Healthcare

• 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 – New Ruipeng Pet Group (RPET US) and Hesai Group file for US$100 million IPOs for listing in the US.
• Event-Driven developments – Aag Energy Holdings (2686 HK), Acotec Scientific Holdings (6669 HK), Xingda International (1899 HK), Kanematsu Electronics (8096 JP), Toyo Construction (1890 JP), Origin Energy (ORG AU). 

• With a minimum acceptance hurdle of 50% and irrevocables of 60.14%, Acotec Scientific Holdings (6669 HK)‘s partial offer was always going to turn unconditional. 
• As per last night’s announcement, valid acceptances were 78.59%. The Offer has automatically been extended to the 9 February – this is the final close. Pro-ration is currently 82.7%.
• The minor quirk for partial Offers is that payment occurs within seven business days of the final close, not seven days from the Offer turning unconditional. 

• Hogy Medical (3593 JP) reported 6.2% growth in revenue to ¥29.5B during 9MFY23, driven by healthy sales of Premium Kit and other non-woven products. Sales of Premium Kit climbed 12%.
• Rising cost pressure has negatively impacted margins. Gross profit margin contracted 180bps YoY to 40.6% in 9MFY23. Operating profit margin declined 20bps YoY to 17.1%.
• Hogy continued to expect revenue to rise 5.3% YoY to ¥38.7B, operating profit to grow 6.1% YoY to ¥6.5B, and net profit to increase 4.6% YoY to ¥4.57B in FY23.

• As expected, Acotec Scientific Holdings (6669 HK)’s partial offer from Boston Scientific (BSX US) at HK$20 per share is now unconditional. The final closing date is 9 February.
• The current acceptances representing 78.59% of outstanding shares imply current proration is 82.71%. Current pro-ration suggests CA Medtech post-offer shares will be counted towards the public float.
• Based on the current proration of 82.71% and at the last close price of HK$19.78 per share, the breakeven price is HK$19.00 per share. 

• Mankind Pharma is looking to raise about US$1bn in its upcoming India IPO.
• MP is a pharmaceutical company engaged in developing, manufacturing and marketing a range of pharmaceutical formulations across various acute and chronic therapeutic areas, as well as several consumer healthcare products.
• In this note, we talk about the not-so-positive aspects of the deal.

• The spring coil centralized procurement of neuro-interventional consumables in 21 provinces led by Jilin is about to start. The result may be unexpected, which could cause uncertainty to NeuroTech’s performance.
• The promotion of import substitution in the field of neuro-intervention has not been as smooth as expected. If foreign brands win the bid, doctors would give priority to imported products.
• Since NeuroTech is in leading position among domestic peers and has core R&D capabilities in this industry, we think it still has investment value. The valuation is in comfortable range.

Respiri has released its Q223 quarterly activity report and provided a business update for the quarter. The second quarter was characterised by improving commercial traction for Respiri, with the company signing three new contracts for wheezo (including Minnesota Lung Center and Arkansas Heart Hospital), taking the total client count to six at the end of the period. Respiri’s wearable device Sorfe also continues to make progress with clinical studies anticipated to commence by March/April 2023. The recent announcement of a A$1.5m capital raise (with the option to increase the offering size based on investors interest) is expected to extend the company’s cash runway to Q423, based on current burn rates. With patient onboarding ongoing at multiple sites, we expect initial cash inflows from device sales and RPM services in the coming months, which should help scale up commercial activities and likely expand the cash runway further.

• Olympus has been sold down relatively hard in the last couple of months. At the same time, we are at crunch time for the cancellation of the US ADR.
• This may create short-term overhang, but the medium-term overhang from substantial foreign net buying in H1 when USDJPY was going up may be larger. 
• This insight looks at the relative performance vs Peers, vs forward earnings expectations, USDJPY, etc.

• Just over a year ago, leading Korean dental implant and dentistry supply company Osstem Implant (048260 KS) announced the largest-ever embezzlement case in Korea. The stock was suspended.
• There were fears about forced selling by the founder, and PE funds circled. Activist KCGI probably bought in Q3 but built a 5+% stake by end-December 2022.
• Korean PE Firms MBK and Unison Capital have now launched an MBO-style Tender Offer to buy 2.4-11.2mm shares in the company at a sharp premium to the pre-activism undisturbed price.

• Mankind Pharma  is looking to raise about US$1bn in its upcoming India IPO.
• MP is a pharmaceutical company engaged in developing, manufacturing and marketing a range of pharmaceutical formulations across various acute and chronic therapeutic areas, as well as several consumer healthcare products.
• In this note, we talk about the positive aspects of the deal.

• In this insight, we take a look at the potential ADDs/DELs for the SET50 index rebalance in June 2023.
• Based on the latest available data, I expect 3 ADDs/DELs but there are multiple names lurking close to the border.
• Srisawad (SAWAD TB)  and Sansiri Public (SIRI TB) are leading the SET50 and SET100 Reserve Lists respectively and could become intra-review ADDs if the DTAC-TRUE merger closes in 1H 2023.

• Krishna Institute of Medical Sciences (KIMS IN) is seeing a continued business recovery reflected in improving operating metrics. In Q2FY23, KIMS reported record high quarterly sales, EBITDA, and footfall.
• KIMS is following a disciplined growth strategy and plans to grow into markets that are adjacent to the current core markets of Andhra Pradesh and Telangana.   
• KIMS has set foot in a new market of Maharashtra, outside of its core market. With lower margins from acquired assets than matured hospitals, KIMS has scope for margin improvement.

• CanSino Biologics Inc (6185 HK) disclosed plans to publicly list in Switzerland, but the story of the fourth dose of COVID-19 vaccine is difficult to boost its stock price/valuation. 
• According to CanSino’s management,MCV4’s commercialization faced some challenges, which means 2022 annual performance may not be good. 2021 would probably be a high point of CanSino’s performance in recent years.
• Share price could pullback when 2022 annual report is released, which offers a better opportunity if investors want to go long, considering CanSino’s long-term investment value analyzed in prior insights. 

On the heels of management’s January upward guidance revision, continued strong execution of Basilea’s outlined strategic plan (February 2022) has positioned the company to report (on a preliminary basis) its first year of operating and net profit. Management anticipates FY22 operating profit of c CHF18m, up from the previously guided CHF10–15m loss. We view this as a notable milestone for Basilea, which was achieved despite overall macro market challenges. The company continues to address an important unmet need in anti-infectives and its worldwide traction of the company’s antifungal product, Cresemba (isavuconazole), is a key driver of revenue. In FY23, we expect the company to maximize the potential of Zevtera in the US (new drug application filing anticipated in H123) while also refilling its development pipeline. Our valuation and financial estimates are under review and are expected to be updated following the release of full FY22 results on February 14.

AFT Pharmaceuticals has announced an exclusive licensing and distribution agreement for the Maxigesic intravenous (IV) formulation with Salus Pharmaceuticals (a Slovenia-based wholesaler of pharmaceutical products) for nine Eastern European countries across the Balkan and Baltic regions. Maxigesic IV is already registered in five of the nine countries, with launches planned in CY23. AFT will also file registration applications for the remaining countries during the year. Maxigesic IV is registered in 41 countries globally and has been launched in more than 10, including the key markets of France and Italy in November 2022. As AFT awaits Maxigesic IV approval in the US, we see this new agreement as an encouraging step towards expanding its international presence, in line with its strategic priorities for CY23.

• Mankind Pharma (6596876Z IN), India’s fourth largest pharmaceutical company, has filed DRHP for INR55B IPO, which is comprised of an OFS of 40M shares by promoters and existing investors.  
• Mankind has 36 pharma brands that have each achieved annual revenue of more than INR500M. 18 of its brands are among 300 top selling brands of the Indian pharma market.
• During FY20–22, domestic sales of Mankind had a CAGR of ~16%, which is ~1.5 times that of the Indian pharma market, which grew at a CAGR of ~11%.

• On 24 January, it was reported in Maeil Business Daily that MBK and Unison Capital are ready to take over the management rights of Osstem Implant through a tender offer.
• For now, Osstem Implant, MBK Partners, and Unison Capital have not confirmed on the validity of this news.
• We would attach a 70-90% probability that indeed MBK Partners and Unison Capital Korea are ready to launch a tender offer on Osstem Implant.

• HUTCHMED entered into an exclusive license agreement with Takeda- HUTCHMED will receive up to US$1.13 billion including US$400 million upfront, the third highest upfront among China’s TOP 10 license-out deals.
• Even if fruquintinib may probably not become a blockbuster product in the future, HUTCHMED still gets a decent upfront to relieve its cash flow pressure and an internationalization admission ticket.
• Hutchmed China Ltd (13 HK) is undervalued based on our sales forecast. After savolitinib has been included in the updated NRDL, this year’s performance growth is worth looking forward to.

• Maekyung exclusively reports MBK will do a tender offer to Osstem Implant shareholders at a 20% premium to buy a 15% stake.
• As Maekyung is a first-tier news outlet in Korea, we have to see enough credibility in this report. We should expect to see it in an official regulatory filing soon.
• We should design a play that actively utilizes the tender offer event very elaborately. Here, we need to consider immediate offerings and potential delisting from a longer-term perspective.

• The equity story expands across all of Bayer’s three segments. Positive signs in Pharma, Crops Sciences, and Consumer Health are showing, which we believe are misunderstood by the investment community
• Bayer has seen a material share price decline driven by litigation issues, while earnings showed solid progress.
• Positive news from the Pharma pipeline and progress in the high value seed business as well as the litigation cases removed from the spotlight should help the stock rerate.

• PolyNovo Ltd (PNV AU) reported record high sales of A$27.3 million, up 67.5% YoY during H1FY23, mainly driven by the strong momentum in the U.S.
• The company has continued to increase the sales team, particularly in the U.S. which has driven sales growth and customer account acquisition, entailing long-term visibility.
• Recently, PolyNovo has raised A$53 million to fund its global growth aspirations. The company is entering new markets, enhancing portfolio, and expanding manufacturing facility to support 5x sales.

• Teladoc Health delivered a decent result for the last quarter and managed to exceed the revenue expectations as well as the earnings expectations of Wall Street.
• Teladoc concluded the quarter with a total US paid membership of 57.8 million members, an increase of 1.2 million members over the second quarter, driven by a combination of new virtual care client onboardings and population expansions within current clients.
• The management conducted their client advisory panel with representatives from 30 health plans, sizable employers, and health systems in attendance.

• Takeda announced Monday that it has entered into an exclusive licensing agreement with HUTCHMED (China) for further development and commercialisation of Fruquintinib outside of Mainland China, Macau and Hong Kong.
• Takeda will pay HUTCHMED $400m upfront and up to $730m in additional potential payments relating to regulatory, development and commercial sales milestones, as well as royalties on net sales.
• Fruquintinib was approved in China in 2018, is a highly selective, oral VEGFR1/2/3 Tyrosine Kinase Inhibitor and offers potential new treatment option for patients with refractory metastatic colorectal cancer (CRC).

• Zadaxin has been the biggest performance driver of SciClone, but it would face the risk of losing market share and increased pricing pressures after generic drugs were included in VBP.
• SciClone is primarily a pharmaceutical development/sales company, rather than a research-based innovative drug company.The increasingly low cost performance of in-licensed products has made the capital “reconsider” and be more rational.
• SciClone is a good stock for short-term trade, especially by taking advantage of the positive momentum after it reaches licensing deals/launches new products, but we’re concerned about its long-term prospects.

As Medlab Clinical moves into 2023, the expected commencement of a Phase III trial for NanaBis (the company’s cannabinoid based analgesic therapy) in cancer-induced bone pain will be the focus for investors. Management made considerable progress towards Phase III in 2022, by switching to a purely synthetic cannabinoid formulation and gathering encouraging real-world data on NanaBis use. We believe these actions should maximise the potential for NanaBis in both a regulatory and a commercial setting. We note that successful progression of the company’s programmes will be contingent on Medlab’s ability to raise capital, given the short cash runway (funded into March 2023) and recent setback with the Nasdaq listing plans. We update our estimates to reflect the financing risk and macro uncertainty, resulting in our valuation decreasing to A$183.5m or A$80.4/share, from A$236.1m or A$103.5/share.

• Chugai Pharmaceutical (4519 JP) recorded double and triple-digit revenue growth from Hemlibra in domestic and export markets, respectively during 9M2022. Growth momentum is expected to continue.
• Both Actembra and Ronapreve have limited revenue potential from COVID-related indications. Ronapreve reported revenue of ¥60.8 billion in 1Q22 in domestic market, with no reported revenue in two subsequent quarters.
• Actemra will face biosimilar competition. This month China has approved first Actembra biosimilar, while a couple of others are under review of the FDA.  

• The 2022 NRDL negotiation results were released. We analyzed some points worth investor’s attention.
• The “safety pad” brought by medical insurance is difficult to ensure products future sales.Even after entering NRDL, how to improve patient/doctor coverage is an important problem for enterprises to consider.
• Here are some companies that investors are interested in. We mainly analyzed some key points of them, including Sirnaomics (2257 HK), JW Therapeutics (2126 HK), Antengene (6996 HK). 

• Sun Pharmaceutical Industries (SUNP IN) is acquiring the U.S.-based late-stage biotechnology company, Concert Pharmaceuticals (CNCE US) for $576M in equity value. The transaction is expected to be completed in 1Q23.
• Concert has completed the evaluation of the efficacy and safety of its lead candidate, deuruxolitinib in adult patients with moderate to severe Alopecia Areata in its phase 3 clinical program.
• With the disease affecting up to ~1.5M people in the U.S., Alopecia represents potential blockbuster opportunity. Sun Pharma plans to file NDA for deuruxolitinib to the FDA in 1H23.

• On 20 January, KCGI private equity fund formally started its corporate governance activist campaign on Osstem Implant (048260 KS).
• KCGI officially going activist on the company, its strong fundamentals and deep discount valuations suggest that Osstem Implant’s price is likely to outperform KOSPI by a wide margin in 2023.
• KCGI has demanded Kyoo-Ok Choi (Chairman of Osstem Implant) to resign.

• Obi Pharma Inc (4174 TT) is developing novel therapeutic agents for unmet medical needs against cancers. The company’s lead pipeline candidate, adagloxad simolenin is a first-in-class cancer vaccine candidate.
• Currently, adagloxad simolenin is in phase 3 study as an adjuvant treatment of high-risk, early-stage, Globo H-positive triple negative breast cancer, which represents 15–20% of breast cancer cases.
• The company has a cash runway through 2024, while phase 3 trial is expected to be completed in 2025. With the pipeline progress, operating expenses are expected to increase.

EMIS Group’s year-end update confirms that FY22 revenue and adjusted operating profit were in line with the board’s expectations and it closed the year with net cash of £45.9m. The company also confirmed that a merger notice has been filed with the Competition and Markets Authority (CMA) regarding its takeover by UnitedHealth. The CMA’s Phase One investigation period commences on 23 January and EMIS expects the acquisition to complete in late Q123 or early Q223.

• Kalbe Farma (KLBF IJ) remains an interesting proxy for the deepening penetration of healthcare and greater health consciousness in Indonesia through its prescription drugs, consumer health and nutritional products.
• The company continues to expand its scope if pharmaceutical products into areas such as oncology and biosimilar drugs, as well as growing its exposure BPJS with carefully selected unbranded generics. 
• Its distribution and logistics business continues to be a growth driver, it onboards new third-party principals. Valuations below 5-year historical average on a PER basis despite higher projected growth ahead. 

• 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.
• Stocks mentioned include Asymchem Laboratories (6821 HK), Honbridge Holdings (8137 HK), Flat Glass (6865 HK), and Gushengtang (2273 HK).

• Sosei Group (4565 JP) is currently eligible for total milestone payment of more than $9.5B for its existing collaborations. During 9MFY23, Sosei reported revenue growth of 141% YoY to ¥8.6B.
• Pfizer Inc (PFE US) has dosed first subject in phase 2 clinical trial of type 2 diabetes drug candidate PF-07081532. Achievement of this milestone triggers a $10M payment to Sosei.
• Sosei has four programs in preclinical studies and 10+ in discovery phase, which are still unpartnered. The company has a cash runway into 2025 to fund its drug discovery activities.