Healthcare

• For the month of September 2023, 8 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$2bn.
• The average premium for the new deals announced (or first discussed) in September was 37%. The average YTD is 35%.
• This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

• Prodia is the leading diagnostics company in Indonesia, with over 40% market share as the most trusted brand in the country, given accreditation from the College of American Physicians.
• The company was a huge beneficiary of all the testing over COVID with the result of a post-pandemic correction but sales should see a strong 2H2023 with more like-for-like comparisons.
• Prodia (PRDA IJ) remains one of our top healthcare picks in Indonesia, with rising health consciousness driving higher demand for testing. Valuations are extremely attractive versus Indian peers. 

• We have discovered something interesting from the innovative drug evaluations disclosed by the NMPA over the years. It’s recommended to establish rational expectations for the investment return of biopharmaceutical industry.
• We analyzed the different situations faced by Biotech in IPO/M&A process, so as to help investors make rational judgments. R&D team is likely to be cut regardless of the circumstances.
• We updated views on Huadong. Its old businesses dragged down valuation. It may need to wait until Huadong delivers better-than-expected sales/profit growth in weight-loss management business before further boosting valuation.

The Competition and Markets Authority (CMA) has given final approval to the takeover of EMIS by UnitedHealth. Subject to the scheme receiving the approval of the court at the sanction hearing on 25 October, the takeover is expected to complete on 27 October. On 23 October EMIS will pay the recently proposed interim dividend to shareholders on the register on 6 October without reducing the acquisition cash consideration.

• EC Healthcare (2138 HK) reported record high revenue of HK$3.9B in FY23 and started FY24 on a strong note, with Q1FY24 revenue increasing 23% YoY, driven by medical services segment.
• Cost pressure is negatively impacting the bottom line. The company is reporting decelerating EBITDA and net profit margins since FY20. ROE deteriorated to 4.5% in FY23 from 33% in FY19.
• The company is well-positioned to see turnaround in profitability with the resumption of Mainland China visitors in Hong Kong providing impetus to high margin earning aesthetic business and cost optimization.

• The Cigna Group exceeded analyst expectations in revenue and earnings, fueled by ongoing growth across its varied portfolio of companies.
• Cigna produced total revenues of $48.6 billion, adjusted earnings per share of $6.13, and cash flow from operations of $2.5 billion in the quarter.
• Another strong quarter was experienced by the company’s market-leading pharmacy, care, and benefits portfolio at Evernorth Health Services.

Shield Therapeutics’ H123 results were largely as expected. Despite the minor operational adjustments with the commercialisation ramp-up, our long-term expectations remain unchanged. H123 revenue of $4.3m grew 65.8% y o y and was largely driven by US Accrufer sales. Total prescriptions grew 59% (vs H222) to 26,200 and are anticipated to accelerate in H223 with the completed build out of its sales platform. For the medium term, we anticipate additional launches in the EU and regulatory approvals in China and our longer-term assumptions remain unchanged. Our valuation remains largely unchanged at £390.4m (£388.9m previously), reflecting updates to net cash (including the recent $6.1m equity raise) and our near-term estimate adjustments for volume and operating expenses in line with latest management guidance.

• Kalbe Farma (KLBF IJ) is one of the key proxies for increasing healthcare penetration and health consciousness in Indonesia through prescription drugs, consumer health, and nutritional products.
• The company saw a solid sales performance in 1H2023 driven by prescription drugs. There was some lingering margin pressure from higher materials but this should abate in 2H2023.
• Kalbe Farma continues to develop its digital capabilities, as well as export markets helping to drive efficiencies and growth. Valuations remain below the historical average despite strong earnings recovery ahead.

• Fresenius Medical Care & (FME GR) reported accelerated organic revenue growth of 6% YoY in 2Q23, driven by both operating segments including sequentially stable treatment volumes in the U.S.
• Execution on turnaround plan translates into visible productivity improvements in care delivery segment achieving a Q2 margin at the lower end of the 2025 target margin band of 10–14%.
• The company now expects 2023 operating income to remain flat or decline by up to a low-single-digit percentage (previous target: remain flat or decline by up to a high-single-digit percentage).

• DaVita Inc. exceeded analyst expectations in revenue and earnings, with $432 million in adjusted operating revenue and $2.08 in adjusted profits per share.
• These outcomes were driven by advancements in their financial trinity of treatment volume, revenue per treatment, and patient care expenses.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Henry Schein delivered a mixed set of results in the recent quarter with revenues falling short of Wall Street expectations but above-par earnings.
• Strong equipment sales and steady general merchandise sales, along with continued strength in technology and value-added services, implants, biomaterials, and endodontic products, have contributed to this performance.
• The technology and value-added services business, including Henry Schein One, is experiencing global growth, driven by cloud-based practice management software and revenue cycle management services.

• Royalty Pharma plc delivered a strong result and managed an all-around beat last quarter.
• As a result, the company delivered adjusted EBITDA growth of 4% for the quarter, substantially in line with the team’s top-line growth.
• The company’s total royalty receipts increased by 1%.

• Mitra Keluarga (MIKA IJ) is in the midst of a recovery not yet reflected in headline numbers as the effects of inflated COVID revenues fade and core business takes off.
• The company is a key beneficiary of the new health bill allowing foreign doctors to practice in Indonesia given its best-in-class hospitals located in affluent catchment areas.  
• Mitra Keluarga Karyasehat continues to expand its hospital network, increase treatment intensity, and digitalise its operations. Valuations are attractive given the highest returns amongst its peers, with recovery in motion.

• Axonics (AXNX US) believes that the U.S. sacral neuromodulation market is now worth of ~$800M, which is poised to double over the next five years to $1.6B.
• The company has been reporting superior revenue growth since 2020. Axonics raised 2023 revenue guidance to $358M, up 32% YoY. The company has become adjusted EBITDA positive in 2022.
• With superior product portfolio in terms of patient satisfaction, longer product life, and smaller size, Axonics is the stronger player in the U.S. duopoly sacral neuromodulation market.

• Increase in the number of non-regular workers is a factor in gender wage disparity and has also put pressure on profit margin since labor was invested in low value-added jobs.
• In Japan, childcare is assumed to be dependent on the efforts of the family, and there is little thought of society solving childcare issues, and government policies reflect this idea.
• Problems also exist on the part of employers, with low rates of men taking childcare leave, and the top reason being an atmosphere that makes it difficult take childcare leave.

• Cardinal Health Inc. delivered a positive result and managed an all-around beat last quarter.
• The Pharma segment demonstrated remarkable profit growth of 13%, and the company generated significant adjusted free cash flow amounting to $2.8 billion.
• Cardinal Health pursued determined actions to advance its strategic imperatives, streamlining its operations, optimizing its organizational structure, and instituting fundamental leadership changes.

• MedSci’s all three businesses are targeting B-end customers (pharmaceutical and medical device companies) to generate revenue. In the context of VBP and anti-corruption campaign, B-end customers do have relevant needs.
• However, the binding between MedSci and hospitals isn’t deep, which would lead to MedSci being unable to grasp core medical resources, with weak bargaining power in front of B-end customers.
• Since the initiative is in the hands of the other parties not in MedSci, MedSci’s revenue growth/scale could be much lower-than-expected. This would suppress valuation and stock price performance.

• Zoetis Inc. managed to surpass the revenue and earnings expectations of Wall Street.
• Based on the wide portfolio across markets and species, Zoetis delivered solid second-quarter results of 9% operational growth in revenue and 12% in adjusted net income.
• The company reverted to more balanced sector growth this quarter, with 11% operational growth worldwide and 7% in the United States.

• Entero Healthcare Solutions Limited (2294842D IN)  is looking to raise US$200m in its upcoming India IPO. The bookrunners on the deal are ICICI Securities, DAM Capital, Jefferies, JM Financial, SBI Capital.
• Entero Healthcare Solutions (Entero) is a healthcare products distributor in India.
• As per the CRISIL report in the DRHP, Entero is amongst the top three healthcare products distributors in India in terms of FY22 revenue.

• As Celltrion (068270 KP) approaches merger clarity, focus will shift to its base business, which remains solid. In Q2 2023, biosimilar, the flagship business, reported a 10% YoY growth.
• Operating profit margin expanded 440bps YoY to 34.9%. Margins are expected to improve further through increasing contribution from high-margin products such as Yuflyma (Humira biosimilar) and Remsima SC.
• Celltrion expects to receive approval for Remsima SC in the U.S. by end of October, which should act as a major catalyst. By 2030, merged entity targets revenue of KRW12T.

• The reason why there are many doubts about Sipai is that its Specialty Pharmacy Business accounts for dominant proportion of total revenue but is almost difficult to make a profit.
• Sipai’s SMO business revenue will be difficult to grow at scale due to industry characteristics and the Health Insurance Services business is too small to bring substantial changes to performance.
• Sipai’s revenue structure/business model is difficult to improve in the short term. So it’s not surprising if Sipai suffers long-term losses. Its valuation should be lower than that of ClouDr.

• The question is whether companies can achieve results by increasing investment to secure and train human resources who can contribute to transitioning to a business that produces high value-added products.
• Regarding the disclosure of human capital, many issues remain, such as the lack of unified definition of the required items and the inability to use this data as comparable data.
• Percentage of women in managerial positions is more serious. The lack of on-the-job training for women is an on-going issue that makes the path to future managerial positions more difficult.

• UMP Healthcare (722 HK) reported FY23 profits down 26% YoY at 55 mn HKD, impacted by preoperating expenses and an impairment cumulatively of 40 mn HKD. 
• A slow Q4 FY23 didn’t help either; revenues came in flat HoH instead of up 10% as our expectations and costs increased resulting in margin compression. 
• We believe the worst is behind us. The stock trades at 5.9x FY24 PE, with ~50% of the market cap in cash and an FY24 dividend yield of 8.5%.

• Ajanta Pharma (AJP IN) reported better-than-expected profitability in Q1FY24, due to softening of raw material prices and normalization of freight rates. EBITDA margin expanded 300bps YoY to 26%.
• Revenue increased 7% YoY to INR10B, driven by superior execution in branded generics business and lesser price erosion in the U.S. 73% of the total sales came from branded generic.
• Management maintained mid-teen revenue growth and EBITDA margin guidance of ~25% for FY24. Ajanta Pharma has a positive business outlook due to growing branded generic business and niche U.S. launches.

• Yuanxin’s financial performance has not improved and it is still in a state of continuous loss. At such low gross margin level, Yuanxin will find it difficult to make money.
• As China’s retail pharmacy market has entered a new era of integration as the industry growth is slowing down, the challenges Yuanxin has to face would be different from before.
• When the market pattern has been basically determined, Yuanxin has little chance to break through. Being acquired may be a better outcome. If IPO, valuation would be lower than peers.

• Viatris Inc. delivered mixed results for the previous quarter, with revenues above the analyst consensus.
• The company exceeded its expectations in the quarter, delivering total revenues of $3.9 billion, or about 2% year-over-year growth on an operational adjusted basis, as well as adjusted EBITDA of $1.3 billion and free cash flow of $447 million.
• Tyrvaya’s bridge program was improved during the quarter to boost value per script and produce the greatest quarterly TRx launch.

• Recognizing the cost of capital and return on capital is an important factor in determining business strategy, but not many companies disclose their cost of capital and specific management vision.
• In order to increase the effectiveness of disclosure of the cost of capital, we should consider changing the Corporate Governance Code to require disclosure by prime market listed companies.
• JPX Prime 150 Index, which is based on “equity spreads,” has begun to be calculated, but it has’t attracted much attention since its performance doesn’t differ from that of TOPIX.

• In 2Q23, Lotus Pharmaceutical (1795 TT) reported 53% YoY growth in revenue to NTD4.4B, mainly driven by strong uptake of Lenalidomide and Suboxone in America and branded products in Taiwan.
• Lotus reported an EPS of NTD4.85 for Q2 2023, 285% above EPS of NTD1.26 reported for the same quarter of 2022. This result beat the average analyst’s estimate by NTD0.64.
• Lotus has acquired exclusive global right to develop and commercialize suicidal bipolar therapy NRX-101 and obtained approval for new branded oncology drug Zepzelca in Taiwan.

• The national centralized procurement of high-value medical consumables such as intraocular lens (IOL) and sports medicine medical consumables is about to begin. We listed the companies that could be affected.
• The instability of policies seems to be a consensus among investors regarding China healthcare. However, if truly understand the logic behind policy changes and industry shifts, investors will maintain optimism.
• We analyzed the key points of Biokin. Its valuation is ridiculously high considering the current pipeline situation and commercialization outlook. We think the bubble will eventually burst (e.g. 50% downside).

• Major milestones with high expectations coming in the next 2-3 years: 1) Phase IIb US trials for H-1337 as “first choice as a second-line Glaucoma drug” for patients who do not respond to PGs, 2) 2023 application, 2024 approval and 2025 launch of DW-1002 in Japan, 2023 application/approval/launch in China, as well as expedited development of combination formula MembraneBlue-DualR (DW-1002 + trypan blue) in the US [NEW], 3) 2023 approval and subsequent 2024 launch of DW-5LBT lidocaine patch for treatment of neuropathic pain in the US, and 4) clinical trials in 2024 in Japan and application for approval in 2025 of regenerative cell medicine DWR-2206 [NEW].
• Coming into the 3Q, DWTI announced 2 updates not included in its “Business Plan and Growth Potential.”
• On 7/13, DWTI announced the development plan for regenerative cell medicine DWR-2206, aiming to submit a notification of clinical trial at the end of 2023, start clinical trials in 2024, and submit application for approval (NDA) in 2025 (using the expedited conditional and term-limited approval system for regenerative therapeutics).

• Amgen managed to exceed the revenue and earnings expectations of Wall Street, instilling confidence in its capacity for sustained long-term growth in both sales and earnings.
• This growth was underpinned by a global volume increase of 11% for the quarter, with contributions from all three therapeutic areas and geographical regions.
• Notable highlights included a 21% volume growth in their General Medicine segment and robust performance in the Asia Pacific region.

• Teleflex managed to exceed analyst expectations in terms of revenue as well as earnings.
• Adjusted earnings per share for the same period were $3.41, reflecting a 0.6% increase compared to the previous year.
• The company observed a continued stabilization in hospital staffing, positively affecting second-quarter revenue growth, particularly in products tied to hospital settings.

Immix has announced that the FDA has granted orphan drug designation (ODD) to CAR-T asset NXC-201 for amyloid light chain amyloidosis (ALA). This occurred approximately a month after the announced ODD for multiple myeloma (MM), the other indication that Immix is pursuing with NXC-201. The benefits of ODD include seven years of US market exclusivity post approval, tax credits for qualified clinical trials and exemption from the Prescription Drug User Fee (c $3m for a new drug). ODD is issued to drugs/biologics intended for the safe and effective treatment, diagnosis or prevention of rare diseases/conditions that affect fewer than 200k people in the US. Achieving ODD in both MM and ALA marks an important development for the progress of NXC-201, which has shown encouraging signs on both the clinical and regulatory fronts. We believe that the next readout (expected in September 2023) from the ongoing NEXICART-1 trial could be a significant catalyst for the company.

• In Q1FY24, Paramount Bed Holdings Co Lt (7817 JP) reported 7% YoY revenue growth to ¥24B, due to solid performance in the medical care and the nursing care businesses.
• Due to higher SG&A expenses, operating profit grew just 2% YoY to ¥3.3B. Net profit rose 7% YoY to ¥2.9B, mainly due to 13% YoY increase in foreign exchange gains.
• Paramount has reiterated FY24 guidance, which calls for 6% YoY revenue growth, 4% YoY operating profit growth, and 6% YoY growth in net profit.

• Activist investors’ proposals were consistently based on increasing shareholder returns. The change in the environment, in which ％ of foreign shareholders increased while cross-held shares decreased, had a major impact.
• Regarding the selection of directors, discussion on contents of Skill Matrix should be more active, as it’s suspected that top management is selecting candidates who are aligned with their wishes.
• The voting standards of domestic institutional investors are iridescent and still dependent on public opinion for each proposal. The change in public opinion has only just begun.

• Stryker Corporation delivered a strong result and managed an all-around beat in the last quarter, marked by robust organic sales growth of 11.9%.
• US and international organic sales demonstrated strong momentum despite a slight unfavorable impact from foreign currency exchange.
• Lastly, the company expects organic sales growth for the entire year and adjusted EPS, highlighting its strong performance and positive outlook.

• Tandem Diabetes Care (TNDM US) reported underwhelming Q2 results, with both revenue and EPS missing consensus. Adjusted EBITDA declined and adjusted operating loss increased on a year-over-year basis.
• To reflect lower sales visibility, the company has lowered 2023 guidance. The company has guided for 2023 sales of at least $785M, compared with earlier guidance of $885–900M.
• Tandem has also withdrawn correlating year for its long-term target. Achievement of long-term target is highly dependent on the adoption of the company’s recently approved insulin delivery system, Mobi.