Healthcare

• Although it’s important that the quality of companies be maintained and improved through metabolism, the number of listed companies has consistently increased due to the many IPOs and few delistings.
• Many founders used IPOs as a tax-saving measure, and many managers were not thoughtful enough to increase shareholder profits, which is why there were many IPOs and few delistings.
• Delisting through MBO or TOB for parent and subsidiary listed subsidiaries is much more effective than “TSE request” in reducing the number of companies with P/B below 1x.

• Global generics revenue increased 9% YoY to INR61 billion, mainly driven by double-digit growth in North America and Europe generic businesses, partly offset by muted growth in domestic market.
• Revenue from North America generics increased 13% y/y to INR31.7 billion, driven by growing momentum in core portfolio, Mayne integration, and favorable Fx. Pricing environment remains stable.
• Despite increase in SG&A and R&D expenses, EBITDA grew 13% YoY to INR 21.8 billion. Net profit increased 33% YoY to INR14.8 billion. Both EBITDA and net profit topped estimates.

• A group of shareholders raised around US$530m in Mankind Pharma(MP) IPO in May 2023. The pre-IPO shareholders will be released from their lockup soon.
• 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.
• In this note, we will talk about the lock-up dynamics and recent updates.

• Mindray’s Q3 revenue growth slowed significantly, dragging down the overall revenue growth. This was related to China’s anti-corruption campaign, the impact of which is expected to linger for some time.
• Our 2023 forecast is revenue up 15-18% YoY. Anti-corruption campaign would lead to declining demand and growth ceiling of domestic medical equipment market, thus negatively affecting Mindray’s future performance growth.
• Investors may need to prepare in advance for Mindray’s future revenue growth to fall to 15%.Based on this, PE TTM of around 30 is reasonable valuation for Mindray, not undervalued.

• Qyuns Therapeutics, a China-based clinical-stage biotechnology company, plans to raise up to US$ 100m via a Hong Kong listing.
• In this note, we examine the company’s core products, namely QX002N, an IL-17A antibody, and QX005N, an IL-4Rα antibody. We also look at the company’s management and pre-IPO investors.
• We are of mixed views for its two core products. We also think the management and pre-IPO investors are of mediocre quality.

• 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), Cainiao Smart Logistics (1437124D HK), VNG (VinaGame) (VNG US) IPOs
• Event-Driven developments – Eoflow (294090 KS), Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Symbio Holdings (SYM AU), Haitong International Securities Group (665 HK), Hollysys Automation Technologies (HOLI US). 

• M3 Inc (2413 JP) reported 2QFY03/2023 results on Friday. Revenues increased 3.0YoY while OP decreased 7.1% YoY, both revenues and OP fell below consensus estimates by 0.2% and 4.7% respectively.
• Medical Platform’s earnings continue to deteriorate while we are yet to see a meaningful improvement in overseas segment’s earnings to drive the next phase of growth for m3.
• Given continued decrease in profits, we think the company will struggle to meet its full-year guidance suggesting there is further downside to m3’s share price.  

• Aier’s 23Q3 profit growth exceeded expectations. Considering the low base in 22Q4, Aier’s 23Q4 performance could show an obvious rebound. Then, the 2023 full-year results would be more certain.
• Aier has a considerable amount of “off-balance-sheet profits” that can be incorporated into statements in the future. So, although Aier’s growth rate has decreased, it wouldn’t collapse in short term.
• More hidden problems would be exposed in the process of transferring off-balance sheet profits to the on-balance sheet. All the repurchased shares should be cancelled to reduce Aier’s registered capital.

• FMC has put in place a new strategic plan designed to improve operational performance, thereby unlocking value to achieve an operating profit margin of 10-14% by 2025
• FMC has recently faced a potential threat to its dominant market position in renal care: Novo Nordisk. What’s Novo’s next move?
• As the Company’s overall financial and operational performance improve, combined with the market’s realization that FMC is not going anywhere, we conclude that the stock should re-rate

• Siloam International Hospitals booked strong set of 3Q2023 with continuing evidence of the recovery in its core base-case business together with the effectiveness of its cost and efficiency initiatives. 
• The company saw a strong recovery across outpatient visits and inpatient admissions, with evidence of greater treatment complexity along with higher intensity with less time spent in hospital. 
• Siloam International Hospitals continues to focus on digitising its processes to improve both patient experience and its internal processes. Valuations remain attractive versus listed peers.

• 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: Sociedad Quimica y Minera (SQM/B CI) tilt for Azure Minerals (AZS AU); and another MBO for Hollysys Automation Technologies (HOLI US).
• Key updates took place for: Energy One Ltd (EOL AU), EOFflow (294090 KS) , and Celltrion Healthcare (091990 KS) 

• The results of the first VBP of TCM formula granules in China were announced. 200 varieties of TCM formula granules have been included, with an average price reduction of 50.77%.
• According to the recently released Statistical Bulletin on the Development of Health Care in 2022, we have listed some key points worth investors’ attention.
• Livzon’s 23Q3 performance was below expectations, which was more related to external factors such as anti-corruption campaign, VBP. However, Chairman’s share buyback proposal indicates possibility of a future reversal.

• On the 17 September, specialty prescription drug manufacturer Lansen Pharmaceutical Holdings Co, Ltd. (503 HK), a perennial takeover target, finally announced an Offer.
• Wu Zhen Tao, NED and Chairman of Lansen, made an Offer for shares not indirectly held, of HK$1.80/share, by way of a Scheme, a 26.76% premium to last close.
• Composite Doc is now out. Court Meeting is the 27th November. Expected last day of trading is the 28 Nov. 28 December payment. IFA says fair and reasonable. Looks done.

• In 3Q23, revenue jumped 2.5x YoY and 12.1x QoQ to KRW231.8 billion, mainly due to the inflow related to Novavax vaccine contract settlement and resumption of flu vaccine production.
• Despite significantly improved Q3 result, SK Bioscience is expected to end 2023 on a weak note, due to the absence of contract manufacturing revenue from Novavax.
• SK Bioscience has applied for EUA for the updated Novavax COVID-19 vaccine in Korea. Once approved, the company targets to distribute the vaccine during 2023–2024 winter seasons in Korea.

• While necessary talent should be sought from both outside and inside the company, it is not good for the company’s future if the most of internal executive directors are male.
• The appointment of women and foreign board members is an effective way to transform the board of directors to ensure transparency and objectivity, without compromising the traditional atmosphere of familiarity.
• Companies with a higher percentage of female board members tend to be more proactive in their corporate governance practices and more diligent about improving profitability and stock valuation.

• The group of companies with lower than 25% female board member will only manage to meet the targets by “matching numbers,” as few companies have high awareness regarding the practice.
• Since the government target of 30% female managers was set in 2005, companies’ awareness remains low. It’s not easy to raise the ratio to 30% by the methods so far.
• There are a number of initiatives that will not progress unless top management is replaced by women, including accelerated promotion of women to management positions and female board members.

• Takeda’s 2QFY03/2024 revenues increased 4.1% YoY beating consensus estimates by 6%. However, Takeda reported an operating loss of ¥49.3bn for the quarter due to impairment losses.
• As we expected, recent setback in some of Takeda’s clinical trials have led to write-downs and triggered a downward revision to full-year profit guidance.
• There has been excessive price reaction to these setbacks, however, Takeda continues to progress with its pipeline development with some newly launched drugs showing great potential.

• CARGO Therapeutics, a clinical-stage biotech company developing treatments for various lymphomas, filed for an IPO to fund its Phase 2 clinical trials of CRG-022, a lead program in the pipeline. 
• The biotech firm was backed by founding investor Samsara BioCapital and top-tier healthcare VC firms, including Third Rock Ventures, Perceptive Advisors, and Nextech Invest.
• The company’s lead program, CRG-022, is focused on patients with large B-cell lymphoma whose disease relapsed and targets CD-22 that has been expressed in 81% to 100% of DLBCL patients. 

• On October 25, Aspira Women’s Health announced that a poster on its in-development miRNA-based ovarian cancer test was presented at the American Association for Cancer Research (AACR) Special Conference in Cancer Research: Ovarian Cancer.
• The poster, titled, “Improving the diagnostic accuracy of an ovarian cancer triage test using a joint miRNA-protein model,” highlighted data showing miRNA’s potential to improve the diagnostic accuracy of non-invasive diagnostic tests.
• The study showed that the addition of miRNA improved the detection of early-stage ovarian cancers and that diagnostic performance improved even further when using a combination of approaches, including miRNA, proteins, and metadata. 

• In 3Q23, Samsung Biologics (207940 KS) reported record high quarterly revenue of KRW1.03 trillion, driven by successful ramp-up of plant 4 and full-scale operation of plant 1–3.
• Cumulative CDMO backlog surpassed $11.8B and the company has secured 14 of the global top 20 biopharmaceutical companies as its clients.
• Encouraged by strong ramp-up of plant 4, Samsung Biologics continues to expect 20%+ revenue growth in 2023. The company targets to complete the construction of plant 5 in April 2025.

• The closing date of the Eoflow (294090 KS)/Medtronic Plc (MDT US) transaction has been extended from 25 October 2023 to 3 January 2024. All other terms are unchanged.
• The bull view is that despite the preliminary injunction and share suspension, Medtronic’s move underscores its commitment to the transaction on current terms.
• The bear view is that the extension was Medtronic’s best move as it retains option value should Insulet’s lawsuit start floundering in court and KRX reinstate trading in Eoflow shares. 

• On 25 October, Eoflow announced that the M&A of Eoflow by Medtronic has been postponed. 
• The closing date for Eoflow’s stock transfer agreement with Medtronic has now been changed to 3 January 2024. 
• Although we believe Medtronic will continue to pursue Eoflow, the M&A tender offer price could be lowered to about 26,000 won, which would be nearly 20% higher than current price.

• We must acknowledge that the acquisition contract has not been withdrawn, signifying that we have averted the worst-case scenario.
• During the shareholders’ meeting on November 15th, it is crucial for us to pay attention to whether personnel from Medtronic are included in the list of new board candidates.
• If that’s the case, we can infer that Medtronic intends to go through with this deal, regardless of the litigation issues in the United States.

• When EOFlow (294090 KS) was suspended on the 11th October, and ceased global sales, either the Medtronic (MDT US) deal was (largely) toast; or it was a tactical move. 
• I’m firmly in the latter camp. Insulet‘s lawsuit was expected. And completing the transaction enables the more financially and legally resource-rich MDT to become the party to the litigation.
• The SPA between Jesse Kim and MDT was expected to complete on 25 October. That was not a hard date. It has now been pushed out to 3 January 2024. 

• 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 and peer comparison. In this note, we discuss our thoughts on valuation.

• The early-stage clinical data of Hansoh’s B7-H4 ADC showed good potential, thus attracting GSK’s attention. This would allow GSK to re-enhance the layout of ADC pipelines after its previous setbacks.
• However, if future clinical data fail to meet expectation, GSK could return the product to Hansoh. After all, US$85 million upfront is more likely to test the waters for GSK.
• Hansoh is already one step ahead of Hengrui in terms of internationalization. This short-term catalyst would no doubt help lift share prices, but the logic behind the rebound is shaky.

• Curexo Inc (060280 KS) has been showing sales growth for five consecutive quarters since Q1 2022, mainly driven by the medical robot business, which accounts for nearly 50% of sales.
• In 2Q23, Curexo’s medical business sold 29 units and recorded highest quarterly sales of KRW9,744M (up 173% YoY and 15% QoQ), driven by strong demand in domestic and Indian market.
• Curexo raised 2023 sales guidance to KRW74 billion from KRW70 billion. Medical business is expected to sell 100 units and register revenue of KRW35 billion in 2023.

• The groups with over 30% female board members and 25%-30% have higher percentage of foreign shareholders, suggesting that overseas investor engagement drives raising the ratio and that awareness is high.
• Groups with 0% female board members include small companies and are distant from overseas investor engagement, but are unlikely to improve practices substantially, given that they have no female executives.
• The group with over 30% female board members had noticeably higher ROE and Tobin’sQ than those with 25%-30%, which suggests that the high ROE was highly valued by overseas investors.

Actinogen is refining the design of its XanaMIA Phase IIb study of lead candidate Xanamem in patients with cognitive impairment (CI) associated with mild-to-moderate Alzheimer’s disease (AD). The study will forego the 5mg dose group and will concentrate on the 10mg dose, which has already shown effectiveness in the subgroup analysis of XanADu as reported in Q422. The XanaMIA Phase IIb study will continue to assess c 110 AD patients in the 10mg dose cohort, as well as a placebo arm, and will concentrate on Australian test sites for the first 100 enrolled patients. These measures are expected to significantly reduce study costs, as Actinogen expects c A$30m in cost savings between now and June 2025 compared to its initial plan. Given that US sites may not begin recruitment for another c 12–18 months, we are pushing back our projection for study completion until CY26 (from H2 CY25 previously) and our timeline for potential Xanamem commercialisation in AD to CY29 (from CY28 previously). In September, Actinogen completed a A$10m rights offering and we now expect the company to be funded into Q424 (Q2 CY24). We determine a new risk-adjusted net present value (rNPV) of A$528m, versus A$645m previously.

Paradigm reported favourable quantitative MRI data from the six-month analysis of the Phase II trial (PARA OA 008) evaluating a single six-week course of injectable pentosan polysulfate sodium (iPPS) treatment at 2mg/kg twice weekly in knee osteoarthritis (kOA) patients. This analysis provides more precise numerical measurements from the semi-quantitative analysis shared in April. In both studies treated patients exhibited increased cartilage thickness and volume in knee joints in patients, while the placebo group experienced reductions in both. The reversal of structural changes in the cartilage (structural changes in the knee joint are associated with the natural course of kOA) resulted in reduced bone marrow lesions and synovitis intensity as well as enhanced joint function. While the range of responses was not shared, and the number of treated patients is small (n=15), the recent data, coupled with the 12-month durable clinical responses disclosed last week, support iPPS as a potential disease-modifying treatment for kOA and address an unmet need. The company reiterated its plans to file a Provisional Approval application to the Australian regulatory authority and use the identified optimal dose of iPPS in the registration programmes.

• Hansoh Pharmaceutical Group (3692 HK) entered into a license agreement with GlaxoSmithKline PLC (GSK LN) for a B7-H4 targeted antibody-drug conjugate candidate, HS-20089, targeted toward gynecological cancers.  
• Hansoh will receive an upfront payment of $85M and be eligible to receive milestone payments of up to $1.485B subject to achievement of relevant milestone events with respect to HS-20089.
• Currently, HS-20089 is in phase 1 clinical trial in China. GSK plans to begin phase 1 trial of HS-20089 outside of China in 2024.

• 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 note we looked at the company’s past performance, in this note we will undertake a peer comparison.

• Angelalign’s internationalization strategy requires significant ongoing marketing spending. Lower-tier market expansion in China requires Angelalign to continuously reduce product prices to cope with the low-price strategies of other domestic competitors.
• Angelalign is in a period of business transformation. High SG&A expenses help increase market share, but may not necessarily result in improvement in profit margin. Angelalign actually lacks core competitiveness.
• We remain conservative on Angelalign’s outlook at this stage. It’s difficult for Angelalign to make significant improvements in financial performance or reversal of fundamentals in the short term. 

• Celltrion Chairman Seo made a public statement, affirming that they are prepared to bear the entire cost, even if it exceeds the ₩1T ceiling, and proceed with the merger. 
• The relatively substantial cost risk associated with Celltrion Inc. due to the involvement of NPS is causing the merger swap spread to widen once more in comparison to Celltrion Healthcare.
• If the prices persist above the appraisal rights exercise prices, the relative cost risk for Celltrion Inc. could escalate, leading to a significant widening of the swap spread.

• 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 – 111 Inc (YI US), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Haitong International Securities Group (665 HK), Lithium Power International (LPI AU). 
• Lowest spreads – Healius (HLS AU), Pact Group Holdings (PGH AU), Origin Energy (ORG AU), T&K Toka Co Ltd (4636 JP), Kenedix Retail REIT (3453 JP), Chindata Group (CD US).

• In 3Q23, Intuitive Surgical (ISRG US) recorded 12% YoY revenue growth to $1.74B, driven by growth in da Vinci procedure volume and an increase in the installed base of systems.
• 3Q23 procedure growth was 19%, versus 20% in 3Q22 and 22% in 2Q23. Systems revenue declined 11%, due to higher number of systems placed under lease and lower China demand.
• The company now expects 2023 procedure volume growth of 21–22%, up from previous estimates of 20–22%. Significant material supply chain disruptions or hospital capacity constraints are not expected.

• While the number of companies with majority of independent directors is still small (15.7% of the Metrical Universe as of September 2023), the number of those companies is steadily increasing.
• The group of companies with over 50% independent director are superior in market capitalization, ratio of foreign shareholders, ratio of female board members, ROE, ROA, Tobin’s Q, and Metrical Score.
• Given that the presence of overseas investors remains high, profitability, share price valuation, and corporate governance practices such as independent director ratios will continue to improve in the future.

• 3Q23 is expected to achieve over 40% YoY growth. 2023 overall performance would be better than previous guidance- Revenue up 40+% YoY and adjusted net profit up about 45% YoY.
• With abundant cash flow, Gushengtang has increased dividend payouts and share buyback, indicating that the current stock price is undervalued and has not yet reflected its high growth expectations/healthy fundamentals.
• Gushengtang has cross-regional expansion capability. The “sustainability” + “high growth” of performance are worth noting. Depressed sentiment/complex external environment provide a good buying opportunity. Rebound in stock price is expected.

• Weight loss and Alzheimer’s disease (AD) have been ranked among the top indications in the pharmaceutical history and are undeniable opportunities, but they are expected to generate different investment returns.
• We have noticed that some companies have started developing GLP-1 gene therapy. We would be cautious about this.
• Without strong fundamentals but is eager to go public on A-share market, AIM Vaccine (6660 HK) seems more enthusiastic about capital operations to make quick money.We consider this company risky.

• Managers self-analyze the factors that lead to P/B of below 1x, as companies fail to appreciate their growth potential and to ensure profitability in excess of their cost of capital.
• This seems to be dilemma in that companies’ failure to realize sufficient profitability, along with insufficient growth investments, prevents them from sharing the image of corporate value growth with investors.
• Managers believe that the first step is to improve ROE by reshuffling business portfolios and promoting profitability improvement, but reducing excess cash and increasing shareholder returns should be pursued simultaneously.