Daily Brief Health Care: Otsuka Holdings, Osstem Implant, Aft Pharmaceuticals, Aurobindo Pharma, Paradigm Biopharmaceuticals, Shandong Weigao Group Medical Polymer Co, Zai Lab Ltd and more

• 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.