Global Healthcare Analyst

Tina Banerjee

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> has recently received FDA approval for Vegzelma, a biosimilar to the reference product Avastin (bevacizumab), for the treatment of multiple types of cancer.</li>
<li>Apart from Celltrion, FDA has already approved three Avastin biosimilars. With increasing competition, ASP for the market leader Mvasi in the U.S. declined 39% y/y and 21% q/q in 2Q22.</li>
<li>Despite being present in the U.S. oncology biosimilar market for quite a long time, Celltrion has not been able to gain dominant market share for its existing products.</li>
</ul>



Celltrion Inc (068270 KS) has recently received FDA approval for Vegzelma, a biosimilar to the reference product Avastin (bevacizumab), for the treatment of multiple types of cancer.
Apart from Celltrion, FDA has already approved three Avastin biosimilars. With increasing competition, ASP for the market leader Mvasi in the U.S. declined 39% y/y and 21% q/q in 2Q22.
Despite being present in the U.S. oncology biosimilar market for quite a long time, Celltrion has not been able to gain dominant market share for its existing products.


Celltrion (068270 KS): Competition Makes US Approval of New Oncology Biosimilar Unappealing

<ul>
<li>Fierce competition is an industry-wide phenomena in biosimilar products. Despite being an early mover, <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a> is also facing competition for its marketed biosimilars.</li>
<li>The market share of Celltrion’s key biosimilar product, Remsima is declining. Other marketed and upcoming biosimilars also have multiple existing players.</li>
<li>With the waning COVID-19 infections in the U.S., demand for Celltrion’s rapid test kits seems uncertain.</li>
</ul>


Fierce competition is an industry-wide phenomena in biosimilar products. Despite being an early mover, Celltrion Inc (068270 KS) is also facing competition for its marketed biosimilars.
The market share of Celltrion’s key biosimilar product, Remsima is declining. Other marketed and upcoming biosimilars also have multiple existing players.
With the waning COVID-19 infections in the U.S., demand for Celltrion’s rapid test kits seems uncertain.


Celltrion (068270 KS): Increasing Biosimilar Competition- Main Concerning Factor

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

One good news since we last wrote about Parkway Pantai ( <a href="https://www.smartkarma.com/entities/parkway-pantai-ltd" target="_blank" data-smartkarma-citation="entities:29218:1" rel="noopener">Parkway Pantai Ltd (0794727D SP)</a>) this July ( <a href="https://www.smartkarma.com/insights/parkway-pantai-good-brand-with-limited-upside" target="_blank" data-smartkarma-citation="insights:41759" rel="noopener">Parkway Pantai: Good Brand with Limited Upside</a> ) is that the first COVID19 vaccine by <a href="https://www.smartkarma.com/entities/pfizer-inc" target="_blank" data-smartkarma-citation="entities:1131:1" rel="noopener">Pfizer Inc (PFE US)</a>  has been rolled out at the time of this writing and several potential candidates in the final phases of testing are also waiting to be approved for mass production. Although we have seen spikes of new mutated COVID19 cases in the UK and South Africa, Pfizer  believes the efficacy of its vaccine should still be more than 90% effective against the more contagious variation. The company’s claim that it could come up with a new effective vaccine for this variation in 6 weeks lends comfort to investors that there is light at the end of the tunnel.
Parkway Pantai’s hospital operations have in fact been less affected than what we had originally expected. Its key Singapore and Malaysian markets have seen occupancy rebounding to above 50% in 3Q20. However, Indonesia, its biggest market for its Singapore operation, is still closed due to COVID19 as the country is still struggling to control the outbreak there. Malaysia has also seen a resurgent of COVID19 cases after 3Q but management is confident that the impact will not be as bad as in 2Q.
PARKPT 4.25% 7/22c traded at an attractive YTM of 5.58% at the time of writing compared to other local Healthcare bonds. We believe the perpetual will likely be called on 27 July 2022 as global interest rates will stay low at least in the short and medium tenor, in our opinion, as mass vaccination to countries worldwide is a “Herculean” task that requires massive logistical co-ordination for the worldwide vaccine distribution and production. Normalcy may not return to the world till the end of 2022, in our view, when everyone gets vaccinated. As for Parkway Pantai, based on its clientele profile which is mainly the higher income group, getting themselves first to be vaccinated should not be a problem as long as they are willing to pay, in our opinion.
As a “BB” credit, in our view, PARKPT 4.25% Perp (7/22c)’s fair YTC should be c.4.0% versus its current YTC of 5.58%, showing a near-term upside of 158bp, at time of writing. With vaccination on the horizon, we see normalcy returning towards the end of 2021 and see asymmetric upside for the bonds on improving operational performance and value proposition versus peers. As such, we revise our recommendation on the bonds from NEUTRAL to OVERWEIGHT.

One good news since we last wrote about Parkway Pantai ( Parkway Pantai Ltd (0794727D SP)) this July ( Parkway Pantai: Good Brand with Limited Upside ) is that the first COVID19 vaccine by Pfizer Inc (PFE US)  has been rolled out at the time of this writing and several potential candidates in the final phases of testing are also waiting to be approved for mass production. Although we have seen spikes of new mutated COVID19 cases in the UK and South Africa, Pfizer  believes the efficacy of its vaccine should still be more than 90% effective against the more contagious variation. The company’s claim that it could come up with a new effective vaccine for this variation in 6 weeks lends comfort to investors that there is light at the end of the tunnel.
Parkway Pantai’s hospital operations have in fact been less affected than what we had originally expected. Its key Singapore and Malaysian markets have seen occupancy rebounding to above 50% in 3Q20. However, Indonesia, its biggest market for its Singapore operation, is still closed due to COVID19 as the country is still struggling to control the outbreak there. Malaysia has also seen a resurgent of COVID19 cases after 3Q but management is confident that the impact will not be as bad as in 2Q.
PARKPT 4.25% 7/22c traded at an attractive YTM of 5.58% at the time of writing compared to other local Healthcare bonds. We believe the perpetual will likely be called on 27 July 2022 as global interest rates will stay low at least in the short and medium tenor, in our opinion, as mass vaccination to countries worldwide is a “Herculean” task that requires massive logistical co-ordination for the worldwide vaccine distribution and production. Normalcy may not return to the world till the end of 2022, in our view, when everyone gets vaccinated. As for Parkway Pantai, based on its clientele profile which is mainly the higher income group, getting themselves first to be vaccinated should not be a problem as long as they are willing to pay, in our opinion.
As a “BB” credit, in our view, PARKPT 4.25% Perp (7/22c)’s fair YTC should be c.4.0% versus its current YTC of 5.58%, showing a near-term upside of 158bp, at time of writing. With vaccination on the horizon, we see normalcy returning towards the end of 2021 and see asymmetric upside for the bonds on improving operational performance and value proposition versus peers. As such, we revise our recommendation on the bonds from NEUTRAL to OVERWEIGHT.

Parkway Pantai: Attraction from Vaccination

We initiate our coverage of <a href="https://www.smartkarma.com/entities/parkway-pantai-ltd" target="_blank" data-smartkarma-citation="entities:29218:1" rel="noopener">Parkway Pantai Ltd (0794727D SP)</a> (Parkway Pantai), a wholly-owned subsidiary of <a href="https://www.smartkarma.com/entities/ihh-healthcare-bhd" target="_blank" data-smartkarma-citation="entities:876:1" rel="noopener">IHH Healthcare (IHH MK)</a> of which major shareholders include A3-rated Japanese conglomerate <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> and Khazanah Nasional Bhd, Malaysia’s sovereign wealth fund.
1Q20 operating numbers were down and we expect April and May to be worse hit by the COVID19 lockdowns (which began in March). Non-urgent procedures had been postponed while supply chains were disrupted. We believe Singapore and Malaysia have seen their worst, while the worst is not yet over for India, Indonesia, and the Philippines. Other Asian countries like HK, Australia, and Japan are seeing higher COVID19 daily infections after reopening of their borders.
Medical tourists account for only 1/4 of Parkway Pantai’s Singapore revenue (with Indonesians accounting for the bulk of these medical tourists) and 6% for its Malaysia revenue. Semi-electives procedures have already picked up, according to management, despite borders still being closed. Elective procedures are also likely to return soon as there are no major communal spreads of virus in both Singapore and Malaysia, Parkway Pantai’s two key markets. We predict continuation of startup losses, albeit smaller, in Greater China. The possibility of finding a vaccine, hopefully by 1H2021 according to the WHO, may however spell some hope to the end of the havoc caused by the pandemic, but it may still take up till end-2021 or even 2022 to ensure sufficient supply to meet global demand.
We do not doubt Parkway Pantai’s ability to call PARKPT 4.25% Perp (7/22c) due in July 2022 on its financials and shareholders’ backing. The higher reset coupon should incentivize the Company to call, in our view. Based on 4.73% YTC at time of writing, PARKPT 4.25% Perp (7/22c) traded between a “B+” and a “BB-“credit, in our judgment. PARKPT 4.25% Perp deserves at least a “BB” rating, in our view,  on its financials and shareholders’ support which we believe will give the Perp at least a 73-bp upside. While there is an upside to be had, a high-yield perp such as PARKPT 4.25% Perp (7/22c) with a 4.7% yield to call should warrant a NEUTRAL recommendation, in our judgment.

We initiate our coverage of Parkway Pantai Ltd (0794727D SP) (Parkway Pantai), a wholly-owned subsidiary of IHH Healthcare (IHH MK) of which major shareholders include A3-rated Japanese conglomerate Mitsui &amp; Co Ltd (8031 JP) and Khazanah Nasional Bhd, Malaysia’s sovereign wealth fund.
1Q20 operating numbers were down and we expect April and May to be worse hit by the COVID19 lockdowns (which began in March). Non-urgent procedures had been postponed while supply chains were disrupted. We believe Singapore and Malaysia have seen their worst, while the worst is not yet over for India, Indonesia, and the Philippines. Other Asian countries like HK, Australia, and Japan are seeing higher COVID19 daily infections after reopening of their borders.
Medical tourists account for only 1/4 of Parkway Pantai’s Singapore revenue (with Indonesians accounting for the bulk of these medical tourists) and 6% for its Malaysia revenue. Semi-electives procedures have already picked up, according to management, despite borders still being closed. Elective procedures are also likely to return soon as there are no major communal spreads of virus in both Singapore and Malaysia, Parkway Pantai’s two key markets. We predict continuation of startup losses, albeit smaller, in Greater China. The possibility of finding a vaccine, hopefully by 1H2021 according to the WHO, may however spell some hope to the end of the havoc caused by the pandemic, but it may still take up till end-2021 or even 2022 to ensure sufficient supply to meet global demand.
We do not doubt Parkway Pantai’s ability to call PARKPT 4.25% Perp (7/22c) due in July 2022 on its financials and shareholders’ backing. The higher reset coupon should incentivize the Company to call, in our view. Based on 4.73% YTC at time of writing, PARKPT 4.25% Perp (7/22c) traded between a “B+” and a “BB-“credit, in our judgment. PARKPT 4.25% Perp deserves at least a “BB” rating, in our view,  on its financials and shareholders’ support which we believe will give the Perp at least a 73-bp upside. While there is an upside to be had, a high-yield perp such as PARKPT 4.25% Perp (7/22c) with a 4.7% yield to call should warrant a NEUTRAL recommendation, in our judgment.

Parkway Pantai: Good Brand with Limited Upside

We initiate our coverage of <a href="https://www.smartkarma.com/entities/jubilant-pharma-ltd" target="_blank" data-smartkarma-citation="entities:29148:1" rel="noopener">Jubilant Pharma Ltd (1164252D IN)</a> (JPL) which is ranked top 2-3 global pharmaceutical company in the radiopharmaceutical and allergenic extract markets in the US. JPL is a wholly-owned subsidiary of India's <a href="https://www.smartkarma.com/entities/jubilant-life-sciences-ltd" target="_blank" data-smartkarma-citation="entities:6853:1" rel="noopener">Jubilant Life Sciences (JUBILANT IN)</a>. JPL's market leading position in contract manufacturing of sterile injectables for life-style related medical conditions, where barriers of entry are high, allows the Company to enjoy relatively limited competition and high EBITDA margins of over 25%.
JPL’s non-exclusive agreement with Gilead Sciences to manufacture and sell an investigation drug, Remdesivir, for treatment of COVID-19 to 127 countries, including India, is credit positive, in our view, although it will take at least another 10-12 months before the COVID-19 vaccine is mass-produced.
Although <a href="https://www.smartkarma.com/entities/glenmark-pharmaceuticals-ltd" target="_blank" data-smartkarma-citation="entities:10454:1" rel="noopener">Glenmark Pharmaceuticals (GNP IN) </a>is the first in India to be involved in another trial test of antiviral Favipiravir with COVID-19 patients in India, Remdesivir, if tested effective against COVID-19, will still be in high demand as worldwide COVID-19 cases has crossed 9m, with close to half a million deaths at time of writing. We deemed JPL’s elevated total debt-to-capitalisation ratio as reasonable when compared to its peers, partially mitigated by its liquidity, debt servicing ratios, and positive free cashflows over the years.
Based on yields to maturity (YTMs) of  6.6%-6.7% at time of writing, the JUBPSG complex traded lower than a “B+” credit, well below its “BB-“ rating (assigned by Fitch). Our valuation of JPL’s JUBPSG complex vis-a-vis its peers aligns with Fitch’s “BB-“ rating. We see limited upside in the near term but believe the current carry is attractive for its rating. As such, we assign a NEUTRAL recommendation on the JUBPSG complex.

We initiate our coverage of Jubilant Pharma Ltd (1164252D IN) (JPL) which is ranked top 2-3 global pharmaceutical company in the radiopharmaceutical and allergenic extract markets in the US. JPL is a wholly-owned subsidiary of India's Jubilant Life Sciences (JUBILANT IN). JPL's market leading position in contract manufacturing of sterile injectables for life-style related medical conditions, where barriers of entry are high, allows the Company to enjoy relatively limited competition and high EBITDA margins of over 25%.
JPL’s non-exclusive agreement with Gilead Sciences to manufacture and sell an investigation drug, Remdesivir, for treatment of COVID-19 to 127 countries, including India, is credit positive, in our view, although it will take at least another 10-12 months before the COVID-19 vaccine is mass-produced.
Although Glenmark Pharmaceuticals (GNP IN) is the first in India to be involved in another trial test of antiviral Favipiravir with COVID-19 patients in India, Remdesivir, if tested effective against COVID-19, will still be in high demand as worldwide COVID-19 cases has crossed 9m, with close to half a million deaths at time of writing. We deemed JPL’s elevated total debt-to-capitalisation ratio as reasonable when compared to its peers, partially mitigated by its liquidity, debt servicing ratios, and positive free cashflows over the years.
Based on yields to maturity (YTMs) of  6.6%-6.7% at time of writing, the JUBPSG complex traded lower than a “B+” credit, well below its “BB-“ rating (assigned by Fitch). Our valuation of JPL’s JUBPSG complex vis-a-vis its peers aligns with Fitch’s “BB-“ rating. We see limited upside in the near term but believe the current carry is attractive for its rating. As such, we assign a NEUTRAL recommendation on the JUBPSG complex.

Jubilant Pharma: Good Drugs, Fully-Valued Bonds

Israel

Teva Pharmaceutical Industries Ltd., is a global pharmaceutical company. The Company develops, manufactures, and markets generic and branded human pharmaceuticals as well as active pharmaceutical ingredients.

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Teva Pharmaceutical Sp Adr (TEVA US)

Celltrion (068270 KS): Competition Makes US Approval of New Oncology Biosimilar Unappealing

Celltrion got FDA approval for its oncology biosimilar Vegzelma. However, increasing competition and price erosion in the US market, lessen...

Tina Banerjee

Celltrion (068270 KS): Increasing Biosimilar Competition- Main Concerning Factor

Celltrion is facing increasing competition for its marketed products in both EU and the U.S. Price erosion coupled with inflated SG&A and R&D...

Tina Banerjee

Parkway Pantai: Attraction from Vaccination

Attractive valuation in expectation of a call in July 2022 and vaccination effects on the hospital visits across the border from Indonesia

Bondcritic

Parkway Pantai: Good Brand with Limited Upside

We initiate our coverage of Parkway Pantai Ltd (0794727D SP) (Parkway Pantai), a wholly-owned subsidiary of IHH Healthcare (IHH MK) of which major...

Bondcritic

Jubilant Pharma: Good Drugs, Fully-Valued Bonds

We initiate our coverage of Jubilant Pharma Ltd (1164252D IN) (JPL) which is ranked top 2-3 global pharmaceutical company in the...

Bondcritic

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