HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

<ul>
<li>Innovent’s 24Q1 product sales was up just 6% QoQ. The overall data shows that PD-1 growth has entered a bottleneck. This makes 24H2 YoY growth rate uncertain.</li>
<li>The deal between Hengrui and Hercules is different from traditional license-out cooperation, but belong to asset spin-off in essence, which is a “smart deal” and also a meaningful attempt.</li>
<li>There’re some positive signals in Zai Lab’s 24Q1 performance, but the pain points of business model severely limit its profitability/revenue scale. Zai Lab still has a long way to go.</li>
</ul>


Innovent’s 24Q1 product sales was up just 6% QoQ. The overall data shows that PD-1 growth has entered a bottleneck. This makes 24H2 YoY growth rate uncertain.
The deal between Hengrui and Hercules is different from traditional license-out cooperation, but belong to asset spin-off in essence, which is a “smart deal” and also a meaningful attempt.
There’re some positive signals in Zai Lab’s 24Q1 performance, but the pain points of business model severely limit its profitability/revenue scale. Zai Lab still has a long way to go.


China Healthcare Weekly (Jun.2) - Innovent's Trouble, Hengrui's “smart Deal”, Zai Lab’s Pain Point

Blue Lotus China New Economy Research, Blue Lotus Research Institute

Eric Wen

Blue Lotus China New Economy Research

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

<ul>
<li>C1Q24 was marked by liquidity crises in innovative drug and medical device, and depressed margin in digital health. We believe this is a buying opportunity;</li>
<li>PD-1 has recovered nicely in C2H23 and exceeded our expectation made for 2023.We forecast 20% YoY growth in 2024.Further,pipeline maturity has led to new drugs in autoimmune and metabolic drugs;</li>
<li>Biosimilar has proven to be part of the solution to deal with low paying ability of Chinese healthcare and denial of access to the high paying US healthcare market. </li>
</ul>


C1Q24 was marked by liquidity crises in innovative drug and medical device, and depressed margin in digital health. We believe this is a buying opportunity;
PD-1 has recovered nicely in C2H23 and exceeded our expectation made for 2023.We forecast 20% YoY growth in 2024.Further,pipeline maturity has led to new drugs in autoimmune and metabolic drugs;
Biosimilar has proven to be part of the solution to deal with low paying ability of Chinese healthcare and denial of access to the high paying US healthcare market. 


[Blue Lotus Healthcare Sector Update]: Bottom-Fishing at the Bottom of the Business Cycle

<ul>
<li>CMS's way of in-licensing products has shifted from CSO model to asset-purchase model so as to enhance control on the assets. But the transformation hasn’t been recognized by the market.     </li>
<li>Despite outstanding fundamentals, <a href="https://www.smartkarma.com/entities/china-medical-system-holdings" target="_blank" data-smartkarma-citation="entities:18736:1" rel="noopener">CMS</a>’s valuation remains low. Doubts about the Company's real R&amp;D capabilities/core competitiveness and the negative image due to past financial fraud could be the reasons.</li>
<li>CMS would encounter performance headwinds in 2023/2024 due to VBP, but revenue/profit growth is expected to pick up in 2025. It’s still a good defensive choice in a bear market.</li>
</ul>


CMS's way of in-licensing products has shifted from CSO model to asset-purchase model so as to enhance control on the assets. But the transformation hasn’t been recognized by the market.     
Despite outstanding fundamentals, CMS’s valuation remains low. Doubts about the Company's real R&amp;D capabilities/core competitiveness and the negative image due to past financial fraud could be the reasons.
CMS would encounter performance headwinds in 2023/2024 due to VBP, but revenue/profit growth is expected to pick up in 2025. It’s still a good defensive choice in a bear market.


China Medical System (867 HK) - A Wise Choice in a Bear Market

<ul>
<li>Local news reported two positive developments for Zai Lab’s FcRn inhibitor Efgartigimod: (1) Rival CSPC/HarbourBio withdrew BLA for competing drug Batoclimab (HBM9161), (2) Efgartigimod was included in 2024 NDRL;</li>
<li>We raise Zai Lab’s 2024 top line by 8.8% but keep non-GAAP operating loss largely unchanged；</li>
<li>We raise TP by US$2 to US$20 and maintain SELL.</li>
</ul>


Local news reported two positive developments for Zai Lab’s FcRn inhibitor Efgartigimod: (1) Rival CSPC/HarbourBio withdrew BLA for competing drug Batoclimab (HBM9161), (2) Efgartigimod was included in 2024 NDRL;
We raise Zai Lab’s 2024 top line by 8.8% but keep non-GAAP operating loss largely unchanged；
We raise TP by US$2 to US$20 and maintain SELL.


[Zai LAB (ZLAB US, SELL, TP US$20) TP Change]: Two Positive News Drove up 2024 Growth Target

<ul>
<li>China’s innovative drug sector remains a liquidity driven sector, as investible choices are limited, which include Akeso and BeiGene as our BUY ideas. </li>
<li>We also notice positive change in Innovent but opt to keep rating unchanged;</li>
<li>We upgrade BeiGene from SELL to BUY and maintain SELL on RemeGen, Innovent, JUNSHI and ZaiLab. We discontinued coverage on Legend Biotech.</li>
</ul>


China’s innovative drug sector remains a liquidity driven sector, as investible choices are limited, which include Akeso and BeiGene as our BUY ideas. 
We also notice positive change in Innovent but opt to keep rating unchanged;
We upgrade BeiGene from SELL to BUY and maintain SELL on RemeGen, Innovent, JUNSHI and ZaiLab. We discontinued coverage on Legend Biotech.


[Blue Lotus Sector Update]: Solid Companies Starting to Rise from the Ashes

China

Zai Lab Limited operates as a bio-pharmaceutical company. The Company researches and develops therapeutic technology for antibody-based oncology, autoimmune, and infectious diseases treatments. Zai Lab also manufactures drugs in the form of capsules, injections, and liquids. Zai Lab serves patients worldwide.

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Zai Lab Ltd (ZLAB US)

China Healthcare Weekly (Jun.2) - Innovent's Trouble, Hengrui's “smart Deal”, Zai Lab’s Pain Point

Innovent's PD-1 growth face bottleneck, with uncertainty in 24H2 growth; Hengrui-Hercules deal a "smart" asset spin-off; Zai Lab has positive...

Xinyao (Criss) Wang

[Blue Lotus Healthcare Sector Update]: Bottom-Fishing at the Bottom of the Business Cycle

Liquidity crises in healthcare innovation present buying opportunity;PD-1 exceeds expectations with 20%YoY growth forecast for 2024;Biosimilars...

Blue Lotus Research Institute

China Medical System (867 HK) - A Wise Choice in a Bear Market

CMS's performance low point is 2023/2024, but high growth returns in 2025. Despite bad image due to past financial fraud, high dividend/strong...

Xinyao (Criss) Wang

[Zai LAB (ZLAB US, SELL, TP US$20) TP Change]: Two Positive News Drove up 2024 Growth Target

Positive news for Zai Lab's Efgartigimod as rival drug is withdrawn and it is included in 2024 NDRL, leading to an 8.8% increase in top line but...

Blue Lotus Research Institute

[Blue Lotus Sector Update]: Solid Companies Starting to Rise from the Ashes

China's drug sector is driven by liquidity, with limited investment choices. Akeso and BeiGene are recommended as buy options, while RemeGen,...

Blue Lotus Research Institute

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52-week Range

Market Cap (USDm)

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China Healthcare Weekly (Jun.2) - Innovent's Trouble, Hengrui's “smart Deal”, Zai Lab’s Pain Point

​Innovent's PD-1 growth face bottleneck, with uncertainty in 24H2 growth; Hengrui-Hercules deal a "smart" asset spin-off; Zai Lab has positive...

Xinyao (Criss) Wang

[Blue Lotus Healthcare Sector Update]: Bottom-Fishing at the Bottom of the Business Cycle

​Liquidity crises in healthcare innovation present buying opportunity;PD-1 exceeds expectations with 20%YoY growth forecast for 2024;Biosimilars...

Blue Lotus Research Institute

China Medical System (867 HK) - A Wise Choice in a Bear Market

CMS's performance low point is 2023/2024, but high growth returns in 2025. Despite bad image due to past financial fraud, high dividend/strong...

Xinyao (Criss) Wang

[Zai LAB (ZLAB US, SELL, TP US$20) TP Change]: Two Positive News Drove up 2024 Growth Target

​Positive news for Zai Lab's Efgartigimod as rival drug is withdrawn and it is included in 2024 NDRL, leading to an 8.8% increase in top line but...

Blue Lotus Research Institute

[Blue Lotus Sector Update]: Solid Companies Starting to Rise from the Ashes

​China's drug sector is driven by liquidity, with limited investment choices. Akeso and BeiGene are recommended as buy options, while RemeGen,...

Blue Lotus Research Institute

Innovent's PD-1 growth face bottleneck, with uncertainty in 24H2 growth; Hengrui-Hercules deal a "smart" asset spin-off; Zai Lab has positive...

Liquidity crises in healthcare innovation present buying opportunity;PD-1 exceeds expectations with 20%YoY growth forecast for 2024;Biosimilars...

Positive news for Zai Lab's Efgartigimod as rival drug is withdrawn and it is included in 2024 NDRL, leading to an 8.8% increase in top line but...

China's drug sector is driven by liquidity, with limited investment choices. Akeso and BeiGene are recommended as buy options, while RemeGen,...