bull Case, WuXi XDC IPO: The Bear Case and WuXi XDC IPO: Valuation Insights.
• The market sentiment on the sector has modestly weakened. However, the IPO price is attractive, with our DCF valuation of HK$22.89 per share, 11.1% above the IPO price.

• In Q2FY24, Max Healthcare Institute (MAXHEALT IN) reported revenue growth of 17% YoY and 6% QoQ to INR18.3B, driven by higher ARPOB and occupied bed days.
• EBITDA grew 21% YoY and 14% QoQ to INR4.5B, leading to a 100 basis point YoY and 190 basis point QoQ margin expansion to 28.7%.
• MHIL expect greenfield 300 bed hospital in Dwarka, South-west Delhi will be commissioned in later half of Q4FY24. It was originally expected to be commissioned in Q2FY24.

• In H1FY24, Takara Bio Inc (4974 JP) reported 41% YoY decline in revenue to ¥19.1B, dragged by 46% YoY decrease in revenue from reagents, which contributed 78% of total revenue.
• Operating profit plunged 87% YoY to ¥1.4B, 28% ahead of guidance, due to lower-than-expected R&D expenses. Net profit decreased 87% YoY to ¥1.1B, 67% higher than the guidance.
• Takara Bio has cut FY24 sales, operating profit, and net profit guidance by 15%, 63%, and 64%, respectively, as the company is anticipating a sluggish life science R&D market globally.

• BayMedica registers strong Y/Y growth. Although BayMedica reported a 61% decline in sequential revenue in the opening quarter of its new fiscal year ending June 30, 2024, the $902K in sales reported for 1QFY24 was nevertheless almost triple the $321K generated in the year-ago quarter.
• The immaturity of rare cannabinoids ingredients market for health & wellness products makes it difficult to determine definitively any seasonality in the business.
• However, it should not go unnoticed that the sequential sales drop in the latest summer quarter does repeat the pattern reported in 1QFY23 when sequential sales at BayMedica declined by almost 40%. 

• The KRX has completed its review and excluded Eoflow (294090 KS) from the substantive review for listing eligibility. Therefore, trading will resume tomorrow, 16 November.
• The shares should rise on trading resumption as Medtronic’s tender remains in play, KRX’s review supported Eoflow’s business continuity and the short-selling ban-driven market rally.
• Deal break risks remain significant. Medtronic Plc (MDT US)’s long-dated closing date and lack of Eoflow integration job postings suggest it remains concerned about near-term unfavourable court rulings. 

• On 15 November, the Korea Exchange announced that Eoflow (294090 KS) will start trading again on 16 November.
• The fact that KRX has allowed Eoflow to trade again will be viewed positively by many investors. Plus, the recent temporary ban on short selling should also positively impact Eoflow.
• We believe a higher probability event is for Medtronic to complete a tender offer of Eoflow sometime in 2Q 2024 at about 26,000 won. 

• Shareholders of Cambridge (UK)-based  Abcam (ABCM US) followed Glass Lewis and ISS recommendations and approved (>84%) the scheme resolutions at both the Court Meeting and the GM.
• The $24/share cash offer represents 10x EV/Fwd Revenue, 25x EV/Fwd NTM EBITDA. Danaher Corp (DHR US) and Abcam have guided that the transaction is expected to close by mid-2024.
• Spread is 3.21%/6.21% (gross/annualised, assuming settlement by 30 May). From the current levels, I see a balanced risk/reward.

• WuXi XDC Cayman (1877628D HK) raised US$470m in its Hong Kong IPO.
• WuXi XDC Cayman (WXDC) is a CRDMO focused on the global antibody drug conjugates (ADC) and broader bioconjugate market providing integrated and end-to-end services.
• In our previous notes, we looked at the company’s past performance and valuations. In this note, we talk about the trading dynamics.

• In H1FY24, Terumo Corp (4543 JP)‘s revenue increased 10% YoY to ¥443.9B, mainly driven by a 13% YoY growth in C&V business, due to strong global demand of catheter products.  
• Revenue from TIS (catheter) segment reported 12% YoY growth to¥176.5B, driven by a 12% YoY growth in overseas business, with EU and China being the main drivers.
• Terumo has reiterated FY24 guidance, which implies significant improvement in operating profit in H2FY24 due to the realization of the full effect of global price revision and cost cutting initiatives.

• The clinical need for NGS hasn’t developed as rigid demand due to high cost, difficult operation, high requirements on hospitals/personnel, etc. It takes time for NGS to improve market penetration.
• Genecast’s LDT business could face compliance issue.Its in-hospital business has lower gross margin.Increasing R&D expenditure is inevitable since products need to get approval by regulatory authorities, putting pressure on profitability. 
• Burning Rock is in a leading position in NGS field, but its market value is quite low. We advise investors to be prepared for valuations to fall short of expectations.

• Tobin’s Q is not high for companies whose policy holdings are low relative to their net assets or total assets. When discussing policy shareholdings, deemed shareholdings should be included.
• Companies with a low ratio of total policy holdings plus deemed holdings to total assets have notably higher ROE, ROA, and Tobin’s Q. Vice versa.
• These companies generate returns exceeding their cost of capital and are managed with asset and capital efficiency in mind, which shows in their approach to policy shareholdings as governance practices.

• This article discusses the potential inclusions and exclusions of KOSDAQ150 rebalance in December 2023 (especially those that are highlighted by the locals).
• The potential inclusion candidates include Lunit, Shinsung Delta Tech, and JNTC. The eight potential inclusion candidates are up on average 122% YTD, sharply outperforming KOSDAQ in the same period. 
• Stocks that are expected to be excluded in the KOSDAQ150 index include Aju IB Investment, HFR, Danal, and Sangsangin.

• Back in late 2020, Livzon Pharmaceutical Group (1513 HK) proposed spinning off 39.4%-held Livzon Diagnostics on Chinext. After numerous filings with the regulators … crickets.  
• Livzon has now proposed listing Livzon Diagnostics on the National Equities Exchange and Quotations with an intention of transitioning listed shares to the Beijing Stock Exchange (BSE).
• The CSRC recently introduced a raft of initiatives to spur investor interest in the BSE. After all-but-abandoning the prior listing, Livzon looks to be cashing in on this recent excitement. 

• Abrocitinib/Upadacitinib/Dupilumab will all exert great pressure on the future commercialization space of CM310 in China. If Keymed doesn’t run head-to-head trials with dupilumab, CM310’s internationalization outlook would be gloomy.
• Compared with IL-4 that has been almost occupied by dupilumab, Keymed has more opportunity on TSLP. Even with Keymed-AstraZeneca deal, our valuation of CMG901 is cautious based on our analysis. 
• The current valuation of Keymed is not cheap. The next big catalyst to share price is a new license-out deal with MNC on CM310/CM326, marking the beginning of qualitative changes. 

• Aspira Women’s Health reported 3Q23 financial results, mostly in line with our estimates.
• Revenue of $2.2 million was below our estimate, but good expense control is in place and is expected to continue.
• Our estimates for 2023 and 2024 remain in line with our prior estimates.

Basilea has bolstered its drug pipeline with the in-licensing of fosmanogepix, a broad-spectrum antifungal candidate, from Amplyx Pharmaceuticals (a Pfizer affiliate). Fosmanogepix is a clinical-stage, potentially first-in-class broad-spectrum antifungal treatment and Basilea plans to initiate Phase III trials in mid-2024. Deal consideration includes $37m in upfront payments and milestones of up to $496m ($110m to Pfizer, and $396m from previous agreements), of which the majority relates to regulatory and commercial milestone events, and tiered single-digit royalties. We view this as a favourable transaction for Basilea and note that it is in line with the company’s previously disclosed plans to expand its late-stage product pipeline. In our view, fosmanogepix represents a promising near-term commercial opportunity as the legacy portfolio matures, provided that the data continue to be supportive. As part of this new update, management has also provided revised full-year 2023 financial guidance. We will update our model and valuation to reflect this deal. Our 2023 and 2024 estimates are under review.

e-therapeutics reported H1 FY24 results (to end-July 2023), reaffirming its commitment to integrating its computational and hepatocyte biology expertise to develop short interfering RNA (siRNA) therapies. The key half-year development was the proof-of-concept (PoC) data for two preclinical assets for the treatment of cardiometabolic disease and haemophilia, with further updates forthcoming. We view these pipeline updates, especially in segments with increased interest, as positive. Management continues to strengthen its intellectual property (IP) position and has filed new patent applications to protect 11 inventions relating to its novel targets and siRNA constructs. In our view, the company’s cost-effective and flexible approach is a key differentiator, especially in light of the challenging funding environment for drug discovery. In H1 FY24, R&D spend was £5.3m, and the company expects an increase in H2 FY24 with further development of its AI capabilities and progression of its in-house preclinical pipeline. At end-July 2023, e therapeutics had a net cash position of £24.8m.

• In 1H23, biologics division of Lonza Group (LONN SW) reported revenue decline of 1% YoY to CHF1.6B, due to low mRNA sales dragged by lower demand for the COVID-19 vaccines.
• Reflecting slower-than-expected growth in early-stage services and continued weak demand for nutraceutical capsules, Lonza has reduced 2023 sales growth expectation and cut core EBITDA margin guidance to 28–29%.   
• Growth in 2024 will be impacted by high base, the subsequent mRNA revenue loss, and trial setback faced by small biotech client. Lonza anticipates 2024 margin in the high twenties.

• 30% female board member set by TSE isn’t surprising, as it’s level within reach, but the fact that TSE set explicit target that companies can’t excuses is a first step.
• To ensure that a female board member isn’t isolated from other board members, multiple female board members should be elected. In this sense, 30% female board members goal makes sense.
• In fact, the most interesting question is how many more companies will approach 50% after achieving a 30% of female board members.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – EcoPro Materials (ECO123 KS), WuXi XDC Cayman (1877628D HK), Midea Group Co Ltd A (000333 CH) and Cainiao Smart Logistics Network (1437124D HK) IPOs
• Event-Driven developments – Eoflow (294090 KS), Benesse Holdings (9783 JP), Shidax Corp (4837 JP), Ps Mitsubishi Construction (1871 JP), Hollysys Automation Technologies (HOLI US), Irc Ltd (1029 HK).        

• BeiGene performed well in 23Q3. Product sales maintained strong growth momentum. Together with effective cost control measures, net loss significantly narrowed (close to breakeven), which exceeds expectation.
• BeiGene plans to rely primarily on BRUKINSA/tislelizumab to achieve breakeven, which means BRUKINSA needs to contribute about US$2 billion revenue. Given prescriptions volume, however, Astrazeneca’s Calquence is the biggest holdup.
• Whether BeiGene’s overall revenue can reach US$4 billion is the key point of marginal change in logic. How to further reduce SG&A/R&D expenses has become important topic at this stage.

• In 3Q23, SK Biopharmaceuticals (326030 KS) reported Xcopri U.S. revenue of KRW75.7 billion, up 60% YoY and 19% QoQ, driven by accelerating new patients being treated with the drug.
• In 3Q23, operating loss narrowed sequentially to KRW10.7 billion. However, operating loss widened compared to year-ago period, mainly due to higher operating costs of the company’s U.S. subsidiary.
• The company is on track to report a profitable Q4. With continued momentum, Xcopri is expected to hit blockbuster status by generating revenue of $1B in the U.S. in 2029.

• In 3Q23, Celltrion Inc (068270 KS) reported revenue and operating profit of KRW672B (+4% YoY) and KRW268B (+25% YoY), respectively, driven by broad-based growth across biosimilar portfolio and CMO revenue.
• Operating profit margin is approaching 40% level, highest level in last two years, driven primarily by sales growth around high margin products. Net profit jumped 33% YoY to KRW221B.
• In Oct’23, Celltrion received FDA approval for Zympentra, which is Celltrion’s first product approved as a new drug in the U.S., and is expected to receive patent protection until 2040.

• Results of 9th national VBP was released. The average price reduction was 58% and the maximum price reduction was over 90%. Hengrui (600276 CH)‘s challenge in VBP has just begun.
• The whole CXO sector is more like a cyclical industry than a high-barrier industry. There’re still some pressures/risks have not been fully released. Its future may be darker than before.
• Asymchem’s stock price performance follows the entire CXO sector. Whether Asymchem can obtain large Tirzepatide orders and provide investors with high certainty of outlook is the key for valuation reversal.

• I tally 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deals were discussed on Smartkarma this week: Shidax (4837 JP)‘s and CMIC (2309 JP)‘s low-balled Offers; Benesse (9783 JP)‘s MBO/EQT Offer; and IRC (1029 HK)‘s MBO MGO.
• Key updates took place for: Allkem Ltd (AKE AU), Orecorp Ltd (ORR AU), Southern Cross Media (SXL AU), EOFlow (294090 KS), and Hollysys Automation Technologies (HOLI US) 

• TSE plans to publish a list of companies that disclosed and those that are “under consideration” for disclosure in “Management Conscious of Cost of Capital and Stock Price.” 
• TSE’s plan to introduce actual investor feedback on how investors view dialogue and engagement and what kind of information disclosure and IR they expect from companies is commendable.
• It is very important to know what investors actually want to know, what management is doing to achieve this, and how they should interact with investors in IR activities.

SIGA recapped several key developments in its Q3 update, signalling strong top-line momentum going into Q423. Most notably, the recent $18m procurement deal with the European Health Emergency Preparedness and Response Authority (HERA) has surprised to the upside, with more value to be unlocked, in our opinion. With upcoming BARDA (oral and IV TPOXX), Department of Defense (DoD) and HERA deliveries, Q423 will likely be a busy quarter for SIGA. We have increased our FY23 product revenue estimates to c $164m ($155m previously) to reflect the HERA orders, although this has been offset by lower R&D revenue estimates ($8.9m vs $20.5m previously) following the receipt of the final payment under the PEP research contract with the DoD (in Q323). Management continues to target the PEP regulatory submission in 2024 (despite undertaking a trial data reanalysis) and we view this as a next significant milestone for SIGA. Incorporating the results and latest net cash figure, our valuation adjusts to $17.24/share ($17.46/share previously).

• Yesterday, Olympus Corp (7733 JP) announced Q2 earnings which were  trifle light, and announced a sharp downward revision to full-year OP despite higher revs on weaker yen.
• OP takes a hit because of expenses related to the shutdown of Veran Medical device sales (announced 6 Sep, “causing” a 2.4% share price fall the next day).
• They also announced an ¥80bn buyback. That should be worth 3.0-3.5% of shares out, but overhang exists. The label is the label. The details are inside. They matter.

• MariMed report 3Q revenue of $38.8 million, which was slightly ahead of our estimate of $38.5 million.
• This represents a 6.3% increase Q/Q and a 14.4% improvement Y/Y.
• The revenue increase was driven primarily by Maryland. MariMed has a dispensary in Annapolis that converted to adult-use on July 1 and sales grew 88% Q/Q.