Healthcare

• Jcr Pharmaceuticals (4552 JP)‘s cash cow Growject, recombinant human growth hormone, is reporting decelerating revenue due to insurance price revision. The drug is also facing competition.  
• JCR’s latest marketed product Izcargo is on a strong growth trajectory. However, the drug is not big enough to compensate for the revenue loss from Growject.  
• The company’s bottom-line is under pressure due to elevated R&D expenses. Cash position has also deteriorated. No near-term product launch is anticipated.  

• ASRT is not including the recent guideline change at American Society for Gastrointestinal Endoscopy (“ASEG”) for using indomethacin as part of their 2023 outlook allows ample room to the upside.
• ASRT had previously provided preliminary fourth quarter results. The official numbers were not much different
• Indocin has been the core of ASRT’s revenue and free cash flow. The new guidelines could become a game changing event for the drug and ASRT

Immix Biopharma has expanded both its clinical and technology portfolio with the in-licensing of its first CAR-T cell therapy, NXC-201. The treatment is being investigated in a Phase Ib/II open-label study for multiple myeloma (MM) and light chain amyloidosis (ALA). The trial intends to recruit up to 100 patients and management believes positive results may potentially support early regulatory approval. In our view, NXC-201 may provide Immix with the scope to expand into new indications within oncology, particularly among hematological malignancies. NXC-201’s clinical development is being independently financed under a subsidiary of Immix (Nexcella, of which Immix owns 98%). Our valuation of Immix is US$61.5m or US$4.4 per share (previously US$55.4m or US$4.0 per share). We await further NXC-201 clinical data and communication on its development plan before including it in our valuation.

• Vertex Pharmaceuticals ended the year on a strong note, with full-year global CF product revenue rising 18% from 2021.
• Their mid- and late-stage clinical pipeline holds the opportunity to provide patients across 8 disease areas with potentially transformative impact.
• The management forecast for product revenue for the entire 2023 fiscal year is $9.55 billion to $9.7 billion, which, after factoring in an estimated 1.5% FX headwind, represents 7% to 9% growth year over year.

• In this insight, we discuss the alpha generation through companies that have been buying back their shares in the Korean stock market in 1Q 2023.
• We provide a list of 23 stocks in the Korean stock market that have announced share buyback programs in 1Q 2023.
• Some of the larger companies (with more than 1 trillion won in market cap) that have recently announced share buybacks including Celltrion Healthcare have been outperforming the market.

• Hanall Biopharma (009420 KS)‘s partner Harbour BioMed reported positive top-line results from Phase 3 trial of batoclimab in myasthenia gravis in China. 250K people suffer from myasthenia gravis in China.  
• Harbour BioMed plans to file for marketing approval of batoclimab this year. Hanall is eligible for high-single-digits to mid-teen percentage royalties on net sales of batoclimab.
• Hanall reported record high revenue of KRW110 billion in 2022. However, net profit plunged 78% to KRW2 billion due to increased investments in R&D.

• Basecare has its strength in reproductive genetics medical device industry. Its performance improved based on 22H1 results. If positive momentum continues, Basecare is able to achieve breakeven in foreseeable future. 
• However, the actual market penetration of assisted reproduction in China is much lower than expected. This means the growth ceiling of Basecase is uncertain, indicating potential problems in long-term logic.
• Basecase’s market value has fallen below its cash balance. There’s a mismatch between the intrinsic value and market price, so we expect that valuation repair could occur in the future. 

• Sosei Group (4565 JP) is a Tokyo-based biopharma group which started small, got big and exciting, and hasn’t grown in market cap in years, while it has grown in ambition.
• It has strategic relationships with AbbVie, Biohaven, Genentech, GSK, Takeda, Pfizer, AstraZeneca, and Takeda and a market cap near ¥200bn.
• It has always had impressive shareholder support. Now after nearly 20 years on TSE Mothers/Growth (the limit was supposed to be 10yrs), it moves to TSE Prime and TOPIX.

• Ryman Healthcare (RYM NZ) announced a US$569m (NZ$902m) raising via a renounceable entitlement offer to reset the firm’s capital structure and reduce its gearing. 
• The institutional part of the entitlement offer saw a strong take up and the shares have held up above the entitlement offer price since the deal was announced.
• In this note, we will talk about the upcoming retail shortfall bookbuild and other updates since our last note.

Recce Pharmaceuticals is developing a novel class of broad-spectrum synthetic anti-infective drugs to which, so far, all tested bacteria have been unable to develop resistance. This could be a very desirable trait given widespread concerns about antimicrobial resistance (AMR). The lead indication for Recce’s synthetic polymer antibiotic, Recce 327 (R327), is sepsis, a substantial area of unmet need with significant mortality and high costs of care. A Phase Ib/IIa multiple-dose study of an intravenous (IV) R327 formulation in healthy subjects is planned to start in H1 CY23. The company is also assessing other infection indications, such as complicated urinary tract infections (UTIs). A topical (spray-on) formulation of R327 is also being assessed in human trials for burn wound infections, and a new study for diabetic foot infections is expected to start shortly. We value Recce at A$497m, or A$2.79/share.

• Prodia (PRDA IJ) has released a new app called U by Prodia. Initially, U by Prodia users will be able to access laboratory examination, health supplement purchasing, and home services.
• Given its expected miniscule contribution of 15–17% to total revenue, digital platform even if being on a higher growth trajectory, cannot be a significant revenue driver.
• Declining COVID testing revenue are negatively impacting diagnostic players globally. During 9M2022, Prodia reported revenue of IDR1,580B, representing 21% decline, while net profit plunged 46% to IDR275B.

• Regeneron Pharmaceuticals delivered impressive fourth-quarter results with revenues as well as earnings being well above analyst expectations.
• These initiatives position Regeneron for a potential U.S. launch in late August this year.
• We give Regeneron Pharmaceuticals a ‘Hold’ rating with a revised target price.

• Global Health (Medanta) (MEDANTA IN) reported double-digit growth in revenue, EBITDA, and net profit during Q3 and 9MFY23, driven by increasing footfalls, rising ARPOB, and faster-than-expected ramp-up of new hospitals.
• The company plans to add 1,000–1,500 beds in next 2–3 years, with ~70% of the planned bed addition being at existing hospitals, thereby entailing lower capex per bed.
• Recently, Medanta has announced a new asset light partnership to launch a 300-bed hospital in Indore under operations and management arrangement. The hospital is expected to commence operation in FY27.  

• IDEXX had a strong finish to the year, reflected in the company’s all-around beat in the last quarter.
• Its revenues increased organically, driven by organic gains in CAG Diagnostic and strong growth in its water and software businesses.
• Organic revenue growth in the quarter was supported by solid organic growth across its major business segments and growth in diagnostic imaging and veterinary software revenues.

• MP1000 has strong technical strength, setting it apart from Toumai. SP1000’s advantages are more obvious and the competitive landscape is also better than multi-port surgical robots, indicating corner overtaking opportunity.
• With favorable policy support, Shenzhen Edge Medical (SEM HK) is embracing a golden opportunity. But the commercialization outlook of surgical robots in China is actually not optimistic.
• As a later-comer in surgical robots industry, without the synergy from parent company, Edge’s future sales performance could be even weaker. So, its valuation should be lower than Medbot.

FY23 is shaping up to be a busy clinical year for Oryzon with readouts and trial initiations expected across its lead assets. The next major clinical milestone for iadademstat in oncology is the initiation of the Phase Ib FRIDA study in second-line FLT3+ relapsed/refractory (r/r) acute myeloid leukaemia (AML) patients with the trial expected to start imminently. Oryzon’s lead central nervous system (CNS) clinical asset, vafidemstat, is being assessed for the treatment of borderline personality disorder (BPD) in the Phase IIb PORTICO study. Interim data readouts are expected from the trial in Q123, which we view as the next major upcoming catalyst for investor attention. Our valuation of Oryzon remains largely unchanged at €869.0m or €15.6 per share (previously €846.7m or €15.5/share).

• SK Bioscience (302440 KS) reported sluggish performance in 2022, with revenue and net profit declining 51% and 66%, YoY, respectively, due to the weakening demand of the COVID-19 vaccines.
• Although the company’s shingles vaccine is the leader in domestic market, it is facing new competition as an international player has launched a new shingles vaccine in Korea this year.
• SK Bioscience stopped production of its bread-and-butter earning flu vaccine to focus on COVID-19 vaccine, thereby losing market share to rival. Re-entering the market will not be easy.  

• It’s unrealistic to turn losses into profits by relying on BRUKINSA alone. BeiGene needs to have three blockbuster products with US$1 billion sales, which is difficult considering current pipeline situation. 
• If investors are optimistic about BeiGene, to some extent, they are betting on the success of BeiGene’s model, but of course, they should also bear the corresponding risks and costs. 
• BeiGene is overvalued, and its current market value has already priced in all positive factors. In this position, we think the risks far outweigh the benefits, because miracles don’t always happen.   

• The General Office of the State Council issued favorable policy for TCM industry. However, TCM still has to face VBP, therefore Zhangzhou Pientzehuang Pharmaceutical Co. (600436 CH) and Gushengtang are our top picks..
• Pfizer is in talks to acquire Seagen in a deal worth over US$30 billion, but we remain conservative about whether this transaction would ultimately bring expected contributions to Pfizer.
• Haohai’s business model fails to bring ideal performance. Increasing competition/declining gross margin cast doubts on the outlook of medical aesthetics business. We’re not optimistic about its potential valuation upside.

• Abbott saw another highly successful quarter and managed an all-around beat as routine testing trends and hospital-based procedures continued to improve progressively in several areas.
• In the quarter, the sales growth was impacted negatively by a year-over-year decline in the Covid test sales.
• With the recovery of the manufacturing brand, production of its non-WIC brands has increased.

• Veeva Systems finished the year on a strong note with both, its revenues as well as earnings exceeding the expectations of analysts as well as the management.
• The management claims that it was a watershed year for clinical data management, with significant momentum in emergent areas like Safety, Link, and Compass.
• We give Veeva Systems a ‘Hold’ rating with a revised target price.

• Eli Lilly had a mixed result in the last quarter as the company failed to meet the revenue expectations of Wall Street, largely on account of the forex headwinds and the influence of Alimta LOE in the U.S.
• The pharma major did manage an earnings beat.
• The company has a strong pipeline and received FDA approval for donanemab in early symptomatic Alzheimer’s disease and pirtobrutinib in mantle cell lymphoma.

• Merck has delivered a strong quarterly result to end 2022 and surpassed the analyst consensus estimates in terms of revenues as well as earnings.
• The top-line performance was driven by strength across the company’s key pillars, hospitals, vaccines, and oncology, and a significant contribution from LAGEVRIO.
• The animal health business of Merck delivered strong operational growth.

• Celltrion Inc (068270 KS) reported Q4 results, with revenue, operating profit, and net profit declined YoY and QoQ. Absence of COVID-related products dragged revenue, while non-recurring expenses impacted margins.
• Pricing pressure in biosimilar products and elevated R&D expenses are negatively impacting bottom line. With pipeline progress and upcoming product launches, R&D expenses are expected to remain elevated.
• Celltrion expects to launch Humira biosimilar in the US in July 2023. This year, 8 players are expected to launch Humira biosimilar.

• A CMA’s Phase One investigation period began on 23 January to investigate whether the deal may result in a substantial lessening of competition. Deadline for the decision is 17 March.
• EMIS anticipates closing late Q1/early Q2 2023. The Permitted Final Dividend amounts to 21.1p. No final dividend has yet been declared, although theoretically it could happen around 17 March.
• Spread is 2.96%/29.39% (gross/annualised), assuming settlement by 15 April, as good as it gets for a stock with an average daily turnover of c.GBP7 million in the European space.

• Viatris delivered a mixed set of results as it failed to meet the revenue expectations of Wall Street but managed an earnings beat.
• They dealt with intense competition for important products like Wixela and the loss of exclusivity for Miacalcin and Perforomist.
• In addition, they acquired Oyster Point Pharma and Famy Life Sciences in January to create their new Viatris Eye Care division.

• ASRT could significantly benefit from a new guideline set by American Society for Gastrointestinal Endoscopy (“ASEG”) this week related to the use of indomethacin (Indocin) post ERCP surgery.
• Indocin is ASRT’s largest source of revenue and nearly all the revenue from off-line use related to post ERCP surgery.
• We updated our earnings model when ASRT issued preliminary fourth quarter results. We believe the ASEG guidance could lead to accelerated market expansion in coming months

According to BB Biotech’s (BION’s) investment team, the biotech industry remains in a very good position. Following a sell-off in the last two years, valuations are still close to the levels seen three years ago, reflecting ongoing challenges and despite the fundamental industry strength. In the sector, BION is differentiated from the Nasdaq Biotechnology Index by its concentrated portfolio (c 30 stocks). The investment team anticipates that 2023 will include multiple catalysts for the sector and for BION portfolio companies, including product launches, important clinical trial results, licensing deals and renewed M&A activity. During 2022 the investment manager, Bellevue Asset Management, strengthened the investment team with three new members (two data scientists and one neurologist).

• Today after the close, one of the very large brokers in Japan (N_m_r_) has a block for sale of Otsuka Holdings (4578 JP). 
• It is only 2.4% of total shares out, and as such, it looks small. But it isn’t that small. The shareholder structure is crowded with non-Real World Float holders.
• The discount offered is large compared to absolute and sector-relative volatility. 

• MBK Partners and Unison Capital are trying to take Osstem Implant (048260 KS) private. Currently, it is estimated that the MBK/Unison consortium has secured 88.7% stake in Osstem Implant. 
• In the case of companies listed in KOSDAQ,  if you have a stake of 90% or more, the company can generally proceed with discussions on delisting with the exchange.
• There is a high probability of delisting sometime in March/April under two different scenarios. The second scenario offers the remaining minority shareholders and arb traders potential for further alpha creation. 

• Otsuka Estate is looking to raise US$389m via trimming its stake in Otsuka Holdings (4578 JP).
• The deal is a relatively large one on an ADV basis, at 14.6 days of three month ADV. 
• In this note, we will talk about the firm’s track record and run the deal through our ECM framework.

AFT Pharmaceuticals (AFT) has announced it has received FDA approval for Maxigesic Rapid tablets, a quick-release version of its flagship Maxigesic product line. Notably, this marks the first regulatory win for AFT in the US (the world’s largest analgesic market), valued at c US$7bn. While AFT awaits Maxigesic IV’s clearance in the US, we expect this approval to help it build initial commercial traction in this high-margin market. The Rapid tablets, a patented combination of paracetamol (325mg) and ibuprofen (97.5mg), has been authorised for the treatment of mild-to-moderate acute pain. Negotiations with potential distribution partners are ongoing, with plans to release other dose versions in the future. The market has reacted positively to the news, with shares trading up by 10% at close of business.

• In Q3 FY23, Aurobindo Pharma (ARBP IN) recorded net profit of INR4.9B (~$60 million), down 19% YoY. Consensus expected the company to report net profit of INR5.2B during the quarter.
• Net profit was negatively impacted by 51% YoY increase in R&D expenditure due to biosimilar pipeline progress. R&D expenses are expected to remain high over the next 6–7 quarters.
• The company had negative free cash flow of $82M. With lack of any immediate catalyst or shareholders’ reward, we don’t expect multiple expansion for Aurobindo Pharma at least in near-term.

Paradigm has presented its half yearly results and accounts, reflecting an active period. This included an encouraging safety review for injectable pentosan polysulfate sodium (iPPS, Zilosul) in the pivotal Phase III trial (PARA_OA_002) for patients with knee osteoarthritis (kOA) pain. The Phase II (PARA_OA_008) biomarker trial reached its primary endpoint, positioning iPPS as a potentially disease-modifying drug. In our opinion, the initiation of the confirmatory Phase III trial (PARA_OA_003) and six-month follow-up results from the PARA_OA_008 trial represent major catalysts expected in CY23. At end-December 2022, the company had A$83.9m cash, supported by an August 2022 capital raise of A$66.0m.

• Weigao formed a diversified product lines through a series of acquisitions and capital operation. Its performance is more driven by sales not R&D, with limited core competitiveness.
• Weigao’s orthopaedic products business is under pressure due to VBP, which would drag down the overall gross margin. The acquisition of Weigao New Life is hard to turn things around.
• Weigao is a holding platform, which is worthless in secondary market.There could be some temporary rebounds but share price could still underperform or its valuation is lower than comparable companies.

• ZaiLab reported C4Q22 top line 3% above our estimate. Operating profit was worse than our estimate and consensus while net income was better mainly due to government grant; 
• We maintain ZLAB’s business model is inherently flawed because each blockbuster drug it signed needs comprehensive sales support.
• As a result, ZLAB’s pipeline needs to be heavily discounted; We maintain our SELL and cut TP from US$30 to US$25.