Healthcare

• Wuxi plans to issue 178.4m shares at an indicative IPO price range of HK$19.9-20.6 per share and will raise net proceeds of US$479m at the midpoint of the IPO price.
• The company’s revenues have seen robust growth during the last 3-years driven by growth in ADC outsourcing market while margins have continued to decline.
• We have valued WuXi XDC Cayman (1877628D HK) using a DCF valuation which offers price per share of HK$23.44, 15.7% higher than the midpoint of the IPO price of HK$20.25.

• The baseless confidence of the 177 companies that finally moved to Standard Market that their market capitalization would increase in18 months was nothing more than a waste of time.
• It is fine for a company to aim to be listed on the highest prime market, but high shareholder returns and quality management must come first.
• If the listing criteria for prime market was JPY100 billion market capitalization, the gap with investors who initially expected prime market before the market restructuring would have been much smaller.

• Rubicon Organics is a leading producer of premium cannabis products in Canada.
• In a challenging market, the company is differentiated by offering top-shelf, organically grown flower in the higher-margin premium market.
• Interim CEO, CFO, and Director Margaret Brodie joined us on The Water Tower Hour to discuss how Rubicon is overcoming the common Canadian obstacles. 

• WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), has launched an HKEx IPO to raise up to US$470 million.
• We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
• Blue-Chip cornerstones will purchase US$300 million of the offer. Our base-case DCF valuation is HK$22.84 per share, 12.8% above the midpoint of the IPO price range.

• CMIC Holdings (2309 JP) decided to “change its business model” this past spring, transferring control of a consolidated JV and other subs to DNP. 
• The result changed the accounting, and the business model, capitalising future cashflow and net income in a “hidden” asset which may or may not be in the Financial Advisor’s valuation.
• My read is this is being done too cheaply, and the price should be 30-60% higher. But, it would be tough to block this.

• MariMed reports 3Q earnings on November 8 after the close.
• Q/Q, we are expecting 5.4% revenue growth and a slight contraction in AEBITDA.
• Maryland should be the most significant driver of the top-line improvement.

• WuXi XDC Cayman (1877628D HK) is looking to raise 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 this note, we will look at the deal dynamics and share our final thoughts on valuation.

• CMIC Holdings (2309 JP) has recommended an MBO tender offer of JPY2,650 per share, a 55.9% premium to the undisturbed price (7 November).
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 41.29% ownership ratio.
• Irrevocables to accept represent a 23.29% ownership ratio. While the offer is light vs. peer multiples, the minimum acceptance condition requires a 35.1% minority acceptance rate, which is doable.

• WuXi XDC set terms for an upcoming IPO: the fast-growing CRDMO offers 178.4M shares at the price range of HK$19.90-HK$20.60, implying a market cap of ~HK$23.9B (~$3B) at the midpoint. 
• Cornerstone investors agreed to subscribe and buy ~116M shares, assuming the IPO price of HK$20.25 at the midpoint. WuXi XDC shares will begin trading on Friday, November 17. 
• My PT of HK$25.57 implies a ~26% upside to the IPO price at the midpoint. WuXi XDC’s premium multiples reflect 100%+ top-line growth and the company’s leadership position. 

• Companies disclosing in English increased to 97.2% in 2023 prime market. However, only 15% of overseas investors responded “satisfied,” indicating a continuing mismatch between disclosure content and investor needs.
• TSE will prioritize the documents according to whether disclosure requires immediacy, and divide companies into mandatory companies and effort companies according to the size and foreign ownership of a company.
• However, disclosure in English of lower priority documents would be more difficult. Separating companies would allow the prime market to include companies that don’t need to interact with global investors.

• Although RemeGen’s 23Q1-Q3 sales was better-than-expected, the Company is difficult to achieve management’s performance guidance for 2023. Since RemeGen’s commercialization logic has “undeniable flaws”, net loss would be further widened.
• Cash balance of RemeGen was just RMB600 million by 23Q3, which is not enough to cover its high R&D/SG&A expenses. If RemeGen cannot secure sufficient financing timely, risks are significant.
• The current valuation and investors’ expectations for RemeGen largely rely on the potential license-out deal of RC18. However, we remain caution until RC18 has sufficient evidence to win head-to-head trial.

• Q1-2 FY3/2024 results were in line with upwardly-revised company guidance, with gross margins reaching 60.4% and a record-high quarterly level of 61.0% for Q2 FY3/2024.
• This was driven by overseas growth for Shofu’s competitive Chemical Products (CAD/CAM resin materials and restorative filling materials) and a forex tailwind, with overseas sales making up 57.6% of total sales.
• We have raised our earnings estimates for FY3/2024 and beyond to reflect Shofu continuing to gain market share overseas, and the resultant improvement in the sales mix

• Ono Pharmaceutical (4528 JP) reported double-digit growth in revenue, operating profit, and net profit in H1FY24. Opdivo recorded revenue of ¥75B (+7% YoY). Forxiga revenue jumped 36% YoY to ¥36B.
• Encouraged by strong performance of Forxiga and receipt of lump-sum income associated with the patent litigation settlement, Ono has raised FY24 guidance by mid-to-high single-digit percentage across all the parameters.
• The company aims to overcome Opdivo patent cliff and accelerate growth by launching multiple products in the U.S. and Europe with large addressable markets.

• WuXi XDC Cayman (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.
• We previously discussed the IPO in WuXi XDC IPO: The Bull Case and WuXi XDC IPO: The Bear Case.
• In this note, we present our forecasts and take the first look at WuXi XDC’s potential valuation range.

• WuXi XDC Cayman (1877628D HK) is looking to raise around US$500m in its upcoming 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 this note, we share our updated thoughts on valuation and look at bull/bear scenarios for WXDC’s earnings.

• Even after the “TSE’s request,” the average P/B of listed companies has not increased. In addition, ROE, which can be considered a driver for corporate value expansion, has remained flat.
• Japanese managers tend to be caught up in formalistic thinking about whether or not a company is listed, and whether or not it’s listed on the highest market or not.
• Instead of being caught up in formalistic thinking, I would like managers to seriously rethink the value of the company and what it means to be listed.

• WuXi XDC, a leading CRDMO focused on the global ADC and bioconjugate market, filed to go public in Hong Kong and plans to raise up to $500M.
• The company is expected to IPO in November or December at the latest. Morgan Stanley, Goldman Sachs, and J.P. Morgan are the lead underwriters. The offering may attract investor interest.
• WuXi Biologics will spin off its ADC business, and WuXi XDC will raise capital through IPO to finance the construction of new facilities in Singapore and expand capacity in China.

• HighTide Therapeutics, a China-based clinical-stage biotechnology company, plans to raise up to US$200m via a Hong Kong listing.
• In this note, we examine the company’s core products, namely HTD1801, for the indication of NASH and T2DM.
• We are not yet convinced of the product’s prospects. We also think the management and pre-IPO investors are of mediocre quality.

• In 23Q3, CanSino’s revenue returned to positive growth and net loss narrowed as MCV4 sales exceeded expectations. Such strong growth momentum is expected to continue in 2024.
• As negative impact of COVID-19 assets impairment on revenue/asset sides would basically come to an end this year,2024 performance would reflect growth on the basis of this year’s low base.
• The potential resurgence of pandemic/influenza virus and PCV13i NDA submission could be catalysts. Performance turning point could appear in 2025.The cooperation with Gates Foundation would open up the internationalization prospect.

Oryzon’s Q323 results recapped the clinical progression across its drug development pipeline. The company continues to develop therapies that address unmet needs related to the central nervous system (CNS) and oncology. As noted previously, an important development was the positive safety data for the PORTICO trial, assessing vafidemstat in patients with borderline personality disorder (BPD). Oryzon continues to enrol patients for its lead oncology trial (FRIDA), investigating iadademstat as a potential treatment for acute myeloid leukaemia (AML) and an update is expected in Q224. Based on current visibility, we have adjusted our FY23 operating loss estimates to €5.4m (vs €3.8m previously). Top-line data from PORTICO and FRIDA are expected to be the next key catalysts. Gross cash at the end of Q323 stood at US$8.8m (€8.4m), down from US$14.6m in H123, which we anticipate should fund the company’s operations into Q124. We value Oryzon at €900.3m or €15.4/share (up from €874.1m or €15.6/share).

• Underlying market is set to double – 7m people on maintenance dialysis by 2035, implying a CAGR of 6%
• Stock price decline is “irrational”. There will be no impact for 10-15 years!
• Lots of investor interest, with many IR roadshows in the coming weeks. IR believes the share price overhang will remain for longer.

• The recovery of concentrated TCM granules business makes us optimistic about China TCM’s 2023 full-year performance growth. The resurgence of pandemic and privatization rumor always attract the attention of investors.
• Pientzehuang’s 23Q3 performance was disappointing. Consumption downgrade makes the strategy of raising prices no longer effective. There is downward pressure on valuation as performance will not turn around soon.
• The investment logic of rigid demand is more convincing than consumption upgrading. So, China TCM is more likely to outperform Pientzehuang. Our view is long China TCM, and short Pientzehuang.

• This is the somewhat-brand-spanking-new Quiddity Mainland Connect NORTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and HK Connect SOUTHBOUND Monitor.
• The same five names continue at the top of the gross flows list – Kweichow Moutai, Contemporary Amperex, Wuliangye Yibin, Foxconn Industrial, and BYD. Nets are dropping.
• NORTHBOUND saw net inflow for the first time in three months. Small at RMB 557mm, but positive.

• I tally 40 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deal was discussed on Smartkarma this week: Zhaojin Mining Industry H (1818 HK)‘s tilt for Tietto Minerals Ltd (TIE AU); and Teraoka Seisakusho (4987 JP)‘s MBO.
• Key updates took place for: Symbio Holdings (SYM AU), Lansen Pharmaceutical Holdings Co, Ltd. (503 HK), Celltrion Healthcare (091990 KS), and EOFlow (294090 KS).

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• In the IPO space, EcoPro Materials (ECO123 KS), Cello World Limited (CW IN) and Honasa Consumer were bookbuilding in the past week. 
• Given the earnings seasons, there was only an entitlement offer by Treasury Wine Estates (TWE AU), and a cleanup for Ventia (VNT AU). 

• Astellas Pharma (4503 JP) reported just 0.6% YoY revenue growth to ¥767B in H1FY24, while operating profit plunged 57% YoY and net profit decreased 67% YoY.
• Generic competition in Lexiscan impacted topline. Increase in SG&A expenses related to new drug launch and higher amortization of intangible assets, pulled down the operating as well as net profit.
• Astellas has downwardly revised FY24 forecasts for profit items by more than 50% after taking into consideration the increases in higher expenses.

• The average P/B has remained flat since March end, when TSE requested improvements for companies with P/Bs below 1x, and TOPIX has risen in line with the rise in BPS.
• Given the lack of progress in improving ROE, companies have many issues to resolve in improving returns through the appropriate allocation of cash and capital.
• Since it’s no longer possible to show early results simply by leaving it to managers, the use of TOB/MBO will be a shortcut to raising shareholder returns and corporate value.

• The $26.00/share cash offer of Thermo Fisher Scientific (TMO UN) for Swedish Olink Holding (OLK US) started on 31 October. The 74% premium reflects that high-growth, positive adjusted EBITDA targets are rare.
• The offer values Olink at ~12.2x EV/NTM Fwd revenue vs. 6.4x median of peers. Irrevocables total 66%, but the minimum acceptance condition requires acceptances from a high 70.6% of float. 
• Barring any unforeseen circumstances, such as regulatory action, I anticipate the deal closing and set my TP at $26/share. Gross spread is 4.81%.

• During 9M2023, Otsuka Holdings (4578 JP) reported revenue growth of 17% YoY to ¥1,479B, driven by 21% YoY revenue growth in pharmaceutical segment due to 16% growth in global products.
• Despite the recording of impairment losses, operating profit increased 77% YoY to ¥203B, leading to a 460 bps expansion of margin to 13.7%. Net profit zoomed 46% YoY to ¥162B.
• The company has raised 2023 revenue guidance, second time this year. Otsuka now expects 2023 revenue to grow 14% YoY to ¥1,985B, 4% ahead of prior guidance of ¥1,905B.

• ASRT has not had any news to rekindle investor interest since reporting second quarter results. ASRT is scheduled to report third quarter results on November 8, 2023
• Ahead of the news, we are readjusting our expectations for Indocin. We are minimizing the revenue potential from Indocin in our earnings model.
• Going forward, Rolvedon becomes the primary revenue generator. ASRT should generate positive net income with Rolvedon sales ramping

• Back on the 17 August, biopharmaceuticals developer and producer Celltrion Inc (068270 KS) announced a merger with Celltrion Healthcare (091990 KS).
• On October 23rd, shareholders approved the merger. The appraisal rights exercise period commenced on the 23 October and ends on November 13. 28th December is the merger’s effective date.
• Initially, the stock purchase rights limit was set at 1₩tn; however Celltrion Group’s founder/Chairman Seo Jung-jin has removed this limit. That takes care of NPS, which opposes the merger.

• It should be noted that some companies that state that they do not possess takeover defenses also indicate that they will take “appropriate measures.”
• Addition of ROE and % of independent directors to the approval/disapproval of takeover defense agenda is likely an afterthought to add these conditions to favor the introduction of takeover defense.
• It’ll take several years before life insurance companies show signs of change in voting. It’ll be interesting to see how they come to terms with their corporate clients and stewardship.

• In Q2FY24, Cipla Ltd (CIPLA IN) clocked record-high quarterly revenue at INR66.8B (+15% YoY), and EBITDA margin of 26%, driven by double-digit growth across India, North America, and South Africa.
• U.S. business reported highest ever revenue of $229M. India revenue is up 10% YoY, driven by continued market beating performance in branded prescription and trade generics businesses.
• Cipla raised FY24 EBITDA margin guidance from 23% to 23% to 24% with bias towards the higher end. The company started FY24 with an EBITDA margin guidance of 21–22%.

Paradigm announced Q1 results (for the quarter ending 30 September) and a A$30m capital raise to potentially extend its cash runway through to mid CY25. Management attributed increased spending in the quarter to increased clinical and recruiting activity, which translated into a higher net cash outflow from operating activities of A$22.5m (vs A$17.1m in Q423). With the PARA_OA_008 programme now concluded, as well as the upcoming completion of the mucopolysaccharidosis (MPS) VI Phase II trial and anticipated lower costs for PARA_OA_002, management expects R&D spend to decline in Q224, from A$21.9 in Q124 (vs A$16.1m in Q423). At the quarter end, the company had a cash balance of A$33.6m.

• The Appraisal rights exercise period ends on 13 November. If the NPS and other large shareholders exercise their rights in Celltrion Inc (068270 KS), the merger could be in trouble.
• Both stocks are trading close to their exercise price and could be supported due to the companies buying back their shares.
• There will be passive flows from local and global trackers and there does not appear to be pre-positioning. That is likely due to the risk of potential merger cancellation.

• WuXi XDC Cayman Inc (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.
• In WuXi XDC IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on margins on a downward trend, large customer concentration, high related party transactions and volatile FCF generation.

• Daiichi Sankyo (4568 JP) reported strong H1FY24 results, with double-digit growth in revenue, core operating profit, and net profit, mainly driven by its global mainstay product Enhertu.
• Daiichi Sankyo and Merck entered into a global development and commercialization agreement for three of Daiichi Sankyo’s drug candidates, for a total potential consideration of up to $22 billion.
• Daiichi Sankyo has raised FY24 revenue, core operating profit, and net profit forecast by 7%, 11%, and 17%, respectively. FY24 revenue is expected to grow 21% YoY to ¥1,550 billion.

• 23Q3 results has sounded an alarm for investors. Obviously, the deterioration of financing situations both domestically and internationally has forced WuXi AppTec to readjust projected revenue growth.
• Almost all of the important logic at the moment is negative for CXOs.Revenue growth in TIDES business alone is hard to offset the decline in WuXi AppTec’s other businesses/industry trend.
• After a pullback, investors can bet on the next rebound, but we still recommend taking profits in time, because without persuasive fundamentals, rebound driven by sentiment is difficult to sustain.

Basilea has announced an exclusive evaluation licence and option agreement with South Korea-based iNtRON Biotechnology (KOSDAQ: 048530) for tonabacase, a potential first-class antibacterial of endolysin class. The product candidate could potentially fit well into Basilea’s portfolio of anti-fungal and anti-bacterial products, Cresemba and Zevtera. This announcement follows the recent in-licensing of GR-2397 (an antifungal compound, renamed BAL2062) and aligns with management’s strategic focus to seek anti-fungal and anti-infective synergistic additions to its portfolio. As part of the agreement, Basilea will evaluate tonabacase in a range of preclinical studies which, if favourable, could lead to a licensing agreement for further clinical development, at Basilea’s exclusive discretion and at pre-agreed financial terms. Basilea is making an undisclosed upfront payment to iNtRON and will make an additional payment if it decides to exercise its exclusive option to execute the licence agreement. While the terms of the deal are undisclosed, management maintains that the transaction has no impact on its FY23 financial guidance.

• WuXi XDC Cayman Inc (1877628D HK), a leading contract research, development and manufacturing organization (CRDMO), is pre-marketing an HKEx IPO to raise US$500 million, according to press reports.   
• WuXi XDC ranked No. 2 globally and No. 1 in China among CRDMO for antibody-drug conjugates and other bioconjugates in terms of revenue in 2022, according to Frost & Sullivan.
• The bull case rests on large addressable markets, market share gains, fast-paced revenue growth, strong revenue visibility, a solid balance sheet and ambitious capacity expansion plans.

• WuXi XDC Cayman Inc (1877628D HK) is looking to raise around US$500m in its upcoming 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, peer comparison, and shared our thoughts on valuations. In this note, we discuss WXDC’s PHIP updates.

• Alfresa Holdings (2784 JP)‘s H1FY24 revenue, operating profit, and net profit are expected to exceed the previous expectations due to greater-than-expected growth in the ethical pharmaceuticals business.  
• Encouraged by the growth in the pharmaceutical market and better-than-expected H1FY24 performance, the company has raised FY24 revenue, operating profit, and net profit guidance by 4%, 30%, and 36%, respectively.
• New FY24 guidance implies, H2FY24 revenue run-rate will be similar to H1F24, while H2FY24 operating profit will accelerate to ¥20.1 billion from ¥15.9 billion in H1FY24.

• We’ve seen increasing global cooperation for ADC pipelines. However, licensing deals alone cannot be used as the only basis for judgment. We still need to wait for solid clinical evidence.
• ADCs are far less “general and popularized” than PD-1. If compare ADC with GLP-1s, the difference is more obvious.How big the real market is for ADC is a question mark.
• WuXi XDC’s share price could perform well after IPO due to positive sentiments towards ADC, but whether its long-term valuation would be higher than peers remains to be seen.  

• 439 companies that will be excluded from TOPIX aren’t expected to face further selling pressure, but 43 companies that remain in TOPIX may have a positive impact in the future.
• Only 43 companies (8.9%) succeeded in exceeding 10 billion yen in tradable market capitalization; compared to 22.3% rise in TOPIX, the stock performance of the TOPIX exclusion candidates were lackluster.
• These companies with small market capitalizations represent a challenge that has made it difficult for them to attract investor attention and to come up with convincing disclosures.

• Intuitive Surgical, Inc. delivered mixed results for the previous quarter, with revenues below the analyst consensus.
• Procedure growth for da Vinci saw a remarkable 19% increase during the quarter.
• System utilization growth remained strong at 6%, down from 9% in the previous quarter but still exceeding historical growth rates.

• This is our first report on medtech giant, Medtronic plc.
• In the Cranial & Spinal Technologies division, Medtronic achieved impressive global growth, with an even more impressive 8% growth in the US.
• In the Surgical Innovations segment, a 7% growth was realized, facilitated by supply improvements and strong performance in Advanced Surgical Technologies.

• Novartis AG delivered a mixed set of results in the quarter, with revenues falling short of Wall Street expectations but above-par earnings.
• The last quarter for Novartis AG was marked by significant achievements, including strong sales growth and margin expansion, leading to a guidance raise for the third time in the year.
• Kesimpta also showed impressive results and other products like Pluvicto and Lutathera demonstrated their potential in earlier disease settings.

• This is our first report on Avantor, Inc, a well-known provider of mission-critical products to the healthcare industry as well as other domains.
• The company delivered a disappointing set of results as the company was unable to meet the revenue and earnings expectations of Wall Street.
• Market trends weakened sequentially, particularly in biopharma, where larger pharmaceutical customers moderated their spending, and small biotech companies faced ongoing funding constraints.

• This is our first report on health-tech player, Align Technology Inc. exceeded analyst expectations in terms of revenue as well as earnings.
• Notably, 195,000 teens and kids commenced Invisalign clear aligner treatment in Q2, marking a 7% sequential increase and a significant 10% year-over-year growth.
• Total Clear Aligner revenues for Q2 amounted to $832.7 million, reflecting a 5.4% sequential and 4.3% year-over-year increase.