Healthcare Sector

In this briefing:

1. Fresenius (FRE GR) Holdco at a Premium

1. Fresenius (FRE GR) Holdco at a Premium

Fresenius Se & Co Kgaa (FRE GR) is controlled by the non-profit Else Kröner-Fresenius Foundation. The combination of the parent (subsidiary holding structure) and the use of the KGaA allow Else Krone (a charitable foundation) to control both Fresenius and Fresenius Medical Care Ag & Co (FME GR) , although it only holds a minority of both companies.

• The Else Kröner-Fresenius foundation has 26.6% of the shares of Fresenius.
• Fresenius controls FME through a holding of 30.8% of the share capital and the use of the KGaA form, where Fresenius is a general partner.
• This means that the Else Kröner Foundation indirectly controls the crown jewel, FME, with an 8.2% economic interest.

Fresenius Medical Care is fully consolidated in the financial statements of Fresenius.

• This stake in FME is strategic as it contributes to nearly 49% of turnover and 49% of Fresenius group EBITDA (2019).
• FME dividends fund c. 75% of the dividend of FRE (2018).

Both companies are rated BBB.

From my calculations, Fresenius is trading at a premium of 14.2% to its SOTP. A reason for this could be higher growth prospects for Kabi and Helios. Please note that the market is valuing the rump 5% higher than my estimates (EV of EUR 31,501 million vs an EV of EUR 29,740 million).

FME is the single largest contributor to Fresenius group earnings. Unsurprisingly, Fresenius tracks the share price performance of FME.

I believe that Fresenius Medical Care offers better earnings growth potential in the wake of good prospects for the business (see Capital IQ consensus).

I suggest the trade long FME, short FRE, with a hedge ratio of 0.6 (of FME shares for each FRE share). I would target a nil premium, at least.

The main risks to this trade are:

• Underperformance of FME
• The position is not completely hedged, we are not protected against better growth prospects for the infusion/nutrition business (Kabi) and hospital management (Helios)

In this briefing:

1. Fresenius (FRE GR) Holdco at a Premium
2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

1. Fresenius (FRE GR) Holdco at a Premium

Fresenius Se & Co Kgaa (FRE GR) is controlled by the non-profit Else Kröner-Fresenius Foundation. The combination of the parent (subsidiary holding structure) and the use of the KGaA allow Else Krone (a charitable foundation) to control both Fresenius and Fresenius Medical Care Ag & Co (FME GR) , although it only holds a minority of both companies.

• The Else Kröner-Fresenius foundation has 26.6% of the shares of Fresenius.
• Fresenius controls FME through a holding of 30.8% of the share capital and the use of the KGaA form, where Fresenius is a general partner.
• This means that the Else Kröner Foundation indirectly controls the crown jewel, FME, with an 8.2% economic interest.

Fresenius Medical Care is fully consolidated in the financial statements of Fresenius.

• This stake in FME is strategic as it contributes to nearly 49% of turnover and 49% of Fresenius group EBITDA (2019).
• FME dividends fund c. 75% of the dividend of FRE (2018).

Both companies are rated BBB.

From my calculations, Fresenius is trading at a premium of 14.2% to its SOTP. A reason for this could be higher growth prospects for Kabi and Helios. Please note that the market is valuing the rump 5% higher than my estimates (EV of EUR 31,501 million vs an EV of EUR 29,740 million).

FME is the single largest contributor to Fresenius group earnings. Unsurprisingly, Fresenius tracks the share price performance of FME.

I believe that Fresenius Medical Care offers better earnings growth potential in the wake of good prospects for the business (see Capital IQ consensus).

I suggest the trade long FME, short FRE, with a hedge ratio of 0.6 (of FME shares for each FRE share). I would target a nil premium, at least.

The main risks to this trade are:

• Underperformance of FME
• The position is not completely hedged, we are not protected against better growth prospects for the infusion/nutrition business (Kabi) and hospital management (Helios)

2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

Bangkok Dusit Med Service (BDMS TB) has made a Conditional Voluntary Tender Offer (CVTO) for 24.99% held Bumrungrad Hospital Pub Co (BH TB) at THB125/share, an 11.6% premium to last close.

That Offer Price may increase by up to 20% – or up to THB150/share – depending on the “appropriateness of the market directions of the market of the Stock Exchange of Thailand and the trading price of BH at the time.”

In addition to requiring approval from BDMS’ shareholders, the key condition to the Offer will be the approval from the Trade Competition Commission (TCC). That is unlikely to be a defeating condition.

The initial headline price, and even the high end of this indicative range, appears highly opportunistic.

More below the fold.

In this briefing:

1. Fresenius (FRE GR) Holdco at a Premium
2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis
3. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

1. Fresenius (FRE GR) Holdco at a Premium

Fresenius Se & Co Kgaa (FRE GR) is controlled by the non-profit Else Kröner-Fresenius Foundation. The combination of the parent (subsidiary holding structure) and the use of the KGaA allow Else Krone (a charitable foundation) to control both Fresenius and Fresenius Medical Care Ag & Co (FME GR) , although it only holds a minority of both companies.

• The Else Kröner-Fresenius foundation has 26.6% of the shares of Fresenius.
• Fresenius controls FME through a holding of 30.8% of the share capital and the use of the KGaA form, where Fresenius is a general partner.
• This means that the Else Kröner Foundation indirectly controls the crown jewel, FME, with an 8.2% economic interest.

Fresenius Medical Care is fully consolidated in the financial statements of Fresenius.

• This stake in FME is strategic as it contributes to nearly 49% of turnover and 49% of Fresenius group EBITDA (2019).
• FME dividends fund c. 75% of the dividend of FRE (2018).

Both companies are rated BBB.

From my calculations, Fresenius is trading at a premium of 14.2% to its SOTP. A reason for this could be higher growth prospects for Kabi and Helios. Please note that the market is valuing the rump 5% higher than my estimates (EV of EUR 31,501 million vs an EV of EUR 29,740 million).

FME is the single largest contributor to Fresenius group earnings. Unsurprisingly, Fresenius tracks the share price performance of FME.

I believe that Fresenius Medical Care offers better earnings growth potential in the wake of good prospects for the business (see Capital IQ consensus).

I suggest the trade long FME, short FRE, with a hedge ratio of 0.6 (of FME shares for each FRE share). I would target a nil premium, at least.

The main risks to this trade are:

• Underperformance of FME
• The position is not completely hedged, we are not protected against better growth prospects for the infusion/nutrition business (Kabi) and hospital management (Helios)

2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

Bangkok Dusit Med Service (BDMS TB) has made a Conditional Voluntary Tender Offer (CVTO) for 24.99% held Bumrungrad Hospital Pub Co (BH TB) at THB125/share, an 11.6% premium to last close.

That Offer Price may increase by up to 20% – or up to THB150/share – depending on the “appropriateness of the market directions of the market of the Stock Exchange of Thailand and the trading price of BH at the time.”

In addition to requiring approval from BDMS’ shareholders, the key condition to the Offer will be the approval from the Trade Competition Commission (TCC). That is unlikely to be a defeating condition.

The initial headline price, and even the high end of this indicative range, appears highly opportunistic.

More below the fold.

3. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

Hygeia Healthcare Group, a leading oncology specialized healthcare group, is planning to raise to USD 500 million via a Hong Kong listing. 

The company operates its own hospitals, provides third-party radiotherapy service and manages partner hospitals. The company’s recent growth has been driven by ramping up of its self-owned hospitals that were opened during the track record period. Its track record of ramping up newly established hospitals has been amazing. 

The company also has an ambitious expansion plan for the next three years, including the expansion of existing facilities and establishing greenfield hospitals. We estimate that the expansion of 3 existing hospitals will add 51% GFA and 95-123% bed capacity. Greenfield hospitals will increase GFA and bed capacity by 126% and 214-280% respectively.

The company is backed by reputable healthcare investors. Our preliminary valuation of USD 1.1 billion implies that there is an upside from its pre-IPO valuation. 

In this briefing:

1. M3 Inc: M&A Deals to Support Global Expansion While Medical Platform Offers Solid LT Growth
2. Celgene’s Abraxane Banned in China By NMPA; Buy CSPC on Additional Volume Upsides
3. Jiangsu Hengrui Medicines. Co (600276.SS):  Growth Potential Is Over Priced
4. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters
5. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation

1. M3 Inc: M&A Deals to Support Global Expansion While Medical Platform Offers Solid LT Growth

• m3 Inc. (TSE: 2413) provides various medical-related services to physicians and healthcare professionals in Japan and overseas. The company operates m3.com, its key platform alongside several other websites and platforms aimed at providing different services such as information provision, marketing services, medical health records and career solutions.
• The company has grown its top line from JPY51bn in FY03/2015 to JPY113bn in FY03/2019 while its operating profits have more than doubled during this period
• M3’s key segment, Medical Platform offers primarily marketing related services to its member physicians and we expect the segment to remain a key pillar of growth over the next couple of years for the company.
• At the same time, the Overseas business has grown at the highest CAGR over the last five years and the company has grown its overseas business mostly through partnerships and acquisitions which have helped the company expand into new business verticals and markets.
• The company has a strong balance sheet with zero debt which we believe will continue to support further M&A activity for the company.

2. Celgene’s Abraxane Banned in China By NMPA; Buy CSPC on Additional Volume Upsides

Last night, the NMPA banned the importation, sales and use of Albumin-bound paclitaxel (Abraxane) from Celgene Celgene Corp (CELG US) and BeiGene BeiGene (BGNE US)BeiGene Ltd (6160 HK), due to some key production facilities do not meet the basic standards.  With such suspension, CSPC CSPC Pharmaceutical Group (1093 HK) and Hengrui Medicines Jiangsu Hengrui Medicine Co., (600276 CH) are likely to benefit from the additional market share. While we think the valuation of Hengrui is undesirable now, we believe there are more upsides on CSPC, trading at 18x forward P/E, 10% discount to 10 years average of 20x with a bottom line CAGR of 20-25% in the next few years.  

3. Jiangsu Hengrui Medicines. Co (600276.SS):  Growth Potential Is Over Priced

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

4. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters

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. 

5. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation

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:

• Kintor Pharma (开拓药业) Pre-IPO: Interesting prostate cancer drug but low in core assets

In this briefing:

1. Fresenius (FRE GR) Holdco at a Premium
2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis
3. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment
4. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense

1. Fresenius (FRE GR) Holdco at a Premium

Fresenius Se & Co Kgaa (FRE GR) is controlled by the non-profit Else Kröner-Fresenius Foundation. The combination of the parent (subsidiary holding structure) and the use of the KGaA allow Else Krone (a charitable foundation) to control both Fresenius and Fresenius Medical Care Ag & Co (FME GR) , although it only holds a minority of both companies.

• The Else Kröner-Fresenius foundation has 26.6% of the shares of Fresenius.
• Fresenius controls FME through a holding of 30.8% of the share capital and the use of the KGaA form, where Fresenius is a general partner.
• This means that the Else Kröner Foundation indirectly controls the crown jewel, FME, with an 8.2% economic interest.

Fresenius Medical Care is fully consolidated in the financial statements of Fresenius.

• This stake in FME is strategic as it contributes to nearly 49% of turnover and 49% of Fresenius group EBITDA (2019).
• FME dividends fund c. 75% of the dividend of FRE (2018).

Both companies are rated BBB.

From my calculations, Fresenius is trading at a premium of 14.2% to its SOTP. A reason for this could be higher growth prospects for Kabi and Helios. Please note that the market is valuing the rump 5% higher than my estimates (EV of EUR 31,501 million vs an EV of EUR 29,740 million).

FME is the single largest contributor to Fresenius group earnings. Unsurprisingly, Fresenius tracks the share price performance of FME.

I believe that Fresenius Medical Care offers better earnings growth potential in the wake of good prospects for the business (see Capital IQ consensus).

I suggest the trade long FME, short FRE, with a hedge ratio of 0.6 (of FME shares for each FRE share). I would target a nil premium, at least.

The main risks to this trade are:

• Underperformance of FME
• The position is not completely hedged, we are not protected against better growth prospects for the infusion/nutrition business (Kabi) and hospital management (Helios)

2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

Bangkok Dusit Med Service (BDMS TB) has made a Conditional Voluntary Tender Offer (CVTO) for 24.99% held Bumrungrad Hospital Pub Co (BH TB) at THB125/share, an 11.6% premium to last close.

That Offer Price may increase by up to 20% – or up to THB150/share – depending on the “appropriateness of the market directions of the market of the Stock Exchange of Thailand and the trading price of BH at the time.”

In addition to requiring approval from BDMS’ shareholders, the key condition to the Offer will be the approval from the Trade Competition Commission (TCC). That is unlikely to be a defeating condition.

The initial headline price, and even the high end of this indicative range, appears highly opportunistic.

More below the fold.

3. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

Hygeia Healthcare Group, a leading oncology specialized healthcare group, is planning to raise to USD 500 million via a Hong Kong listing. 

The company operates its own hospitals, provides third-party radiotherapy service and manages partner hospitals. The company’s recent growth has been driven by ramping up of its self-owned hospitals that were opened during the track record period. Its track record of ramping up newly established hospitals has been amazing. 

The company also has an ambitious expansion plan for the next three years, including the expansion of existing facilities and establishing greenfield hospitals. We estimate that the expansion of 3 existing hospitals will add 51% GFA and 95-123% bed capacity. Greenfield hospitals will increase GFA and bed capacity by 126% and 214-280% respectively.

The company is backed by reputable healthcare investors. Our preliminary valuation of USD 1.1 billion implies that there is an upside from its pre-IPO valuation. 

4. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense

In this briefing:

1. Bumrungrad: Bangkok Dusit’s Poor Diagnosis
2. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment
3. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense

1. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

Bangkok Dusit Med Service (BDMS TB) has made a Conditional Voluntary Tender Offer (CVTO) for 24.99% held Bumrungrad Hospital Pub Co (BH TB) at THB125/share, an 11.6% premium to last close.

That Offer Price may increase by up to 20% – or up to THB150/share – depending on the “appropriateness of the market directions of the market of the Stock Exchange of Thailand and the trading price of BH at the time.”

In addition to requiring approval from BDMS’ shareholders, the key condition to the Offer will be the approval from the Trade Competition Commission (TCC). That is unlikely to be a defeating condition.

The initial headline price, and even the high end of this indicative range, appears highly opportunistic.

More below the fold.

2. Hygeia Healthcare (海吉亚) Pre-IPO: The Making of Jinxin in the Oncology Segment

Hygeia Healthcare Group, a leading oncology specialized healthcare group, is planning to raise to USD 500 million via a Hong Kong listing. 

The company operates its own hospitals, provides third-party radiotherapy service and manages partner hospitals. The company’s recent growth has been driven by ramping up of its self-owned hospitals that were opened during the track record period. Its track record of ramping up newly established hospitals has been amazing. 

The company also has an ambitious expansion plan for the next three years, including the expansion of existing facilities and establishing greenfield hospitals. We estimate that the expansion of 3 existing hospitals will add 51% GFA and 95-123% bed capacity. Greenfield hospitals will increase GFA and bed capacity by 126% and 214-280% respectively.

The company is backed by reputable healthcare investors. Our preliminary valuation of USD 1.1 billion implies that there is an upside from its pre-IPO valuation. 

3. SELL Ascletis Pharma: Why the COVID-19 Update Does Not Make Sense

In this briefing:

1. Celgene’s Abraxane Banned in China By NMPA; Buy CSPC on Additional Volume Upsides
2. Jiangsu Hengrui Medicines. Co (600276.SS):  Growth Potential Is Over Priced
3. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters
4. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation
5. Cochlear Placement – Deserves a Hearing

1. Celgene’s Abraxane Banned in China By NMPA; Buy CSPC on Additional Volume Upsides

Last night, the NMPA banned the importation, sales and use of Albumin-bound paclitaxel (Abraxane) from Celgene Celgene Corp (CELG US) and BeiGene BeiGene (BGNE US)BeiGene Ltd (6160 HK), due to some key production facilities do not meet the basic standards.  With such suspension, CSPC CSPC Pharmaceutical Group (1093 HK) and Hengrui Medicines Jiangsu Hengrui Medicine Co., (600276 CH) are likely to benefit from the additional market share. While we think the valuation of Hengrui is undesirable now, we believe there are more upsides on CSPC, trading at 18x forward P/E, 10% discount to 10 years average of 20x with a bottom line CAGR of 20-25% in the next few years.  

2. Jiangsu Hengrui Medicines. Co (600276.SS):  Growth Potential Is Over Priced

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

3. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters

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. 

4. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation

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:

• Kintor Pharma (开拓药业) Pre-IPO: Interesting prostate cancer drug but low in core assets

5. Cochlear Placement – Deserves a Hearing

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.

In this briefing:

1. Jiangsu Hengrui Medicines. Co (600276.SS):  Growth Potential Is Over Priced
2. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters
3. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation
4. Cochlear Placement – Deserves a Hearing
5. Feedback from Qiagen IR Regarding Thermo Fisher Deal

1. Jiangsu Hengrui Medicines. Co (600276.SS):  Growth Potential Is Over Priced

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

2. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters

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. 

3. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation

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:

• Kintor Pharma (开拓药业) Pre-IPO: Interesting prostate cancer drug but low in core assets

4. Cochlear Placement – Deserves a Hearing

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.

5. Feedback from Qiagen IR Regarding Thermo Fisher Deal

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

In this briefing:

1. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters
2. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation
3. Cochlear Placement – Deserves a Hearing
4. Feedback from Qiagen IR Regarding Thermo Fisher Deal
5. Hangzhou TigerMed (300347.SZ): Near Term Disruption Does Not Change LT Robust Growth Story

1. Wuxi Apptec (药明康德) Proposed USD1.7bn Placement: Liquidity Matters

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. 

2. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation

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:

• Kintor Pharma (开拓药业) Pre-IPO: Interesting prostate cancer drug but low in core assets

3. Cochlear Placement – Deserves a Hearing

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.

4. Feedback from Qiagen IR Regarding Thermo Fisher Deal

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

5. Hangzhou TigerMed (300347.SZ): Near Term Disruption Does Not Change LT Robust Growth Story

In this insight, we provide updates on TigerMed Hangzhou Tigermed Consulting (300347 CH) from the recent mgmt meetings, including the impacts of COVID 19 virus outbreak, future strategies, etc. In addition, we recap the fundamental analysis of TigerMed as below: 

1) Business model

2) MOAT analysis

3) Investment thesis

4) Investment controversy

5) Current valuation with TSR/margin of safety analysis

In summary, we remain positive on TigerMed with 25%-30% long term CAGR, driven by 1) strong demand from increasing R&D investment and rising penetration rate in China’s CRO market; 2) continuous expansion through organic growth & M&A with margin upside;  Our 7 yearDCF valuation indicates an asymmetric return profile: TSR of 21% with a margin of safety at 55% (base case), TSR of 9% with a margin of safety of 9% (bear case), thus the downside risk is rather limited. We expect the current market downtrend to persist amid the global panic on COVID 19 especially abroad. We suggest long term investors take the recent weakness as an opportunity to build positions.

Hangzhou TigerMed

In this briefing:

1. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation
2. Cochlear Placement – Deserves a Hearing
3. Feedback from Qiagen IR Regarding Thermo Fisher Deal
4. Hangzhou TigerMed (300347.SZ): Near Term Disruption Does Not Change LT Robust Growth Story
5. InnoCare Pharma: Trading Debut, Valuation Scenario Analysis

1. Kintor Pharma (开拓药业) Pre-IPO: Thoughts on Valuation

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:

• Kintor Pharma (开拓药业) Pre-IPO: Interesting prostate cancer drug but low in core assets

2. Cochlear Placement – Deserves a Hearing

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.

3. Feedback from Qiagen IR Regarding Thermo Fisher Deal

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

4. Hangzhou TigerMed (300347.SZ): Near Term Disruption Does Not Change LT Robust Growth Story

In this insight, we provide updates on TigerMed Hangzhou Tigermed Consulting (300347 CH) from the recent mgmt meetings, including the impacts of COVID 19 virus outbreak, future strategies, etc. In addition, we recap the fundamental analysis of TigerMed as below: 

1) Business model

2) MOAT analysis

3) Investment thesis

4) Investment controversy

5) Current valuation with TSR/margin of safety analysis

In summary, we remain positive on TigerMed with 25%-30% long term CAGR, driven by 1) strong demand from increasing R&D investment and rising penetration rate in China’s CRO market; 2) continuous expansion through organic growth & M&A with margin upside;  Our 7 yearDCF valuation indicates an asymmetric return profile: TSR of 21% with a margin of safety at 55% (base case), TSR of 9% with a margin of safety of 9% (bear case), thus the downside risk is rather limited. We expect the current market downtrend to persist amid the global panic on COVID 19 especially abroad. We suggest long term investors take the recent weakness as an opportunity to build positions.

Hangzhou TigerMed

5. InnoCare Pharma: Trading Debut, Valuation Scenario Analysis