Healthcare

• China Resources Medical has more advantages than ordinary private medical institutions in terms of its State-owned Key Enterprises background, delicacy management, cost reduction and efficiency increase, resources/talents, industrial chain layout.
• However, due to the policy environment, China Resources Medical just represents “a small area of relatively little risk in a large area that is clearly risky”. 
• General hospitals have poor business model and profitability. Despite its strength, we are conservative about the outlook of China Resources Medical, which is difficult to achieve a higher valuation.

• One trend that has accelerated in the last few quarters is the pace of acquisitions being made by cash-rich companies.
• The significant Macroeconomic uncertainties that lie ahead, coupled with record cash balances at the largest firms on Wall Street, have only accelerated the pace of industry consolidation.
• It’s no secret that high-quality De-SPACs with strong earnings have been prime takeover/acquisition targets in recent months after seeing their shares take a beating through the year.

• It can be said that companies that do not specify cash allocation and only execute shareholder return, thus encouraging shareholders to find and invest in reinvestment targets on their own.
• Since the stock valuations of companies as a whole haven’t increased, investment capital has gone to a few companies with high profitability, raising gap between profitability and valuations among companies. 
• If the information asymmetry between management and investors could be bridged, even changes in the capital structure could have an impact on stock prices.

• Intuitive Surgical (ISRG US) reported Q2 results, which missed expectations. Overall performance was impacted by COVID-19 resurgence and macro headwinds including inflation and supply chain constraint.
• Despite lockdowns in its second biggest market of China, the company reported worldwide da Vinci procedures growth of 14% y/y, in-line with earlier full-year guidance range of 12–16%.
• With China showing signs of recovery, Intuitive now expects worldwide da Vinci procedures to grow 14.0–16.5% in 2022. However, soft U.S. hospital capex remains an area of concern.  

For our next Webinar, we are delighted to welcome back Analyst Jesus Rodriguez Aguilar who will take us through his top ideas in Europe’s M&A landscape.

• Comirnaty had had a significant positive impact on Pfizer Inc (PFE US)’s revenue in 2021. 2022 will be no different. However, outlook for COVID-19 vaccine is uncertain beyond 2022.
• Apart from the existing blockbuster fast-growing drugs, Pfizer has a rich late-stage pipeline. Its alopecia areata drug candidate, ritlecitinib has potential to become a blockbuster drug.  
• Pfizer aims to add $25 billion revenue to its 2030 top-line expectations. Thus far, the company has announced two deals toward this ambition, entailing potential revenue addition of $7.5 billion.

• Abbott Laboratories (ABT US) reported strong Q2 results, thanks to higher-than-expected COVID-19 test-related sales of $2.3 billion. However, base business remained muted due to nutrition product recall and manufacturing shutdown.
• FreeStyle Libre revenue grew 19% y/y to $1.1 billion in the quarter, with a global user base exceeding 4 million. Abbott received FDA approval for FreeStyle Libre 3 system.
• The company has raised 2022 EPS guidance 4% to $4.90 and ahead of consensus. COVID testing revenue guidance was also raised by 36% to $6.1 billion.

• The growth in revenue and profit was mainly driven by the face mask business, but this business has ceased, which raises the concerns on future growth momentum of Best Wellness.
• Best Wellness’s weak performance of its own-brand business would prevent it from standing out in the fierce market competition in the long term. 
• Together with over-reliance on limited customers and the complex international relations, we are conservative about the Company’s outlook at the current stage.

• Innovent is expected to transform from a biotech to a biopharma. From the present point of view, the Company is a better comprehensive choice of certainty, elasticity and safety.  
• With high R&D efficiency, strong sales capability, top talent teams, and mindset keeping pace with the times, investors could consider to replace Hengrui with Innovent in the portfolio.  
• Innovent’s valuation anchor is HK$40 billion, below which it’s undervalued. Its market value could reach about RMB80 billion to RMB120 billion, based on sales of RMB10 billion to RMB15 billion. 

• Healthvista India (1370230D IN) is looking to raise about US$126m in its upcoming India IPO. The deal will be run by SBI Cap, IIFL Securities and JM Financial.
• Healthvista India is an out-of-hospital healthcare service provider. Under its brand Portea, it offers services such as primary care, geriatric and palliative care, amongst others. 
• It also distributes specialty pharmaceuticals and provides “point of care” medical equipment for sale and rental.

• Medical tourism in India was negatively impacted by the pandemic. As the government is lifting travel restrictions, reopening border, and resuming international flight services, medical tourists have started returning back.
• Large corporate hospitals, having pan-India presence, like Apollo Hospitals Enterprise (APHS IN) are set to benefit from this trend. Medical tourism contributed 10% of revenue of Apollo in pre-pandemic era.
• Apollo’s market dominance and expansion plan in hospital and foray into online services have sharpened its competitive edge over competitors. Its healthcare business is expected to grow mid-teens this year.

• This is our first report on rare disease specialist, BioMarin Pharma.
• The company had a decent start to 2022 recording $519 million in total revenues in the previous quarter.
• The $20 million in Voxzogo contributions during the first quarter increased the company’s full-year 2022 guidance to between $100 million and $125 million and will play a significant role in its future growth.

• New Horizon Health released positive profit alert last Friday. We speak with management post the profit alert.
• The company is expected to achieve 410.9% total revenue growth compared to a year ago in 1H2022, based on the middle point of guidance.
• The company has also achieved margin expansion thanks to a favorable change of mix to the high margin channel. 

• China Traditional Chinese Medicine released unsatisfactory 2022H1 profit warning, which was mainly due to the poor performance on both revenue and cost side of its core business concentrated TCM granules.
• We analyzed the policy impact and business outlook. The Company’s performance would be under pressure in 2022. The VBP impact on concentrated TCM granules hasn’t shown up in financial reports.
• Overall, we are skeptical of the Company’s profitability in the long term, and its profit margin will struggle to support a significant expansion in valuation.

• GlaxoSmithKline PLC (GSK LN) shareholders on 6 July overwhelmingly approved the long-awaited demerger of its GSK Consumer Healthcare unit newly-named Haleon (HLN LN) earlier this month. 
• While not originally universally-desired (Elliott wanted a sale), it was overwhelmingly approved. Haleon lists Monday 18 July with a £40+bn valuation resulting in FTSE 100 and Stoxx Europe 600 changes.
• GSK investors get 1 share of Haleon for every share of GSK held. Post-demerger, the public owns 55%, Pfizer ~32%, GSK ~13%. Lockup ends 10 November. There will be overhang.

• CSPC Pharmaceutical Group (1093 HK) reported Q1 results, with revenue growth of 17% y/y to RMB8 billion, driven by a 15% y/y growth in finished drugs revenue.
• Oncology, with 34% contribution to finished drug revenue remained the main growth engine. Oncology revenue grew 15% y/y. The company has launched one new innovative oncology drug in Q1.
• CSPC’s net profit declined 5% y/y to RMB1.40 billion, dragged by fair-value losses of RMB133 million on its financial assets. Without considering one-off charge, net profit would have increased 10%.

• The cryoablation market accounts for about 1/3 of the total tumor ablation market overseas, while this percentage is less than 1/10 in China, indicating promising growth potential in the future.
• Cryofocus Medtech (Shanghai) (CFM HK)’s products and candidates do have technical advantages, offering more choices for patients and doctors.
• However, the commercialization outlook remains to be seen because of the potential large price reduction after entering national medical insurance coverage and the uncertainties over acceptance by patients and doctors.

• Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry.
• Overall, net outflow over the past week was ~US$1.28bn, split between Shanghai (-US$0.85bn) and Shenzhen (-US$0.43bn)
• The largest inflows were into Aier Eye Hospital (300015 CH) and Shenzhen Mindray  (300760 CH). The largest outflows were in China Merchants Bank (600036 CH) and Sungrow Power (300274 CH).

• Alkem Laboratories Ltd (ALKEM IN) earns 71% of total revenue from domestic business, which is the most important growth lever of the company. Domestic business revenue grew 29% in FY22.
• The company dominates the anti-infective segment, through its mega brands, with a market share of 12.9%. In the chronic segment, Alkem is growing fast to emerge as a significant player.
• Regular new product launches, including biosimilars, should continue to contribute to Alkem’s growth and fill portfolio gaps. Entry into new therapies would also be an important growth engine, going forward.

• Piramal Enterprises (PIEL IN) obtained shareholders nod for demerging its pharma business and consolidated under Piramal Pharma Limited (PPL). Later, PPL will be listed on India stock exchange.
• PPL has a differentiated pharmaceutical business model, with three business verticals. CDMO, the largest revenue contributor, has track record of consistent above-market growth due to its niche and complex capabilities.  
• Listed as a separate entity, PPL will see multiple expansion and command premium valuation over other Indian generic drug makers, due to its niche and limited competition portfolio.

• Giant Biogene Holding (GBH HK) has filed for a Hong Kong IPO for raising as much as $1 billion. The company is China’s largest supplier of collagen-based skincare products.
• Through its dual-pronged “medical institution + mass consumer” sales strategy, the company has increased revenue to RMB1,553 million in 2021 from RMB956.7 million in 2019.
• The collagen-based skincare market in China is expected to grow from RMB9.4 billion in 2022 to RMB77.5 billion in 2027, at a CAGR of 52.6%, thereby offering significant growth opportunity.