Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Capital Markets

Everest Medicines / Equity Capital Markets

The valuation of pre-revenue biotechnology companies is, at best, an imprecise exercise. The traditional valuation tools (DCF, peer company comparisons, M&amp;A valuations) still apply, but require some modifications to reflect the unique circumstances. One tool is to consider the company's valuation in the context of the "step-up" from its last funding round to the pre-money valuation for the IPO. This Insight analyzes this data for pre-revenue biotechnology companies that have listed under the HKEX's "Biotech Chapter" and how investors can use this data to frame their analysis of these deals.

The valuation of pre-revenue biotechnology companies is, at best, an imprecise exercise. The traditional valuation tools (DCF, peer company comparisons, M&amp;A valuations) still apply, but require some modifications to reflect the unique circumstances. One tool is to consider the company's valuation in the context of the "step-up" from its last funding round to the pre-money valuation for the IPO. This Insight analyzes this data for pre-revenue biotechnology companies that have listed under the HKEX's "Biotech Chapter" and how investors can use this data to frame their analysis of these deals.

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Thematic (Sector/Industry)

1. Industry viewpoints<ul>
<li>Although China's medical device market share is just a small piece on a global scale, in recent years, its YoY growth rate remains above 15%, and it still has large growth potential.</li>
<li>With favorable policies to encourage the prescription outflow, it is estimated that the out-of-hospital market of prescription drugs will reach nearly RMB250 billion in 2020.</li>
<li>The market size of minimally invasive interventional medical devices in China is expected to reach RMB142.13 billion yuan by 2023, with a large growth potential for import substitution.</li>
</ul>2. Company newsNews of <a href="https://www.smartkarma.com/entities/ascletis-pharma-inc" target="_blank" data-smartkarma-citation="entities:27265:1" rel="noopener">Ascletis Pharma Inc (1672 HK)</a> , AffaMed Therapeutics and <a href="https://www.smartkarma.com/entities/shanghai-henlius-biotech-inc" target="_blank" data-smartkarma-citation="entities:27888:1" rel="noopener">Shanghai Henlius Biotech (2696 HK)</a> on the progress of new drug, merger agreement and the co-development and exclusive license agreement.3. Market reviewLast week, stock price for healthcare sector rose 3.23%, while CSI 300 rose 2.36% over the same period of time.4. Risk DisclosurePolicy risk, R&amp;D risk, Company risk and COVID-19 risk

1. Industry viewpoints
Although China's medical device market share is just a small piece on a global scale, in recent years, its YoY growth rate remains above 15%, and it still has large growth potential.
With favorable policies to encourage the prescription outflow, it is estimated that the out-of-hospital market of prescription drugs will reach nearly RMB250 billion in 2020.
The market size of minimally invasive interventional medical devices in China is expected to reach RMB142.13 billion yuan by 2023, with a large growth potential for import substitution.
2. Company newsNews of Ascletis Pharma Inc (1672 HK) , AffaMed Therapeutics and Shanghai Henlius Biotech (2696 HK) on the progress of new drug, merger agreement and the co-development and exclusive license agreement.3. Market reviewLast week, stock price for healthcare sector rose 3.23%, while CSI 300 rose 2.36% over the same period of time.4. Risk DisclosurePolicy risk, R&amp;D risk, Company risk and COVID-19 risk

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2020 review will be made on 14 August and will be effective after the close of trading on 4 September.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.From the upcoming review, Biotech companies listed under Chapter 18A of the HKEX Main Board listing rules will be eligible for inclusion in the HSCI. This is a huge change given that Biotech is a big investment theme in the current environment and mainland investors could come rushing into these names.We see 22 possible inclusions in the HSCI (and consequently becoming eligible for Stock Connect) and 10 deletions (which will take the stocks off the eligible buy list and make them eligible for sell-only via Stock Connect).

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2020 review will be made on 14 August and will be effective after the close of trading on 4 September.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.From the upcoming review, Biotech companies listed under Chapter 18A of the HKEX Main Board listing rules will be eligible for inclusion in the HSCI. This is a huge change given that Biotech is a big investment theme in the current environment and mainland investors could come rushing into these names.We see 22 possible inclusions in the HSCI (and consequently becoming eligible for Stock Connect) and 10 deletions (which will take the stocks off the eligible buy list and make them eligible for sell-only via Stock Connect).

HSCI and Stock Connect - Biotech Stocks Now Eligible; Inclusion & Exclusion Possibilities

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Bottom-Up

We initiated trade idea on Ascletis Pharma on the hype surrounding its drug candidates being reported to be used in clinical trial to treat coronavirus on Feb 5th. We have followed up with several notes on the company's continuous effort of making sub-standard announcement with respect to the progress of clinical research. The stock has since fallen by 26% and trades at HKD 2.96/share, which is around our target price. Therefore we would close the trade with 26% profit.

We initiated trade idea on Ascletis Pharma on the hype surrounding its drug candidates being reported to be used in clinical trial to treat coronavirus on Feb 5th. We have followed up with several notes on the company's continuous effort of making sub-standard announcement with respect to the progress of clinical research. The stock has since fallen by 26% and trades at HKD 2.96/share, which is around our target price. Therefore we would close the trade with 26% profit. 

Trade Idea: Close the SHORT on Ascletis Pharma and Pocket 26% Profit

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

When investors are chucking in the towel, including the event space (RV, risk arb etc.), it's time for some old school perspective.
In this insight, I look at <a href="https://en.wikipedia.org/wiki/Benjamin_Graham" target="_blank" rel="noopener">Benjamin Graham</a>'s Net Nets, or working capital (current assets less current liabilities), then subtract any debt not included in current liabilities. To make it simple, I use current assets less total liabilities.
This set of data is what Graham would deem stocks priced for liquidation.
I calculate 1,087 stocks trading below their net current asset value (NCAV) across Japan, Hong Kong, Korea, Australia, Taiwan and Singapore.
That number declines to 114 for stocks which trade &gt;US1$mn/day (3-month basis), and just 20 trading &gt;US$5mn/day.
A rundown of those stocks is shown below.

When investors are chucking in the towel, including the event space (RV, risk arb etc.), it's time for some old school perspective.
In this insight, I look at Benjamin Graham's Net Nets, or working capital (current assets less current liabilities), then subtract any debt not included in current liabilities. To make it simple, I use current assets less total liabilities.
This set of data is what Graham would deem stocks priced for liquidation.
I calculate 1,087 stocks trading below their net current asset value (NCAV) across Japan, Hong Kong, Korea, Australia, Taiwan and Singapore.
That number declines to 114 for stocks which trade &gt;US1$mn/day (3-month basis), and just 20 trading &gt;US$5mn/day.
A rundown of those stocks is shown below.

China

Ascletis Pharma Inc. operates as a biotechnology company. The Company develops and discovers anti-viral drugs to address unmet medical needs in anti-viral, cancer, and fatty liver disease. Ascletis Pharma offers its services worldwide.

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Ascletis Pharma Inc (1672 HK)

What HKEX Biotech "Step-Ups" Can Tell Us

This Insight explains the concept of valuation "step-ups" for pre-revenue biotechnology companies listing on the HKEX and how to use this data to...

Kemp Dolliver, CFA

China Healthcare Weekly (Oct.16)

This article summarized major industry viewpoints, company news, and capital market review for China healthcare industry last week.

Xinyao (Criss) Wang

HSCI and Stock Connect - Biotech Stocks Now Eligible; Inclusion & Exclusion Possibilities

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September...

Brian Freitas

Trade Idea: Close the SHORT on Ascletis Pharma and Pocket 26% Profit

We initiated trade idea on Ascletis Pharma on the hype surrounding its drug candidates being reported to be used in clinical trial to treat...

Ke Yan, CFA, FRM

Asia-Pac Stocks Priced For Liquidation

When investors are chucking in the towel, including the event space (RV, risk arb etc.), it's time for some old school perspective. In this...

David Blennerhassett

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