Daily Brief Health Care: China Traditional Chinese Medicine, Sawai Group Holdings, Classys, Otsuka Holdings, Cencora , BB Biotech AG, Bayzed Health Group, Newron Pharmaceuticals and more

• On no news, China Traditional Chinese Medicine (570 HK) shares declined 12% today. We spoke to several readers to gauge the likely reasons for the fall.
• The speculation is that the fall could be due to forced liquidation, Sinopharm’s new Chairman pulling the offer, the consortium unravelling, SAMR issues and Ping An blocking the deal. 
• There is clearly news behind today’s fall, but none of the above rumours seem credible. The risk/reward is attractive as the upside (25% spread) outweighs the downside (18% to undisturbed).

• Two years ago, generic pharmaceuticals co Sawai Group Holdings (4887 JP) traded at 10x PER, 6% ROE, and far below book. 10mos ago the price got back to 1x PBR.
• By then, their US sub had partly been put into “Current Assets AFS” as it was for sale. By Dec23, it was completely there. In Jan, a “business review” announcement.
• The US business sale led to a loss, but growth this year, and a new MTMP in early June. Monday, we got a HUGE buyback announcement. Today, an 8+% pop.

• On 25 June, Classys (214150 KS) announced a merger with Ilooda (164060 KS). The merger ratio is set at 0.1405237 to 1 for Classys and Ilooda.
• This merger aims to combine Classys’ expertise in high-intensity focused ultrasound (HIFU) with Ilooda’s in micro-needle radio frequency (RF) and laser technologies.
• We have a positive view of this merger between Classys and Ilooda. This merger is likely to reduce the overall competition in the aesthetics devices market in Korea.

• Otsuka Holdings (4578 JP) announced FDA acceptance of indication expansion filing for Rexulti for the treatment of post-traumatic stress disorder. The FDA action date is February 8, 2025.
• Due to impairment loss associated with termination of a pipeline asset, the company has reduced operating and net profit guidance for 1H24. However, 1H24 revenue guidance has been raised.
• 2028 revenue is expected to reach ¥2.5T, an increase of ¥480B from 2023 results, that too after absorbing the negative impact of ~¥310B for loss of exclusivity of core drugs.

• Cencora, a leading healthcare solutions company, held a discussion reviewing its fiscal 2024 second-quarter results, highlighting both strengths and areas of concern as the organization continues to navigate a complex and evolving market landscape.
• The transition announcement of Bob Mauch replacing Steven Collis as CEO presents both an opportunity for continuity and the challenge of strategic execution during leadership changes.
• Revenue for the quarter increased by 8%, with an adjusted EPS growth of 9%.

In our last BB Biotech (BION) review note, published in May 2024, we noted that the biotech sector was eagerly awaiting some key milestones, the most important being Alnylam Pharmaceuticals’ late-stage clinical trial of vutrisiran for patients with ATTR cardiomyopathy, a deadly heart disease. Alnylam, which comprised 4.3% of BION’s portfolio at end March 2024, released very positive, statistically significant, Phase III trial results this week. Assuming regulatory clearance, Alnylam expects that vutrisiran has the potential to become the new standard of care for the treatment of this disease, driving substantial future growth for the company. These results may have favourable implications for sentiment across the broader global biotech sector, and for Ionis Pharmaceuticals, BION’s largest portfolio position, which is also developing gene-silencing technology.

• Bayzed’s business model is similar to that of Hygeia and Inkon Life Technology. However, Bayzed’s profit margin is largely lagging behind peers. This makes us concerned about its future profitability.
• The nationwide expansion of oncology hospitals is very challenging. Bayzed’s expansion pace may not be as fast as expected if it hopes to control the quality of expansion.
• Due to “heavy asset” model, Bayzed would continue to face capital pressure.The latest valuation of Bayzed in 2023 is RMB2.625 billion. We think Bayzed’s valuation should be lower than peers.

Newron hosted an investor day (25 June) featuring three key opinion leaders (KOLs) who highlighted evenamide’s unique mechanism at the site of pathology, offering durable responses and addressing unmet need despite the >40 available treatments for schizophrenia. Evenamide has a robust track record in clinical studies to date. Notably, the results of study 015 in treatment-resistant schizophrenia (TRS) saw 25% of patients achieve remission, and, more recently, the results from study 008A (poorly managed schizophrenia) confirmed the safety of evenamide as an add-on to current antipsychotics, as well as its effectiveness in a randomised, placebo-controlled setting. The KOLs commented on the potential benefit from earlier use of evenamide in patients with inadequate responses to current treatments. The reported data to date provide a strong foundation in addressing schizophrenia, in our view. Newron will prepare for the registrational trial (study 017), which, subject to securing a partnership deal, could launch by end-2024.