In this briefing:
- Jiangsu Hengrui Medicines. Co (600276.SS): Growth Potential Is Over Priced
- Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters
- Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation
- Cochlear Placement – Deserves a Hearing
- Feedback from Qiagen IR Regarding Thermo Fisher Deal
This insight provides the updates from 2019 results and takeaways from recent management meetings on investors’ concerns. More importantly, we analyzed the potential market size for Hengrui’s key innovative drugs such as PD-1 as well as the projected sales for the four products, which were included in the centralized procurement program in January 2020.
Although Hengrui Medicines is undoubtedly the best A share Pharma name with a big MOAT and consistently generated superior returns. We are pleased to see Hengrui continued the transformation from generics to innovative drugs maker. We remain confident that Hengrui will continue strong growth momentum with a CAGR 20-25% in the next few years, driven by 1) solid existing portfolio performance; 2) deep pipelines of innovation; 3) better product mix with margin expansion.
Different from the street, we do not think Hengrui can sustain >30% CAGR in the next few years, at the current level (52x forward P/E, 40% premium to its 10 years average of 37x), we believe the growth potential (plus NPV of the pipeline) has been overpriced and there is limited upside in the next 12 months. We suggest waiting for a better entry point. Jiangsu Hengrui Medicine Co., (600276 CH)
Potential catalysts include
- 1) above expected 1Q20 results
- 2) faster progress of clinical trials progress
Wuxi Apptec is planning to sell both A-share and H-share in a private placement to raise up to USD 1.7 billion. The stock has performed well since its listing on December 13th, 2018. In this note, we will look at the proposed placement and provide our thoughts on the deal. We believe that Wuxi Apptec has strong visibility of growth driven by the CDMO/CMO segment. The placement will increase the free-float significantly and should attract large passive buying.
Kintor was founded by Chinese academic researchers returning from overseas. It has two main drugs, proxalutamide which targets prostate cancer and breast cancer, and pyrilutamide which targets androgenic alopecia.
The most advanced drug candidate, proxalutamide, entered into Phase III clinical trial and the NDA for mCRPC indication could be submitted as early as 2020 based on interim results. Having said that the clinical trial for TNBC is still in the early stage of development.
Pyrilutamide which treats hair loss (androgenic alopecia) is still years away from commercialization. We are of the view that competition for the targeted indication for androgenic alopecia is intense with many generics of early generation drugs available in the market.
The company is backed by reputable domestic investors. In terms of management experience, the key founder has academic experiences in cancer research but lacks track records in bringing drug candidates from pre-clinical research to commercialization.
In this note, we will provide our thoughts on the company’s risk-adjusted valuation on its assets. We valued the company’s clinical-stage assets at USD 666 million.
Our previous coverage on Kintor Pharma:
If you have not read our 2019 IPO Analytic Series, please have a look:
Aequitas Research 2019 IPO Analytics
Cochlear Ltd (COH AU) plans to raise up to US$475m (A$800m) to part fund its legal costs and shore up its balance sheet.
Apart from the COVID-19 hurricane, the company has faced a few other speed bumps recently, which has led to analysts taking a scalpel to its earnings.
The placement should lift some of the pressure on the balance sheet and liquidity. The company’s long term track record remains stellar.
Summary: We had a discussion with various people to get an update on Qiagen as well as get some further clarification in relation to its deal with Thermo Fisher. More details can be found below. We note that since our bullish take on the deal, the Qiagen annualized spread has tightened to from just over 12% to 6.5% assuming a March 2021 completion date. Below we discuss our updated thoughts as well as our updated view on the spread.
You can find our previous work on the company here: Thermofisher Bids for Qiagen – A COVID-19 Pivot?
NB. None of the information below is, nor should be considered, material non-public information