Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Capital Markets

Zhaoke Ophthalmology Pharmaceutical / Equity Capital Markets

<p>Zhaoke Ophthalmology is a pre-revenue pharmaceutical company specializing in ophthalmic drugs for the China market. The company has filed an Application Proof to list on the HKEX, and is a carve-out of <a href="https://www.smartkarma.com/entities/lee-s-pharmaceutical-hldgs" target="_blank" data-smartkarma-citation="entities:14616:1" rel="noopener">Lee'S Pharmaceutical Hldgs (950 HK)</a> , which owns 34% of the shares. This Insight discusses the product pipelines (both innovative and generic), funding, and valuation (particularly in the context of the parent company).  We tag this Insight as Bullish for now.</p>

Zhaoke Ophthalmology is a pre-revenue pharmaceutical company specializing in ophthalmic drugs for the China market. The company has filed an Application Proof to list on the HKEX, and is a carve-out of Lee'S Pharmaceutical Hldgs (950 HK) , which owns 34% of the shares. This Insight discusses the product pipelines (both innovative and generic), funding, and valuation (particularly in the context of the parent company).  We tag this Insight as Bullish for now.

Zhaoke Ophthalmology: Bringing Focus to China

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

<p>On December 18<sup>th</sup> 2020, <a href="https://www.smartkarma.com/entities/lee-s-pharmaceutical-hldgs" target="_blank" data-smartkarma-citation="entities:14616:1" rel="noopener">Lee's Pharmaceutical (950 HK)</a> announced that it had submitted an application to the Hong Kong Stock Exchange for approval to list <a href="https://www.smartkarma.com/entities/zhaoke-ophthalmology-pharmaceutical" target="_blank" data-smartkarma-citation="entities:31495:1" rel="noopener">Zhaoke Ophthalmology Pharmaceutical (ZKO HK)</a> on the main board of the HKEX. It is worth mentioning that, before the IPO, Lee's Pharmaceuticals holds 34.1% shares in Zhaoke, and Zhaoke is the affiliated company of the group. After the spin-off and listing, Lee's Pharmaceuticals would no longer be Zhaoke's controlling shareholder, but would still be its single largest shareholder. Meanwhile, at present, there are some good listed companies in the ophthalmology industry in the secondary capital market, such as <a href="https://www.smartkarma.com/entities/chengdu-kanghong-pharmaceu-a" target="_blank" data-smartkarma-citation="entities:24723:1" rel="noopener">Chengdu Kanghong Pharmaceu-A (002773 CH)</a> and <a href="https://www.smartkarma.com/entities/shenyang-xingqi-pharmaceut-a" target="_blank" data-smartkarma-citation="entities:29617:1" rel="noopener">Shenyang Xingqi Pharmaceut-A (300573 CH)</a>. As a "new force", how would Zhaoke perform compared with its strong peers in this industry?</p>

On December 18th 2020, Lee's Pharmaceutical (950 HK) announced that it had submitted an application to the Hong Kong Stock Exchange for approval to list Zhaoke Ophthalmology Pharmaceutical (ZKO HK) on the main board of the HKEX. It is worth mentioning that, before the IPO, Lee's Pharmaceuticals holds 34.1% shares in Zhaoke, and Zhaoke is the affiliated company of the group. After the spin-off and listing, Lee's Pharmaceuticals would no longer be Zhaoke's controlling shareholder, but would still be its single largest shareholder. Meanwhile, at present, there are some good listed companies in the ophthalmology industry in the secondary capital market, such as Chengdu Kanghong Pharmaceu-A (002773 CH) and Shenyang Xingqi Pharmaceut-A (300573 CH). As a "new force", how would Zhaoke perform compared with its strong peers in this industry?

Pre-IPO Zhaoke Ophthalmology Pharmaceutical - It Remains to Be Seen How to Find Its Way Out

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.

<ul>
<li>Lepu Biopharma is a biotech spin-off of A-share listed Lepu Medical. The company launched book building to raise up to USD 120m via a Hong Kong listing.</li>
<li>In our previous note, we look at the company's core products, including HX008, LP002, MRG003 and MRG002. The products have their own differentiating factors to tackle the intense competition.</li>
<li>In this note, we provide an update for the book building. We will run the deal through our ECM framework and provide an update on the deal.</li>
</ul>


Lepu Biopharma is a biotech spin-off of A-share listed Lepu Medical. The company launched book building to raise up to USD 120m via a Hong Kong listing.
In our previous note, we look at the company's core products, including HX008, LP002, MRG003 and MRG002. The products have their own differentiating factors to tackle the intense competition.
In this note, we provide an update for the book building. We will run the deal through our ECM framework and provide an update on the deal.


Lepu Biopharma (乐普生物科技) IPO: Sentiment Cooled Down

<p>Zhaoke Ophtalmic raised HKD 1,942 million (USD 250m) from its global offering and will list on the Hong Kong Stock Exchange on Thursday, April 28th.</p>
<p>In our previous note, we looked at the company's two products, namely CsA gel and ZKY001. We are of the view that CsA gel does provide advantage over Restasis, the top-selling eye gel for the DED, but the forecast of market growth is too aggressive for the DED market. For another core product ZKY001 which will be indicated for CED, while there is no data on the efficacy from Phase I clinical trial, we do note that the licensing parnter's product which uses the same technology but on a different indication did not meet the primary end point in Phase III clinical trial according to a recent announcement, which raises our concern on the potential of the product candidate. In addition, the company also had a long list of generic referencing top selling glaucoma drugs. The company has an OK management team but strong backing of institutional investors.  We think the company provides aggressive guidance that lacks evidence to support the forecast and valuation. We think the IPO valuation is rich at the high end and the cornerstone investors' commitment left a large portion of the deal to be sold on debut. </p>
<p>In this note, we look at the updates since our last note. We were bearish with the deal and would be taking profit if there's pop on debut.</p>
<div>
<div>
<h2>Our previous coverage on Zhaoke Ophthalmic</h2>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/zhaoke-ophthalmic-could-be-over-valued-for-pre-ipo-round" target="_blank" rel="noopener">Zhaoke Ophthalmic (兆科眼科): Could Be Over-Valued for Pre-IPO Round</a></li>
<li><a href="https://www.smartkarma.com/insights/zhaoke-ophthalmic-pre-ipo-thoughts-on-valuation" target="_blank" rel="noopener">Zhaoke Ophthalmic (兆科眼科) Pre-IPO: Thoughts on Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/zhaoke-ophthalmic-pre-ipo-beware-of-aggressive-guidance" target="_blank" rel="noopener">Zhaoke Ophthalmic (兆科眼科) Pre-IPO: Beware of Aggressive “Guidance”</a></li>
<li><a href="https://www.smartkarma.com/insights/zhaoke-ophthalmic-ipo-rationalize-the-valuation" target="_blank" rel="noopener">Zhaoke Ophthalmic (兆科眼科) IPO: Rationalize the Valuation</a></li>
</ul>
</div>

Zhaoke Ophtalmic raised HKD 1,942 million (USD 250m) from its global offering and will list on the Hong Kong Stock Exchange on Thursday, April 28th.
In our previous note, we looked at the company's two products, namely CsA gel and ZKY001. We are of the view that CsA gel does provide advantage over Restasis, the top-selling eye gel for the DED, but the forecast of market growth is too aggressive for the DED market. For another core product ZKY001 which will be indicated for CED, while there is no data on the efficacy from Phase I clinical trial, we do note that the licensing parnter's product which uses the same technology but on a different indication did not meet the primary end point in Phase III clinical trial according to a recent announcement, which raises our concern on the potential of the product candidate. In addition, the company also had a long list of generic referencing top selling glaucoma drugs. The company has an OK management team but strong backing of institutional investors.  We think the company provides aggressive guidance that lacks evidence to support the forecast and valuation. We think the IPO valuation is rich at the high end and the cornerstone investors' commitment left a large portion of the deal to be sold on debut. 
In this note, we look at the updates since our last note. We were bearish with the deal and would be taking profit if there's pop on debut.


Our previous coverage on Zhaoke Ophthalmic




Zhaoke Ophthalmic (兆科眼科): Could Be Over-Valued for Pre-IPO Round
Zhaoke Ophthalmic (兆科眼科) Pre-IPO: Thoughts on Valuation
Zhaoke Ophthalmic (兆科眼科) Pre-IPO: Beware of Aggressive “Guidance”
Zhaoke Ophthalmic (兆科眼科) IPO: Rationalize the Valuation



Zhaoke Ophthalmic (兆科眼科) IPO Trading: Strong Cornerstone Doesn't Save the Deal

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<p>The Chinese ophthalmic pharmaceutical company, <a href="https://www.smartkarma.com/entities/zhaoke-ophthalmology-pharmaceutical" target="_blank" data-smartkarma-citation="entities:31495:1" rel="noopener">Zhaoke Ophthalmology Pharmaceutical (6622 HK)</a>  has set the terms for its HK IPO. The company plans to issue 123.6m shares at an indicative IPO price range of HK$15.38-16.8 per share and at the midpoint of the IPO price range of HK$16.09 per share, the company will receive net proceeds of HK$1,858m (US$239m).</p><table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 119.0pt;"><p style="text-align: center;"><strong>Zhaoke Opthalmology IPO Details</strong></p></td></tr>
<tr>
<td style="width: 69.0pt;"><p>No. of Shares Issued</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">                      123,567,500</p></td>
</tr>
<tr>
<td style="width: 69.0pt;"><p>IPO Price per Share (HK$)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">15.38-16.80</p></td>
</tr>
<tr>
<td style="width: 69.0pt;"><p>Offer as a % of Outstanding Shares</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">23.09%</p></td>
</tr>
<tr>
<td style="width: 69.0pt;"><p>Total Shares Outstanding</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">535,155,500</p></td>
</tr>
<tr>
<td style="width: 69.0pt;"><p>Net Proceeds (HK$m)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">1,857.80</p></td>
</tr>
<tr>
<td style="width: 69.0pt;"><p>Market Capitalisation (HK$m)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">8,610.65</p></td>
</tr>
<tr>
<td style="width: 69.0pt;"><p>Enterprise Value (HK$m)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">6,687.24</p></td>
</tr>
</tbody></table><div style="text-align: left;" class="content-caption"><em>Source: Company disclosures, LSR (Net proceeds, market cap and EV are at the midpoint of the IPO price range, EV is after adjusting for net cash and net IPO proceeds)</em></div><p>The company also has entered into cornerstone investment agreements with CaaS Capital Master Fund, GIC Private Limited, Golden Valley Global and several other investors who have agreed to buy approx. 21.51% (at the midpoint) of the offer shares or approx. HK$427.8m of the offering.</p><p>Zhaoke plans to use approx. 32% of the net IPO proceeds for clinical development and commercialisation of its core products. Another 46% of the net proceeds will be used to fund the ongoing R&amp;D activities and 7% of the IPO proceeds will be invested on expanding the production line of its Nansha Manufacturing facility in anticipation of upcoming product launches.</p>

The Chinese ophthalmic pharmaceutical company, Zhaoke Ophthalmology Pharmaceutical (6622 HK)  has set the terms for its HK IPO. The company plans to issue 123.6m shares at an indicative IPO price range of HK$15.38-16.8 per share and at the midpoint of the IPO price range of HK$16.09 per share, the company will receive net proceeds of HK$1,858m (US$239m).
Zhaoke Opthalmology IPO Details

No. of Shares Issued
                      123,567,500


IPO Price per Share (HK$)
15.38-16.80


Offer as a % of Outstanding Shares
23.09%


Total Shares Outstanding
535,155,500


Net Proceeds (HK$m)
1,857.80


Market Capitalisation (HK$m)
8,610.65


Enterprise Value (HK$m)
6,687.24

Source: Company disclosures, LSR (Net proceeds, market cap and EV are at the midpoint of the IPO price range, EV is after adjusting for net cash and net IPO proceeds)The company also has entered into cornerstone investment agreements with CaaS Capital Master Fund, GIC Private Limited, Golden Valley Global and several other investors who have agreed to buy approx. 21.51% (at the midpoint) of the offer shares or approx. HK$427.8m of the offering.Zhaoke plans to use approx. 32% of the net IPO proceeds for clinical development and commercialisation of its core products. Another 46% of the net proceeds will be used to fund the ongoing R&amp;D activities and 7% of the IPO proceeds will be invested on expanding the production line of its Nansha Manufacturing facility in anticipation of upcoming product launches.

Zhaoke Opthalmology IPO Valuation: Overpriced

China

Zhaoke Ophthalmology Pharmaceutical operates as a pharmaceutical company. The Company engages in the business of researching, developing and commercialising ophthalmological drugs. Zhaoke Ophthalmology markets its products throughout China and ASEAN marketplace.

Zhaoke Ophthalmology Pharmaceutical (6622 HK)

52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Zhaoke Ophthalmology Pharmaceutical (6622 HK)

Zhaoke Ophthalmology: Bringing Focus to China

Zhaoke Ophthalmology is a pre-revenue pharmaceutical company specializing in ophthalmic drugs for China that has filed to list on the HKEX. Lee's...

Kemp Dolliver, CFA

Pre-IPO Zhaoke Ophthalmology Pharmaceutical - It Remains to Be Seen How to Find Its Way Out

The article analyzed Zhaoke Ophthalmology in terms of pipeline, competitive landscape, financial position and also included concerns for the future...

Xinyao (Criss) Wang

Lepu Biopharma (乐普生物科技) IPO: Sentiment Cooled Down

Downsized deal amid cooled sentiment for Chapter 18A, we think the valuation of Lepu Biopharm is not attractive for investors.

Ke Yan, CFA, FRM

Zhaoke Ophthalmic (兆科眼科) IPO Trading: Strong Cornerstone Doesn't Save the Deal

We re-iterate our differentiated bearish view with the deal. The deal received lukewarm interests from retail and institutional investors. We would...

Ke Yan, CFA, FRM

Zhaoke Opthalmology IPO Valuation: Overpriced

Some of the company’s drug candidates have the potential to become market-leading products, however, Zhaoke does not have any prior experience in...

Shifara Samsudeen, ACMA, CGMA

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)