Healthcare

• Cosmecca Korea (241710 KS) clocked revenue of KRW115.7B (up 15% YoY) and operating profit of KRW11.2B (up 265% YoY) in Q223. Operating profit margin expanded 670bps YoY to 9.7%.
• Cosmecca is a key beneficiary of the increasing global demand for the affordable indie cosmetics brands. These brands are now outpacing the overall beauty and personal care industry.
• Since reporting strong Q1 result in May, Cosmecca Korea shares are on fire. Cosmecca is expected to continue its growth momentum due to strong global demand for affordable cosmetics.

• Boston Scientific Corporation delivered a solid result and managed an all-around beat last quarter.
• In the second quarter, Boston Scientific witnessed a 12% growth in total company sales.
• In the peripheral intervention segment, sales surged by 13% organically, while cardiology delivered impressive organic sales growth of 13%.

Immix has announced encouraging updated clinical data for NXC-201, a B cell maturation antigen (BCMA) targeting CAR-T therapy, which is being developed by majority-owned subsidiary Nexcella, in both multiple myeloma (MM) and amyloid light chain amyloidosis (ALA). The updated data for MM patients indicate an overall response rate (ORR) of 95%, notably higher than comparable CAR-T trials for MM, and for ALA show a 100% ORR in heavily pre-treated patients. The therapy has the potential to be the first outpatient CAR-T therapy, which would address many of the current CAR-T challenges with cost and access. With its recent $9.6m raise, we estimate Immix has an operating cash runway into Q424, from Q224 previously. Adjusting for the pro-forma cash of $22.2m, our valuation for Immix increases to $90.7m or $4.2/share (from $81.1m or $5.0/share).

Pixium Vision announced that safeguard proceedings have been opened by the Commercial Court of Paris. Despite the company’s best efforts in seeking financing options to extend its funding runway, it has determined that it may not be able to satisfy its financial obligations after the end of November 2023 without the protection of such proceedings. Given its liquidity risk and the absence of new financing to date, Pixium requested that the Commercial Court of Paris open safeguard proceedings. As the Court has now appointed other parties (SCP Abitbol & Rousselet and Selarl FHB) as co-administrators with supervisory responsibility for Pixium, we estimate the likelihood of any material residual value remaining attributable to the common equity holders of Pixium Vision following the court proceedings as highly speculative. As such, we are withdrawing our estimates and forecasts.

• Hisamitsu Pharmaceutical Co (4530 JP) announced mixed Q2FY24 result, with single-digit revenue growth and bottom-line decline. Revenue grew 5% YoY to ¥34.9B, while operating profit declined 8% YoY to ¥4B.
• Salonpas line of OTC pain relieving patches have become major growth driver of the company. In Q2FY24, Salonpas revenue increased 14% YoY, lowest growth rate reported in last five quarters.
• Despite 70%+ progress of operating and net profits, Hisamitsu reiterated FY24 guidance. Declining margins, anticipated increase in SG&A expenses, and high base call for massive fall in profit in H2FY24.

• WuXi AppTec’s share price has performed well recently, mainly driven by CXO’s “immune attributes” to anti-corruption campaign, investors’ bullish view of weight loss drug business, and the previous oversold rebound.
• Peptide CDMO business would contribute limited incremental performance to WuXi AppTec considering overall large business volume.Downward trend of CRO business is hard to be hedged by weight loss drug business.
• Due to higher-for-longer rate, China CXOs only have rebound value, but no reversal logic. It’s time to consider taking profits in a timely manner before the share price falls again.

• The 1,350p offer for Ergomed Plc (ERGO LN) (28% premium, 18.9x EV/Fwd NTM EBITDA using IBES estimated) seems optically attractive considering share underperformance, and in line with closest peer Medpace at 19.06x.
• Nevertheless there’d be synergies available to a trade buyer and other than 18% from the Founder, there aren’t any other irrevocables, which indicates the offer price is far from knock-out.
• I set my TP at 1,350p. Spread turned negative last week, now 0.59%/1.71% (gross/annualised, assuming settlement by mid-February). I would be long considering there’s still time for a competing offer.

• The Kankeiren intends to prevent further increases in the ratio of independent directors because of the small number of candidates for outside directors.
• One reason why the substance of the Corporate Governance Code has not improved is that independent directors are a minority on the board.
• The company is also responsible for not developing female internal executive director candidates, relying on outside directors for female directors, and not appointing foreign talent to the board.

• 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 – Haitong International Securities Group (665 HK), 111 Inc (YI US), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US), IMAX China Holding (1970 HK), BPLANT.
• Lowest spreads – Yaizu Suisankagaku Industry (2812 JP), Healius (HLS AU), T&K Toka Co Ltd (4636 JP), Pact Group Holdings (PGH AU), Seiko Pmc Corp (4963 JP).

• Weight loss drug business has indeed significantly alleviated concerns about overcapacity issue in those leading CDMOs, but they do not have such a strong driving force on CROs.
• The last straw that hits an industry is often not due to the disappearance of demographic dividends/declining demand/poor financial performance of companies, etc., but rather to policy-guided capital flows.
• 3D Medicines (1244 HK) can be said a typical negative example in biopharmaceutical industry, and it is easy to be “manipulated”. We recommend investors stay away from such high-risk company.

• I tally 47 – 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 deals were discussed on Smartkarma this week: Haitong International Securities Group (665 HK)‘s Scheme; and Aeon Co (8267 JP)‘s partial.  Arguably, Boustead Plantations (BPLANT MK)received another offer. 
• Key updates took place for: EOFlow (294090 KS), Newcrest Mining (NCM AU), JMDC (4483 JP), Boustead Plantations (BPLANT MK), Symbio Holdings (SYM AU), and T&K Toka Co Ltd (4636 JP).

• Japan has the largest number of TCFD endorsing institutions in the world, and the number of listed companies endorsing the TCFD has increased by 350 since last year.
• It’s hoped that more companies will follow the example of those that disclosed specific climate change impact estimates under certain conditions, and that other companies will attempt to do so.
• There are many companies that have endorsed TCFD, but have only endorsed it and not disclosed it, so the issue isn’t about endorsing TCFD, but about the content of disclosure.

• After Insulet Corp (PODD US) lodged a lawsuit against EOFlow (294090 KS), Flex, inter alia, on the 3rd August, the judge has thrice extended the temporary restraining order. 
• But the big (ger) news is that a preliminary injunction comes into force today. Shares are down 2.5% as I type.
• This latest development should have been expected. And put simply: a proposed preliminary injunction doesn’t prevent Medtronic Plc (MDT US) from acquiring EOFlow.

• Legend Biotech Corp (LEGN US) reported six-fold jump in revenue to $73M in 2Q20, driven by strong uptake of the sole commercialized drug, Carvykti, which generated worldwide revenue of $117M.
• Label expansion applications have been submitted to the FDA and EMA seeking approval of Carvykti for the earlier treatment of patients with relapsed or refractory multiple myeloma.
• Legend Biotech has 11 pipeline programs covering hematologic malignancies and solid tumors. Recent financing activities have fueled the company’s cash balance to $1.5B, which should provide cash runway through 2025.

• Teladoc managed to exceed analyst expectations in terms of revenue as well as earnings with a robust result, characterized by a 10% YoY growth in consolidated revenue and consolidated adjusted EBITDA exceeding expectations at $72 million.
• Notably, the Integrated Care and BetterHelp segments both performed exceptionally well, with the former seeing 5% YoY revenue growth driven by higher enrollment in the chronic care program.
• BetterHelp, the leading player in mental health services, reported an 18% YoY revenue growth in the second quarter, in line with expectations, emphasizing the sustained demand for mental health services.

• The US judge has proposed a preliminary injunction which prevents Eoflow (294090 KS) from using Insulet Corp (PODD US)’s trade secrets and disclosing them to any third party.
• Eoflow and other defendants must respond by 5 October. The court hearing is set for 16 October. The potential trial is to be discussed in Spring of 2024.
• Medtronic Plc (MDT US) faces a difficult choice. If the injunction is enforced, Medtronic would acquire a ring-fenced asset exposed to potential court-determined liabilities. 

• Eoflow’s share price has dropped 27% lower than the proposed tender offer price of 30,000 won. Two major factors have negatively impacted Eoflow (294090 KS)’s share price.
• First, in September 2023, there were new data that suggested that popular weight loss drugs including Ozempic and Wegovy could reduce the need for insulin injections with patients with diabetes.
• Second, the ongoing lawsuit by Insulet continues to remain a major headache. Eoflow is not a KISS (“Keep It Simple Stupid”) stock.

• Samsung Biologics (207940 KS) expects 2023 revenue to grow by more than 20% YoY compared to 15–20% YoY growth expectations earlier, due to better-than-expected utilization of Plant 4.
• For the first time in the company’s history, Samsung Biologics has won contracts worth nearly KRW3T during the first half of 2023, with eight contracts worth more than KRW100B each.
• Anticipating strong demand, Samsung Biologics is building its fifth manufacturing plant with 180KL capacity, which is expected to be completed by April 2025.

• TSE market reorganization triggered the reduction of policy shareholdings, and now the test will be whether policy shareholdings can be reduced in order to raise ROE, which is sluggishly growing.
• Companies that maintain excessive policy shareholdings should provide a rational explanation of their holding policies and the reasons for each shareholding in their corporate governance reports and annual securities reports.
• Improving OP Margin, which is highly correlated with ROE, is a shortcut to raising ROE. Policy shareholdings, should not be accumulated in cash on hand, but used for profitable investments.

• When this was launched, it traded more a fair bit on the first day, but then more volume traded than I expected. This could mean a couple of things.
• Re-Reading the original doc leaves nuances. The change in management responsibilities this past summer make some holders less certain. It’s complicated. 
• There have been several blocks traded, and a large short instantiated. And if one has a more conservative estimate at a higher top-end participation, the back end gets uglier.

• Concord Healthcare Group (CHG HK)’s hospital business is not strong enough to contribute strong performance consistently, leading to unsatisfactory profit margin considering its weak hospital operation and management capability.
• The network business could face some legal risks based on our analysis. In the context of anti-corruption campaign in China healthcare, Concord’s business and patients flow could be affected.
• Together with potential policy risks such as DRGs/centralized procurement, we tend to be conservative about Concord’s outlook. In terms of valuation, Concord’s valuation should be lower than Inkon Life Technology.

• Hugel Inc (145020 KS) reported 28% YoY growth in both revenue and operating profit to KRW81.6B and KRW28B in 2Q23, respectively, driven by solid performance of botulinum toxins and fillers.
• Hugel has resubmitted marketing application for botulinum toxin in the U.S. for the third time, with approval expected in 1Q24. The U.S. is the world’s single largest botulinum toxin market.
• The company is seeing North America, Australia, New Zealand, and China as future growth engines to achieve its long-term target revenue of KRW1 trillion and operating profit margin of 45%.

Oryzon has announced that it has received two separate grants from the Spanish State Research Agency and the Ministry of Science and Innovation to conduct two different public-private collaboration projects. These two-year studies – the DICTIONIS Project (€0.95m budgeted cost) and the MODERN Project (€1.33m budgeted cost) – aim to discover and validate novel biomarkers and epigenetic targets for the treatment of neuronal pathologies. The grants give us confidence in management’s ongoing efforts and they complement its clinical activities for vafidemstat, its lead CNS asset, which is currently involved in two Phase II clinical trials: PORTICO (for borderline personality disorder) and EVOLUTION (for schizophrenia). Further, the grants have the potential to expand the company’s CNS portfolio, in our view.

• Overseas investors feel that the disclosure of English documents by Japanese companies is slow-paced and the majority of overseas investors are not satisfied with the English disclosure.
• Without sufficient disclosures in English, it is impossible to conduct a detailed analysis of the portfolio company. This also casts a shadow over engagement.
• Given the narrowing coverage of sell-side analysts, companies should proactively disclose English-language materials at the earliest possible time. For long-term investors, English-language disclosures such as annual securities reports are also useful.

• With 1H23 revenue of KRW704 billion, Hanmi Pharm (128940 KS) is on track on surpass its 2022 revenue of KRW1.33 trillion to reach a new high in 2023.
• Hanmi is developing epeglenatide as personalized obesity drug for South Korean market. With the spectacular success of obesity drugs in the U.S., epeglenatide seems to be have great market potential.
• Outlicensing partner Merck is conducting phase 2b trial on efinopegdutide for NASH, with result expected in 2025. Efinopegdutide obtained fast track designation from FDA, which should accelerate its commercialization.

• Malo’s revenue had good growth, but revenue scale is still small. At the current gross margin level, it would be difficult to generate decent profits considering the large SG&A expenses.
• Dental care expansion is difficult. Malo would face the challenging such as lack of high-quality dentists and centralized procurement. Both would drag down profits and cash flow.
• We are not optimistic about Malo’s share price performance after IPO. This industry’s profit mode is not mature. Most of chain dental services providers are still in cash-burning expansion stage.

• Hologic, Inc. exceeded analyst expectations in terms of revenue as well as earnings.
• Non-GAAP earnings per share were $0.93 and the total revenue was $984 million.
• In Mammography, Hologic delivered more gantries in Q3 than in Q1 and significantly fewer than in Q2.

Basilea has announced that the US FDA has accepted its New Drug Application (NDA) for ceftobiprole. The FDA has set a Prescription Drug User Fee Act (PDUFA) goal date of 3 April 2024, meaning that Basilea will have a regulatory decision for its lead antibiotic asset in the US in early-Q224, consistent with prior guidance. Supported by three separate Phase III clinical trials, the company is seeking approval for three indications: Staphylococcus aureus bacteraemia (SAB), acute bacterial skin and skin structure infections (ABSSSI) and community-acquired bacterial pneumonia (CABP). With the bacterial infection market in the US representing a sizeable opportunity, we believe the decision from the FDA could represent a significant catalyst for Basilea.

OSE Immunotherapeutics (OSE) has announced its H123 results, providing an operational and a financial update. Highlights from the period included positive recommendations for a confirmatory pivotal Phase III trial for lead asset Tedopi in non-small cell lung cancer (NSCLC), which is on track to commence in 2024. OSE also claimed full rights to its most advanced immuno-inflammation asset, Lusvertikimab (previously being developed in partnership with Servier). Post period, the company reported a positive safety review for Lusvertikimab from the ongoing Phase II trial in ulcerative colitis (UC). Patient enrolment is expected to be completed in Q423, with top-line results in the next few months. OSE also recently announced a €200,000 grant from the French government and Region Pays de la Loire to weave RNA therapeutics into its preclinical R&D engine, representing a new opportunity for the company. At end-June 2023, OSE had a pro-forma gross cash position of €33.6m, which we estimate will provide a runway through to Q424 (H123 cash burn of €11.7m). We value OSE at €311.3m or €14.4 per share, with Tedopi as the primary contributor to this valuation.

• Regeneron delivered an all-around beat in the previous quarter, demonstrating progress toward their long-term objective of business growth and revenue diversification.
• Total revenues saw an 11% increase compared to the previous year’s quarter, primarily driven by collaboration revenues with Sanofi and net product sales of Libtayo, which exhibited impressive growth of 39% and 49%, respectively.
• Notably, non-EYLEA revenue contributions accounted for 41% of total revenues, marking a significant proportion, the highest in the last decade, excluding contributions from COVID-19 antibodies.

• This is a special one-time report on Cue Health, a company once lauded for its promise in the diagnostics sector.
• Amidst diminishing fortunes, the company is under the scrutiny of significant shareholder, Tarsadia Investments.
• This report aims to dissect the various valuation scenarios underpinning Cue Health, providing a lucid understanding of its investment potential amidst the unfolding drama.

• Yichang HEC Changjiang Pharma (1558 HK) reported a whopping 148% YoY growth in revenue to RMB3,209M in 1H23. Net profit rebounded to RMB3,209M from a loss of RMB33M in 1H22.
• In H1 2023, revenue from Kewei, approved for first-line treatment of influenza, jumped 186% YoY to RMB2,881M, representing ~90% of total revenue, mainly due to spiking flu cases in China.
• Recently, the company obtained approval for premixed Protamine human insulin injection and submitted marketing application for its self-developed product, Yiqibuvir for the treatment of chronic Hepatitis C in China.

• Several provinces have successively introduced policies to encourage childbirth. Increasing medical insurance reimbursement and special additional deduction standards for personal income tax would be the common direction. 
• This year is mainly a period of intensive introduction of relevant fertility support policies, so the impact on company’s performance is limited.The focus would be on next year’s financial results.
• We analyzed the performance of Livzon Pharmaceutical Group In (000513 CH),BGI Genomics (300676 CH) and Jinxin Fertility Group (1951 HK) based on their 23H1 reports, and adjusted our forecast accordingly.

Basilea has announced that the results from its Phase III trial (ERADICATE) for ceftobiprole have been published the New England Journal of Medicine, a high-impact peer-reviewed medical journal. While these trial results were first shared in July 2022, we believe that the publication highlights positive data from the study as management awaits a regulatory decision on US approval. Basilea filed its new drug application (NDA) with the FDA for ceftobiprole in August 2023, and the ERADICATE study evaluated its application for Staphylococcus aureus bacteraemia (SAB), one of the three indications Basilea is seeking approval for. Management expects a decision from the FDA by Q224, potentially representing a significant catalyst for the company.

• Shineway’s 23H1 performance exceeded expectations. High growth of injection products/TCM formula granules was commendable.But as pandemic is under control, sales of Shineway’s respiratory system prescription medications would decrease in 23H2.
• The national VBP of TCM formula granules and the anti-corruption campaign in 23H2 could be the short-term headwinds to Shineway’s performance, which could lead to lower-than-expected 23H2 performance growth. 
• China’s favorable policies will provide strong support for the development of TCM industry. Shineway’s TCM formula granules business would have outstanding future growth. So, we’re optimistic about Shineway’s long-term outlook.  

• The problem of agenda setting in engagement with investment firms is due to the mismatch that is occurring in each of the listed companies and investors.
• Meetings without top management present disappoint investors who have prepared thorough analyses of the issues facing the portfolio company. Top management should also avoid listening to template questions at meetings.
• It’s unrealistic to ask passive funds that cannot devote resources not to ask template questions. Active funds of Japanese investment managers may have too many portfolio companies to engage adequately.

• Daiichi Sankyo (4568 JP) reported a 25% YoY revenue growth in Q1FY24, mainly driven by oncology drug Enhertu. The company reiterated FY24 guidance, with revenue and operating profit growing double-digit.
• Daiichi Sankyo’s drug candidate datopotamab deruxtecan demonstrated statistically significant and clinically meaningful progression-free survival benefit in certain types of breast cancer patients in pivotal phase 3 trial.
• Enhertu is well-positioned for geography and indication expansion as well as market share gain. Strengthening oncology portfolio and rich late-stage pipeline entail significant growth opportunity for the company.

• Sonoscape maintained strong growth momentum in 23H1. Profit margin further improved. The Company has entered a stage where scale effect has emerged. However, declining contract liability balance raised our concern.
• Japanese companies setting up factories in China would shake competitive landscape of the domestic market. The anti-corruption campaign could lead to “unexpected impact” on performance in 23H2. 
• We lowered 2023 revenue forecast to RMB2 billion. After negative factors are fully priced in, share price would rebound.