Healthcare

• Innovent Biologics Inc (1801 HK) (IB) aims to raise around US$313m for R&D and marketing.
• The company has undertaken a number of deals in the past, with the overall results being mixed.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• Classys (214150 KS) reported solid performance in 2Q23, with revenue and operating profit growing 40% and 52%, YoY, respectively, mainly driven by consumables sales in both domestic and overseas markets.  
• Despite increase in advertising and R&D expenses, operating profit margin expanded 370 basis points to 50.4%. Net profit increased 34% YoY to KRW18.6 billion.
• With 1H23 revenue of KRW84.9 billion, Classys is on track to meet 2023 revenue guidance of KRW170 billion, representing year-over-year increase of 20%.

• Aspira Women’s Health announced it has named Jody Berry, Ph.D as its new Chief Scientific Officer.
• Dr. Ryan Phan, who stepped down from the position, remains as an advisor through the end of the year to help with the transition and provide scientific and operational advice related to ongoing product development programs.
• Dr. Berry is a recognized international expert in immunoassay development, antibody technology, and infectious diseases.

• Mindray’s 23H1 results were in line with expectations. The high growth in Q2 has given us more confidence in the “complementarity of performance” between different business lines of the company.
• Mindray is right to acquire DiaSys,but Mindray should disclose the impact of M&A on financial statements.When investors understand how to “quantify” M&As, positive news would be reflected in stock price.
• The anti-corruption campaign and foreign capital outflows have weighed on Mindray’s share prices. Based on our analysis, the decline offers a good buying opportunity and share price will rebound afterwards.

• 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 – Doosan Robotics (454910 KS), ARM Holdings (1822695D US), VNG (VinaGame) (VNG US), Integral Corporation (5842 JP) IPOs and Aquila Acquisition Corporation (7836 HK) de-SPAC.
• Event-Driven developments – JMDC (4483 JP), Intage Holdings (4326 JP), Mason Group Holdings (273 HK), Liontown Resources (LTR AU), Newcrest Mining (NCM AU), Orecorp Ltd (ORR AU). 

• 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), Costa Group Holdings (CGC AU), Eoflow (294090 KS), Symbio Holdings (SYM AU), Mason Group Holdings (273 HK), Origin Energy (ORG AU). 
• Lowest spreads – Healius (HLS AU), Toyo Construction (1890 JP), Yaizu Suisankagaku Industry (2812 JP), Liontown Resources (LTR AU), T&K Toka Co Ltd (4636 JP), Itochu Techno Solutions (4739 JP). 

• Weigao’s 23H1 performance was unsatisfactory. 2023 full-year performance may continue to be under pressure because Weigao needs some time to digest the negative impact of centralized procurement on orthopaedic business.
• Weigao has hired advisers to find potential buyers for Argon. if Argon is ultimately sold, then the long-term prospects of Weigao’s interventional business and internationalization need to be reassessed.
• The unsatisfactory share price performance is related to Weigao’s business model – spin-off subsidiaries and IPO separately. There could be rebounds, but it is still possible for Weigao to underperform.

• Veeva Systems managed to exceed the revenue expectations as well as the earnings expectations of Wall Street, with a total revenue of $590 million and a non-GAAP operating income of $212 million.
• The Veeva team has made some truly impressive accomplishments as they develop the next generation of CRM.
• Nearly 25% of their revenue comes from Veeva CRM and their add-ons.

• The appraisal right prices of Celltrion Inc (068270 KS) is 150,813 won (2.2% higher than current price) and Celltrion Healthcare (091990 KS) is 67,251 won (1.9% higher than current price).
• Celltrion Inc has mentioned that the merger could be cancelled if the total amount of appraisal share purchase amount exceeds 1 trillion won. 
• Although some investors are likely to exercise their appraisal rights in this merger, we would attach a higher probability of this merger getting completed (80-90%+). 

• In February 2022, Noritsu Koki (7744 JP) sold a chunk of JMDC (4483 JP) to Omron Corp (6645 JP) for nearly US$1bn. 7mos later, Omron supported a primary offering.
• Now Omron is going to 50+%, as Noritsu Koki is getting out. Other investors have to participate for this to succeed. 
• The question of pro-ration may be a question of Elmer vs Mr Partridge. But Elmer has a point here. 

• Eubiologics (206650 KS) recorded 24% YoY revenue growth to KRW31B in 1H23, due to strong export demand of oral cholera vaccine. Operating profit jumped 6x, while net profit surged 3x.
• In May 2023, Eubiologics and its partner have launched Euvichol-Plus in India. With a huge unmet need, Euvichol, an effective cholera vaccine is expected to see strong uptrend in India.
• Eubiologics has signed a technology transfer agreement with DEK Vaccines to enable the domestic production and supply of the cholera vaccine in Ghana. This opens additional revenue stream for Eubiologics.

EMIS reported H123 revenue and adjusted operating profit in line with board expectations. Revenue grew 2% year-on-year and adjusted operating profit was 7% higher, with an adjusted operating margin of 26.9% (+120bp y-o-y). The company closed H123 with net cash of £48.5m. Assuming the takeover of EMIS is not effective prior to 7 October, on 23 October the company will pay an interim dividend of 21.3p to shareholders on the register on 6 October.

• The 9th national VBP has begun. We analyzed the major big varieties with sales over RMB1 billion included in this VBP and the impact on related domestic pharmaceutical companies. 
• “Concept validation” of the business model of Chinese Biotech companies has been completed. Even under enormous pressure of medical insurance fee control policy, drug sales remain a reliable profit model.
• Medlive’s weak share price performance has a reason. The significant profitability increase in 23H1 wasn’t from the improvement of main business. Its business model needs time to be further validated.

SIGA Technologies has announced the appointment of Dr Jay K Varma as executive vice president and chief medical officer, while he remains a director on the board. Leveraging his prior leadership roles managing COVID-19 and other infectious diseases, Dr Varma will have practical insights that could aid SIGA’s efforts in raising awareness of infectious diseases and could enhance the company’s global procurement and treatment strategies. We believe Dr Varma’s appointment could support efforts for generating new procurement contracts.

• JMDC (4483 JP) announced a partial tender offer for Omron Corp (6645 JP), the largest shareholder. Omron aims to make JMDC a consolidated subsidiary.  
• The offer is for a minimum of 12.0m shares (18.52% ownership ratio) and a maximum of 15.0m shares (23.08%) at JPY5,700 per share, a 22.4% premium to the undisturbed price.
• Irrevocables (Noritsu Koki (7744 JP)) represent a 13.63% ownership ratio. While the offer is light, it will likely succeed as the minimum acceptance condition requires a 7.1% minority acceptance rate. 

• Peptidream Inc (4587 JP) has reported strong result for H1 2023. Revenue jumped 88% YoY, and both the operating and net losses have narrowed compared with the year-ago period.
• 2023 guidance remains unchanged, with revenue of ¥30B (+12% YoY), core operating profit of ¥6.7B (-31% YoY), and net profit of ¥2.7B (-64% YoY).
• In the mid-term (over the next 3–4 years), Peptidream aims for revenue of ~¥50B. The company has set a goal to reach revenue of ~¥100B by 2030.  

• Jupiter Life Line Hospitals (0372574D IN) has hit the market to raise INR8.7B via an IPO. The IPO is a combination of a fresh issue and an OFS portion.
• The company is a multi-specialty tertiary and quaternary healthcare provider in the Mumbai Metropolitan Area and western region of India. It intends to use the IPO proceeds for debt repayment.
• In FY23, revenue increased 22% YoY to INR8.9B, while EBITDA margin expanded 210bps to 23.45%. Ramping up of Indore facility and upcoming greenfield hospital in Maharashtra are major growth drivers.

• Ecopro Co will replace Celltrion Inc. Their float market cap difference is nearly 5 trillion won, so it doesn’t seem likely that this will reverse by the end of November.
• Ecopro may not have a very significant passive impact x ADTV, given its still high trading volume. On the other hand, Celltrion seems likely to be the target of traders.
• From a trading perspective, it’s important to focus on the potential price impact of this flow event on Celltrion, which could be amplified depending on the possibility of merger cancellation.

• Modern Dental Group (3600 HK) reported strong 1H23 performance, with 12% YoY revenue growth to HK$1.6B, driven by increase in demand for its products from existing, returning, and new customers.
• With increasing economies of scale resulting from China re-opening and global dental industry recovery and increase in the proportion of digital solution cases, net profit jumped 109% YoY to HK$210M.
• Despite macroeconomic headwinds, the company is confident that the medium and long-term global demand for dental prosthetics is expected to continue due to key irreversible demographic factors and trends.

• Although Yan Palace prioritizes R&D capabilities in prospectus, its revenue growth and business model are mainly relied on large investment in marketing/promotion.The root cause is the efficacy problem of EBN.
• Whether Yan Palace’s future performance growth can be sustained is a question mark if marketing/promotion cannot drive growth anymore. Net profit margin is low. EBN is not a profitable business.
• Yan Palace’s products do not have core competitiveness or high moat. Compliance risks are also worth being vigilant about. The valuation of Yan Palace should be lower than Giant Biogene.

• Medtronic Plc (MDT US) announced better-than-expected Q1FY24 result. Revenue of $7.7B increased 6% on organic basis, ahead of guidance of 4.5%. Each of four segments delivered 6% organic revenue growth.
• Adjusted EPS increased 6% YoY to $1.20, ahead of guidance of $1.10–1.12. Outperformance was driven by better-than-expected operational performance and lesser-than-expected unfavorable impact from foreign currency translation.
• The company increased FY24 organic revenue growth guidance to 4.5% versus the prior range of 4.0% to 4.5% and adjusted EPS guidance to $5.08–5.16, 7 cent increase at midpoint.

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• The key stocks mentioned in this regular insight are WuXi AppTec (2359 HK), Peking University Resources (618 HK), and FriendTimes Inc (6820 HK).

• Medipal Holdings (7459 JP) announced strong Q1FY24 result, with a 6% YoY revenue growth to ¥887B, driven by growth across all three business segments.
• However, operating profit declined 8% YoY to ¥12B, mainly due to increase in SG&A expenses. Driven by an extraordinary income of ¥3.3B, net profit jumped 35% YoY to ¥11B.
• The company has reaffirmed FY24 guidance, which calls for a 4.5% YoY revenue growth, flat operating profit, and a 9.3% YoY decline in net profit.

• Sumitomo Pharma (4506 JP) recorded 53% YoY and 21% QoQ decline in Q1FY24 revenue to ¥75.7B, mainly due to the impact of the loss of exclusivity for Latuda in U.S.  
• Sumitomo’s schizophrenia drug candidate ulotaront missed primary endpoints in phase 3 trial. Clinical setback on one of the two phase 3 drug candidates is quite a blow for the company.
• Sumitomo reaffirmed FY24 guidance, which calls for revenue decline of 35% YoY to ¥362B. The company guided for adjusted operating loss of ¥62B and net loss of ¥80B in FY24.

• Sinopharm’s performance growth in 23H1 was satisfactory, but both gross profit margin and net profit margin decreased, which was mainly related to generic drugs VBP and medical device centralized procurement.
• Profitability could continue to be under pressure in the short term. In the long term, Sinopharm’s business transformation and new value-added businesses are expected to help improve profit margin performance.
• Due to the low base last year, we think Sinopharm Group Co Ltd H (1099 HK) would achieve double-digit growth in 2023. We’re optimistic about its stock price performance accordingly.

• 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 – Seiko Pmc Corp (4963 JP), 111 Inc (YI US), Costa Group Holdings (CGC AU), Symbio Holdings (SYM AU), Eoflow (294090 KS), Orecorp Ltd (ORR AU).
• Lowest spreads – Healius (HLS AU), Toyo Construction (1890 JP), Pacific Current (PAC AU), T&K Toka Co Ltd (4636 JP), Allkem Ltd (AKE AU), Celltrion Healthcare (091990 KS).

• Over two-thirds of the way through the review period, we see 14 potential changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
• There could be index changes even before the December rebalance if there are delistings and stocks migrate from the KOSDAQ Market to the KOSPI Market.
• Momentum in Korea has been strong. The potential adds have outperformed the potential deletes over the last few months and there could be further outperformance.

• Mavacamten is expected to be LianBio’s first commercialized product. Due to low diagnostic rate/doctors’ insufficient cognition of HCM, whether it can become a blockbuster drug in China is still uncertain.
• There’s an “insurmountable obstacle” to license-in model, and its “fault-tolerant space” is small. LianBio has to go all the way to the end.Otherwise, the license-in projects will eventually become worthless.
• Due to high cost rate, it’s difficult for LianBio to make profit even with large drug sales. Although pipeline is good, LianBio could still fail to bring investors good returns.

• Aier’s revenue would be up 20%+ YoY in 2023, but one risk is the slowing growth rate of refractive/other consumption upgrading projects in the context of sluggish consumption in 23H2.
• The positive impact of aging on performance would not be able to hedge against the negative impact of declining birth rate, ultimately leading to a decline in overall performance growth.
• When Aier’s external expansion model fails and endogenous growth is lower-than-expectation, we suggest that Aier increase dividends/stock buybacks instead of ineffective expansion. This would make Aier more attractive to investors.

• IPO rules in SSE STAR Market faces adjustments, so investors have lowered expectations, which will affect the fundraising ecology. Recovery of China’s financing environment would be slower than US/Europe.
• The CSRC has issued new policies related to stamp duty, IPO, and reduction of shares held by listed companies, which would significantly affect the capitalization path of pharmaceutical companies.
• Junshi is “an interesting Biotech” that once generated sales/profits in scale, but is losing money again.Since Junshi is outside the first echelon and the gap is widening, we remain conservative.