Healthcare

• I tally 45 – 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 this week: Silvercorp Metals (SVM CN) scrip Offer for Orecorp Ltd (ORR AU); and Kyoden Co Ltd (6881 JP)‘s Tender Offer. 
• Key updates took place for Invocare Ltd (IVC AU), Estia Health (EHE AU), Toshiba Corp (6502 JP), Metro Pacific Investments Co (MPI PM), and Eoflow (294090 KS).

• Recent share-price declines in healthcare is mainly related to anti-corruption campaigns. Here’re some updates.We recommend investors not to rush to buy the dip, but wait for the bottom.
• We recommend A-share healthcare companies to buy back shares/increase dividends, in which case, despite slowing growth, A-shares are still the RMB-asset with the greatest potential for increases in expected returns.
• CanSino Biologics (6185 HK) has entered a Framework Agreement with AstraZeneca, but investors should not be overly optimistic about the short-term or even medium-term performance contribution brought by this cooperation.

• Rainbow Children’s Hospital (RAINBOW IN) recorded 21% YoY revenue growth in Q1FY24 to INR2.9B, driven by increase in pediatric surgical cases and deliveries, and addition of new bed capacities.
• Lower occupancies in new hospitals and higher expenses impacted profitability. In Q1FY24, EBITDA margin declined 407 bps YoY to 30.5%, while net profit margin contracted 190 bps YoY to 14.4%.
• The company will add 270 beds in the current financial year. By FY27, RCML aims to increase its bed capacity by 56% to 2,585 from current bed capacity of 1,655.  

After launching a Phase 2 investigation into the acquisition of EMIS by United Health in March, the Competition and Markets Authority (CMA) has provisionally cleared the takeover. A further public consultation period runs until 1 September and the CMA’s final report is due by 5 October.

Pixium Vision recently announced that it has received a €3m bridge financing loan from shareholders Sofinnova (€1m) and Bpifrance (€2m), which extend its cash runway through to the end of November. The loan will bear interest at 12% pa and mature on 31 July 2023. The loan is a positive step and signal of confidence from these two institutional investors as Pixium works towards securing broader additional financing to bring it past the conclusion of the PRIMAvera European pivotal study, for which results are still anticipated in or around year-end 2023. We maintain our pipeline rNPV valuation of €140.1m but our equity valuation per pre-consolidation basic share is €0.90 (vs €0.92 previously) after adjusting for estimated H123 net debt.

SIGA has reported Q223 results, which came in largely as expected, and management has provided key operational highlights. Activity in the second half of the year has started to firm up with upcoming TPOXX deliveries (for H223) and better-than-expected international orders (offsetting IV orders that will likely be received in FY24). We maintain our FY23 product revenue estimate of $155m and note H223 management sales guidance of $143–158m. We await further clarity on PEP immunogenicity trials, which we believe are the next material catalyst. As we incorporate the reported quarterly results and slight shift in revenue mix for the balance of the year, our valuation adjusts to $1.24bn or $17.46 per share (vs $1.25bn or $17.53 per share previously).

• In this insight, we take a look at the potential index changes for ASX 300, 200, 100, 50, and 20 in the September 2023 Rebalance.
• I expect one change for ASX 100 and 3 ADDs and 4 DELs for ASX 200. There could be 11 ADDs and 9 DELs for ASX 300.
• ASX 300 member Leo Lithium (LLL AU) is currently suspended from trading and that could have interesting implications for the stock’s ASX 300 membership.

Actinogen recently provided a Q423 quarterly update summarising that its two development programmes for lead candidate Xanamem remain on track, with the Phase IIb XanaMIA study portion assessing the drug in lead indication Alzheimer’s disease (AD) still scheduled to start in H2 CY23, with results still expected in H2 CY25. For the company’s XanaCIDD study in patients with cognitive impairment (CI) associated with major depressive disorder (MDD), enrolment is approaching 25% and the company continues to expect results in H1 CY24 as it is opening new US-based study sites to compensate for regulatory delays in the UK. The company reported a 30 June cash position A$8.46m and has announced a A$10m rights offering allowing existing shareholders to purchase up to 400m shares at A$0.025 per share. After rolling forward our estimates, our pre-financing valuation adjusts slightly to A$645m, or A$0.36/share, versus A$640m (A$0.35/share) previously. Overall, we view the financing as a positive and necessary step to continue Xanamem development.

• Centene Corporation managed to exceed analyst expectations in terms of revenue as well as earnings.
• For the quarter, they increased their expectation for 2023 premium and service revenue by an additional $1.8 billion.
• The commercial HBR met the company’s expectations, considering the quarter’s 200,000 new members and the marketplace’s ongoing robust growth.

• From the outset, EOFlow (294090 KS) has traded wide (~7% of average) to Medtronic Plc (MDT US)‘s Offer. An apparent delay in filing with Korean regulators formed one argument. 
• Now there’s a compelling reason. Key insulin pump competitor Insulet  (PODD US) has filed a lawsuit accusing EOFlow of the misappropriation of trade secrets, patent infringement, and trademark dilution.
• Singapore-Based Flex (FLEX US) and three ex-employees of Insulet are also defendants. This does not bode well for the transaction. 

• This signifies the official commencement of a lawsuit against Eoflow in the United States, which has been considered one of the most significant risks for Eoflow.
• Eoflow is externally saying that the aspect of patents claimed by Insulet is actually based on previously expired patents. Hence, Eoflow believes they can win this patent lawsuit.
• This lawsuit emerged before the acquisition decision by Medtronic suggesting a need to consider trading the current spread based on the inference that the tender offer is still valid.

• Insulet Corp (PODD US)’s lawsuit against Eoflow (294090 KS) caused a sharp decline in Eoflow’s share price today (down 10.7% to 24,950 won).
• Insulet is accusing Eoflow of hiring several senior personnel that have helped Eoflow to develop a product that could take away market share from Insulet. 
• The most important factor may be Eoflow’s “special sauce” which is some kind of technology/mechanism that allows this 17% greater efficiency/convenience for the wearable EOPatch insulin device.

• DexCom delivered an all-around beat in the previous quarter.
• The company generated another fantastic quarter, with organic revenue growing by 26% in the second quarter compared to the second quarter of 2022.
• As the availability of their products expands more quickly than at any other point in the company’s history, demand for DexCom CGM keeps rising.

• Based on endogenous development and external M&A, the outlook of Hygeia is full of imagination. Hygeia also start to expand business in northwest region of China by acquiring Chang’an Hospital.
• If public hospitals have a role in “guiding patients” to Hygeia, anti-corruption campaign would affect Hygeia’s future performance, which is a significant uncertainty that could also shake its investment logic.
• There may be short-term chaos. It remains to be seen whether performance can sustain growth of around 30%. The 23H2 revenue growth would be an important guidance for Hygeia’s outlook.

• Insulet Corp (PODD US) filed with the United States District Court a complaint for patent infringement against Eoflow (294090 KS), Flex (FLEX US), Luis Malave, Steven DiIanni, and Ian Welsford.
• Insulet’s primary allegation is that Eoflow’s EOPatch device is built using Insulet’s proprietary trade secrets and infringes three Insulet US patents (‘741, ’883 and ‘950 patents).
• The most likely scenarios are that Medtronic Plc (MDT US) and Insulet sign a licensing agreement (resulting in a possible tender offer price cut) or Medtronic walks. 

• HealthyWay cannot rely on drug/product sales to achieve rapid expansion of revenue scale because it hasn’t huge user base accumulated on e-commerce platforms like Taobao/JD.com, leading to different business model.
• Relying on Baidu’s search engine to guide traffic could be worthless, because B-end users would not pay for the traffic that cannot provide added value.HealthyWay hasn’t a strong cornerstone business. 
• HealthyWay’s valuation should be lower than that of ClouDr. Due to the lack of imagination space in business model, it would to some extent suppress the valuation growth of HealthyWay.

• From a niche player to a global high-flyer – Shofu is a domestic market leader in developing and manufacturing dental materials and equipment.

• With its proprietary technology and expertise, it is aiming to become a global top 10 player with a strategic focus on overseas expansion.

• With an addressable market estimated to become up to 20 times larger than Japan, growth prospects are high and the company is gaining solid traction with FY3/2023 results set to reach record highs.

• After its initial bid of $3.00/share was rejected by Estia Health (EHE AU), Bain returned on the 7 June with a $3.20/share non-binding proposal and was granted exclusive due diligence.
• Estia and Bain Capital have now entered into a Scheme Implementation Agreement at A$3.20/share, a 50% premium to undisturbed. 
• A shareholder meeting is expected to be held in November with implementation expected prior to the end of 2023. 

• Estia Health (EHE AU) has entered a SID with Bain Capital at A$3.20 per share, a 49.5% premium to the undisturbed price (21 March).
• The offer is attractive in comparison to historical share prices and multiples. The offer is also attractive in comparison to the Japara Healthcare (JHC AU) precedent transaction. 
• The MAC clause, particularly around material regulatory events, could be risky. At the last close and for an end-of-December payment, the gross and annualised spread is 3.7% and 9.5%, respectively.

• Sun Pharmaceutical Industries (SUNP IN) reported 11% YoY revenue growth to INR118B in Q1FY24, mainly driven by the U.S. business. EBITDA margin expanded 109bps to 27.9%.
• Net profit declined 2% YoY to INR20B due to certain one-off charges amounting to INR3B. Excluding the exceptional items, adjusted net profit grew 14% YoY to INR23B.
• With 26 marketed products globally, Sun Pharma is betting big on specialty products. Specialty pipeline includes 5 molecules undergoing clinical trials. Specialty R&D accounts for 35% of total R&D spends.

• BeiGene maintained strong product sales in 23H1 and its net loss continued to narrow. This means that BeiGene has realized the cost control problem and entered a healthy growth phase.
• Our revenue forecast indicates BeiGene is approaching the minimum threshold for turning losses into profits. A more likely scenario is revenue need to reach over US$4 billion to be breakeven
• However, regardless of the calculation, BeiGene ‘s valuation is still unreasonably high. Its potential/certainty is nowhere near that of Alnylam. Maintaining sustained high growth is not easy because “accidents” remain.

• Laboratory Corporation of America delivered a disappointing set of results as the company was unable to meet the revenue expectations as well as the earnings expectations of Wall Street.
• Base business revenue and base business revenue of Diagnostic Laboratories grew driven by strong base business volume and Ascension.
• Labcorp, a segment of the company’s laboratory services business, delivered exceptional growth in its Diagnostic Laboratories and generated strong progress in Central Laboratories.

• Astellas Pharma (4503 JP) reported Q1FY24 results, with revenue beating and operating and net profit missing consensus. Revenue declined 2%, while operating and net profit increased 17% and 13%, respectively.
• Astellas has reiterated FY24 revenue guidance of ¥1,520B, while reduced operating profit guidance by ¥29B to ¥259B (+95% YoY) and net profit guidance by ¥23B to ¥204B (+106% YoY).
• On August 4, Iveric Bio has received FDA approval for Izervay for the treatment of geographic atrophy secondary to age-related macular degeneration, which impacts approximately 1.5M people in the U.S.  

• HUTCHMED’s 23H1 results were in line with expectation. We updated our forecast for the three core products. Its 2023 total revenue would achieve a high double-digit growth. HUTCHMED is undervalued. 
• Performance prospects for 2024 and beyond largely depend on whether fruquintinib can smoothly obtain FDA approval in 2023, which means significant progress in internationalization and possibility of breakeven in 2025.
• Based on the performance so far, we think the clarity of HUTCHMED’s performance is high and the guidance given by management is reliable. The Company deserves more attention from investors.

• Sanofi, a French multinational healthcare company, terminated the SHP2 inhibitor RMC-4630 development and commercialization agreement in 2022. The company did not disclose any specific reasons.
• However, Revolution Medicines regained all global rights granted to Sanofi, and management reiterated that RMC-4630 is a potentially important RAS oral inhibitor in the company’s pipeline.
• A US-based oncology company completed a public equity offering in March and raised ~$324M of net proceeds. Moreover, Revolution Medicines acquired EQRx and secured access to $1B+ of capital. 

• Eisai Co Ltd (4523 JP) reported 7% YoY revenue growth in Q1FY24, due to the growth of anticancer agent Lenvima mainly in the U.S. and insomnia treatment Dayvigo in Japan.
• The company has reiterated FY24 guidance, which calls for 4% YoY revenue decline, 25% YoY growth in operating profit, and 31% YoY decline in net profit.
• On July 6, 2023, Eisai received full FDA approval for Leqembi (lecanemab) injection for the treatment of Alzheimer’s disease. Leqembi is progressing steadily toward treating 10K U.S. patients in FY24.

• The rally of TCM companies has probably come to an end. But we think there would be good trading opportunities in 23Q4. Things could become challenging again in 24Q1.
• If P/E is used when calculating the valuation of innovative pharmaceutical companies, unreasonable situations may arise. Sales profit rather than net profit could be a better choice for P/E.
• Although iRay’s current P/E has fallen in reasonable range, due to concerns about its long-term growth prospects, valuation could further decline in long term. So, just short-term trade is recommended.

• Mettler-Toledo International delivered a mixed result in the recent quarter, with revenues below market expectations but managed to surpass the analyst consensus regarding earnings.
• The sales growth included strong growth in the company’s service business as well as solid performance across its industrial product classes.
• In China, market demand deteriorated due to growing uncertainty around the pace of limited government stimulus and economic growth.

• Concord Biotech Ltd (658823Z IN) is looking to raise around US$188m in its India IPO.
• Concord Biotech (Concord) is an India-based biopharma firm, which develops and manufactures fermentation-based active pharmaceutical ingredients (APIs).
• In this note, we will undertake a peer comparison, and share our thoughts on valuation.

• ASRT reported better than expected second quarter revenue, but surprised investors with the announcement of a generic competitor for Indocin leading to management pulling guidance.
• Indocin has been on the market for many years and generic competition was likely. Yet, there is no information on how well the competitor could manufacture enough indomethacin 
• We do not believe the third quarter is at risk and we doubt more generic competitors would surface.

• HK inno.N (195940 KS) recorded impressive sequential improvement in 2Q23 result, while YoY comparison is negatively impacted by high base due to one-off cervical cancer vaccine revenue recorded in 2Q22.
• In 2Q23, revenue increased 11% QoQ to KRW204B and operating profit grew 172% QoQ to KRW15B. Growth was mainly driven by a 19% QoQ growth in K-CAB domestic revenue.
• HK inno targets KRW1T K-CAB revenue by entering 100 countries globally by 2028. The company is adding new growth engines such as IV fluids products, MSD vaccine, and biosimilars.

• Singapore-headquartered RNA technology company, Mirxes Holding, has completed its Series D funding round, securing US$50 million.
• The round is anchored by existing and new investors, including Beijing Fupu, EDBI, Mitsui & Co., NHH Venture Fund, and the Agency for Science, Technology and Research.
• Mirxes Holding will use the capital to scale the adoption and penetration of its stomach cancer blood test, GASTROClear, in major Asia-Pacific markets, including Southeast Asia, China, and Japan.

OSE Immunotherapeutics (OSE) has announced that it has received grant innovation funding of €200,000 from the French government and Region Pays de la Loire. While the national backing and funding (especially in a tough macroeconomic environment) are positive developments, we view RNA therapeutics as an additional and complementary technology, albeit early-stage preclinical, to expand OSE’s R&D engine platform. The RNA field has garnered significant attention and commercial success with the mass distribution during the COVID-19 pandemic and serve as a new opportunity for OSE.