Brief Healthcare: Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2) and more

In this briefing:

1. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)
2. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out
3. Small Cap Diary: Rajthanee Hospital, CAZ
4. Daewoong: Entering “Botox World”
5. Versum Materials – Merck KGaA Dials Up the Pressure and Launches Unsolicited Tender Offer (Part III)

1. Viva Biotech (维亚生物) IPO: Warning Signs from 2018 Numbers (Part 2)

Viva Biotechnology, a China-based drug discovery company, is seeking to raise USD 200m to list on the Hong Kong Stock Exchange. It has recently obtained approval for listing by the Hong Kong Stock Exchange. In our previous insight (link here), we discussed the company’s fundamentals, its unique business model, its shareholders, and our thoughts on its valuation.

In this insight, we look at its latest prospectus and review our valuation for Viva Biotech.

2. CanSino Biologics (康希诺) IPO Trading Update – Time to Cash Out

CanSino Biologics raised USD 148 million at HKD 22/share, at the high end of its guided price range. We have previously covered the IPO in the following note: 

• CanSino Biologics (康希诺) IPO: Promising Pre-Clinical Results but Vaccine Scandal Weighs (Part 1)
• CanSino Biologics (康希诺) IPO: Thoughts on Valuation (Part 2)
• CanSino Biologics (康希诺) IPO: Valuation Update (Part 3)
• CanSino Biologics (康希诺) IPO: Valuation Attractive, Lilly Asia Doubling Up (Part 4)

In this insight, we will update on the deal dynamics, implied valuation, and include a valuation sensitivity table.

3. Small Cap Diary: Rajthanee Hospital, CAZ

We visited two small-cap companies from totally different industries today. These are the key highlights.

• Rajthanee Hospital, a small hospital chain based in Ayuthya, achieved 15.7% revenue growth CAGR since 2016 on the back of its proximity to industrial estates.
• CAZ has seen its backlog double to Bt2.5bn largely due to its good relations with major clients (PTT) and partners (Samsung and other Korean chaebol), which dole out projects in the oil & gas sector to it.
• Internally, CAZ follows a sophisticated cost control method sporting bar codes and GPS to track materials and dedicated cost-control staff.

4. Daewoong: Entering “Botox World”

Daewoong Pharmaceutical Co (069620 KS) has traded up over the past year in anticipation of the launch of its botulinum toxin product Jeuveau in the US and EU (known as Nabota in Korea). We think the probability of near-term (6-9 months) disappointment with the product launch is low, but that upside surprises beyond that stage are unlikely given Botox’s (product of Allergan Plc (AGN US)) strong brand recognition and marketing support. Now is the time to put the stock on the radar screen to pick up signs of a looming disappointment with Jeuveau’s uptake.

We tag this Insight as Bearish because we think there is little likelihood for Jeuveau to exceed consensus expectations post-launch.

5. Versum Materials – Merck KGaA Dials Up the Pressure and Launches Unsolicited Tender Offer (Part III)

Merck KGaA (MRK GR) took off the gloves yesterday in its pursuit of Versum Materials (VSM US) , announcing and launching an unsolicited, fully financed $48 per share cash tender offer for all outstanding shares of VSM. Merck also announced the filing of its definitive proxy materials with the SEC for solicitation of proxies of VSM shareholder against the VSM/Entegris Inc (ENTG US) merger, which is scheduled to be voted on at a special shareholder meeting on April 26^th, 2019.

Along with its press release announcing the offer yesterday, Merck also published its second open letter to Versum shareholders underscoring its commitment to complete the acquisition of the Company. This follows Merck’s presentation to VSM shareholders published on March 14, 2019.

The tender offer is scheduled to expire on 5pm, New York City time on June 7, 2019.

We explore the terms of the tender offer and Merck’s proxy materials below. Readers are reminded to review my earlier research pieces, Versum Materials – Entegris Beaten to the Punch by Merck KGaA and Versum Materials – Merck KGaA Not Going Away (Part II) to get the full background on this situation.