Healthcare

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Canvest Environmental Protection Group (1381 HK), Malaysia Airports Holdings (MAHB MK), Asia Cement China (743 HK). 
• Lowest spreads: Fuji Soft Inc (9749 JP), Second Chance Properties (SCE SP), Descente Ltd (8114 JP), C.I. TAKIRON Corporation (4215 JP), Fancl Corp (4921 JP).

• We summarized the varieties that would miss 2024 NRDL negotiation and have to wait until 2026 to enter medical insurance coverage. This however means competing products would have more advantages.
• As the NRDL negotiation becomes more transparent/reasonable, there will be a balance point among companies’ profits, patient affordability and medical insurance budget. So, there’s no need to be overly pessimistic.
• The approval process of CanSino’s PCV13i could be faster than expected. 2024 is the best time to bottom-fish this stock. Reasonable market value is at least RMB5 billion.

• Using the last close, there could be one change for the Taiwan Top 50 ETF in September with Pharmaessentia Corp (6446 TT) replacing Nanya Technology (2408 TT). 
• There is one other constituent that is close to deletion zone while there are a couple of non-constituents that could move into inclusion zone over the next couple of weeks.
• Short interest has been dropping in Pharmaessentia Corp (6446 TT) and increasing in Nanya Technology (2408 TT) over the last few weeks.

• BeiGene’s 24Q2 results far exceeded expectations. Sales of BRUKINSA may exceed that of Calquence for the first time next year. Breakeven in 2024 becomes possible if effective cost control continues.
• BeiGene’s 2024 revenue could exceed Hengrui, marking the official transition of China’s innovative pharmaceutical industry from the old generation to the new one. Reasonable market value for BeiGene is US$19-27.5bn.
• Current valuation cannot reflect strong fundamentals.As BeiGene has established a convincing profit model, the market turmoil actually provides investors with a good opportunity to buy the stock at low price.

• Zylox is a beneficiary of VBP and it has turned losses into profits. 2024 full-year revenue could be up 40-50% YoY. Net profit could be close to RMB100 million.
• Whether in terms of the number of products on the market or the efficiency of R&D, Zylox’s performance is superior to peers.Its valuation is expected to be higher than peers.
• We’re in a bear market, together with weak liquidity, Zylox’s valuation doesn’t fully reflect its strong fundamentals. So, while this is a good company, investors may need to be patient.

• Acadia Healthcare’s second quarter of 2024 earnings presentation illustrated a company navigating the complex terrain of the behavioral healthcare industry with notable successes as well as areas that demand attention.
• In their earnings report, the company reported revenue of $796 million, marking an 8.8% increase over the previous year, driven by rate improvements and growth in patient days.
• This growth is a reflection of Acadia’s ability to capture market demand, particularly in the behavioral healthcare sector, which continues to see rising need.

• Jazz Pharmaceuticals recently reported its financial results for the second quarter of 2024, reflecting strong commercial performance and significant revenue growth across its diversified portfolio, which facilitated the company’s largest revenue quarter in its history, surpassing $1 billion.
• In the neuroscience therapeutic area, Xywav, a key product for narcolepsy and idiopathic hypersomnia (IH), highlighted the portfolio with a significant increase of 13% in net sales compared to the same quarter the previous year.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• Regeneron Pharmaceuticals reported substantial growth in its second quarter of 2024, with a 12% increase in total revenues to $3.55 billion.
• This rise was driven significantly by the U.S. sales of EYLEA HD, which reached $304 million in its third quarter on the market.
• The combined net product sales of EYLEA HD and EYLEA were $1.53 billion, marking a 2.3% year-over-year growth.

• Vertex Pharmaceuticals displayed robust performance in the second quarter of 2024, marked by significant progress across its various operational and developmental sectors.
• The company’s revenue for the quarter was $2.65 billion, representing a 6% increase year-over-year.
• Most notably, Vertex has raised its full-year product revenue guidance to between $10.65 billion and $10.85 billion, indicating a projected growth of approximately 9% compared to 2023.

• Local market views Celltrion’s shareholder survey as the start of the merger process, with a decision expected from the boards within two to three months if there’s no major opposition.
• Under Korean law, if Celltrion Pharm’s market cap is under one-tenth of Celltrion’s, the merger can proceed as a small-scale merger, allowing Celltrion to avoid shareholder approval and appraisal rights.
• We should leverage the merger’s high predictability to proactively target merger swap and appraisal rights spreads and build a strategy in advance.

• Rubicon Research Limited (1453591D IN) is looking to raise about US$130m in its upcoming India IPO. The deal will be run by Axis, IIFL, JM Fin and SBI Caps. 
• Rubicon Research is a pharmaceutical formulations company with an increasing portfolio of specialty products and drug-device combination products targeting regulated markets, particularly, the United States.
• It was ranked among the top 10 Indian companies, in terms of total Abbreviated New Drug Application (ANDA) approvals, as per Frost & Sullivan (F&S).

• Exact Sciences Corp. recently reported its second quarter 2024 earnings demonstrating strong performance and strategic advancements in its diagnostic offerings.
• The company marked a significant milestone by screening over 1 million people with Cologuard for colon cancer within the quarter, the highest number ever recorded.
• Additionally, global testing for Oncotype DX also reached unprecedented levels.

• GSK’s recent quarterly report underlines a robust upward trajectory with significant growth figures, showcasing the strength and diversity of its product portfolio in pharmaceuticals and healthcare.
• The company reported a 13% growth in sales to GBP 7.9 billion and a 21% increase in core operating profit to GBP 2.5 billion.
• Core earnings per share also rose by 17% to 43.4p, excluding COVID solutions.

• Hologic had a strong third quarter in fiscal 2024, demonstrating resilience and strategic efficiency in navigating post-pandemic market conditions.
• The company reported total revenue of $1.01 billion and a non-GAAP earnings per share of $1.06, both numbers topping their guidance predictions.
• This marked a return to revenue growth, with a notable 3.1% increase compared to the previous year, signaling a solid recovery trajectory after the challenges posed by COVID-19 and subsequent global disruptions such as the chip shortage.

• FY06/24 revenue grew 8.7% YoY to JPY259.8bn, with operating profit at JPY1.3bn (-29.4% YoY) and net income at JPY1.1bn (-24.9% YoY).
• Gross profit in FY06/24 was JPY31.1bn (+6.1% YoY) with SG&A expenses at JPY29.7bn (+8.5% YoY), maintaining an SG&A ratio of 11.5%.
• FY06/25 revenue is projected at JPY280.0bn (+7.8% YoY), with operating profit at JPY1.4bn (+5.5% YoY) and net income at JPY1.3bn (+13.8% YoY).

• Consolidated sales increased by 8.4% YoY, driven by strong performance in Medical-Related, Pharmaceutical-Related, and PharmaPackaging businesses.
• Operating profit declined 21.1% YoY due to rising raw material prices, increased labor costs, and higher SG&A expenses.
• Recurring profit decreased 27.9% YoY due to higher interest expenses and increased equity in losses of affiliates.

• Revenue increased to JPY15.7bn (+13.4% YoY), with operating profit at JPY710mn (+379.7% YoY) and recurring profit at JPY743mn (+370.3% YoY).
• Family Care Services revenue grew due to expanded babysitter services, while Edu-care business saw steady growth from new nursery schools.
• SG&A expenses rose to JPY2.5bn (+2.7% YoY) due to higher taxes, public charges, and call center and system maintenance expenses.

• United Therapeutics Corporation reported a strong second quarter for 2024, showcasing significant strides in revenue growth and continued advancement in its product lines and clinical trials.
• With a strategy delineated into three distinct waves—established products, next-generation treatments, and innovative organ manufacturing—the company is steering a future-oriented path, albeit with candidly acknowledged challenges and uncertainties, particularly regarding clinical trial outcomes for its second-wave products.
• The positive takeaways include a notable 20% rise in revenue year-over-year, reaching $715 million.

AFT Pharmaceuticals has expanded its licensing partnership with Hikma in the US to include distribution of the recently launched Combogesic tablets (Maxigesic Rapid). We view this as a logical step, given Hikma’s established footprint in the US, with synergistic benefits likely on costs and sales uptake. Hikma already holds exclusive distribution rights to Maxigesic/Combogesic IV in the US and will now also market the tablet formulation in the same hospital and ambulatory setting. Management expects to book the first sales within CY24 and, while the deal economics have not been fully disclosed, the agreement includes a profit share for Hikma according to our understanding. Note that unlike the IV formulation, AFT’s sales strategy for the tablets entails having different distribution partners across sales channels. The first distribution agreement for the Combogesic tablets was signed with Alexso in June 2024.

• Paras Healthcare Limited (0490145D IN) is looking to raise about US$180m in its upcoming India IPO. The deal will be run by ICICI, IIFL and Motilal Oswal.
• Paras Healthcare is the fifth largest healthcare provider, in terms of bed capacity in North India, Bihar and Jharkhand, with an aggregate of 2,135 beds, as of March 31, 2024.
• The company offers several clinical specialties across its hospitals including cardiac sciences, oncology, neuro sciences, gastro sciences and orthopedics and joint replacement.

• Suraksha Diagnostic (1481262D IN) is looking to raise up to US$230m in its upcoming India IPO. The deal will be run by ICICI Securities, Nuvama Wealth and SBI Capital.
• Suraksha Diagnostic is a full-service and integrated diagnostic chain. It offers a one-stop integrated solution for pathology and radiology testing, and medical consultation services to its customers.
• It has flagship central reference laboratory, eight satellite laboratories and 194 customer touchpoints, and 146 sample collection centres (primarily franchised) as of FY24, across certain states of India.

• We continue to believe a 1-4-month pullback/consolidation is ongoing. Important supports have been violated, including $110 on MSCI ACWI (ACWI-US) and $41 on MSCI EM (EEM-US).
• We’re shifting our outlook to neutral on $ACWI after being bullish since early-November 2023. Major price breakdowns combined with deteriorating market dynamics have increased the odds of a topping pattern.
• Also downgrading Japan to market weight. 7/25/24 we said “Japan’s TOPIX breaking below 2800-2815 is near-term bearish, suggests it could pull back to its long-term uptrend, or worse.”

• Terumo Corp (4543 JP) has reported record high quarterly revenue and profit in Q1FY25, thanks to strong demand across all the business segments, effects of pricing measures, and favorable Fx.
• With the steady progress in profit improvement measures, Q1FY25 gross profit margin (53.3%) reached to its highest level since Q2FY22. Operating and net profit growth outpaced that of revenue.
• Amid currency uncertainties and inflation, Terumo has maintained its full-year FY25 guidance issued in May. Growth will be driven by US and Europe owing to the sustained increase in demand.

• On August 5, 2024, ESSA Pharma Inc. (EPIX) announced financial results for the third quarter of fiscal year 2024 that ended June 30, 2024 and provided a business update.
• ESSA is currently studying its lead compound, masofaniten (EPI-7386), in two clinical trials: EPI-7386-CS-001 and EPI-7386-CS-010.
• Full results from the monotherapy arm of the -001 trial will be presented at a scientific conference in the second half of 2024 while enrollment continues in the two combination arms.

• Incyte Corporation reported its financial performance for the second quarter of 2024 with several notable highlights and strategic decisions that significantly influence its investment profile.
• The company’s total revenue grew by 9% year-over-year, reaching over $1 billion, primarily driven by robust sales of Jakafi and Opzelura.
• Jakafi, particularly, showed a consistent demand increase of 9%, although net product revenues were slightly muted due to higher channel inventory levels in the previous year.

• Sales for Q2 FY12/24 were JPY316mn (-36.9% YoY), with an operating loss of JPY24mn, and sales progress at 34.1%.
• Drug Discovery and Development segment recorded no sales, with an operating loss of JPY1.1bn, and increased R&D spending by 3.4% YoY.
• Full-year forecast includes JPY925mn sales (+0.8% YoY) and JPY229mn operating profit (+1.8% YoY) for Drug Discovery Support segment.

• China Resources Sanjiu plans to acquire 28% stake in Tasly for RMB6.21 billion at RMB14.85/share. The acquisition of Tasly is in line with the strategic direction of 14th Five-Year Plan.
• China Resources is positioned as a leading enterprise in modern industrial chain of TCM by the SASAC.Due to policy support, TCM assets are more likely to be favored by SOEs.
• The deal is positive for Tasly, whose valuation has room to rise further, but the market seems “skeptical” about China Resources Sanjiu’s decision, leading to a lackluster share price reaction. 

• Celltrion Inc (068270 KS) posted revenue of KRW875B in 2Q24, driven by balanced growth in both the existing core and new biosimilar products.
• Operating profit ‘temporarily’ declined 60% YoY due to the ongoing impact of the merger. However, operating profit improved by a massive 371% sequentially.
• Celltrion maintains its 2024 revenue target of KRW3.5T (+60% YoY). The improvement in sales and operating profit in the second half of the year is expected to become increasingly evident.

• Stryker Corporation has released its earnings for the second quarter of 2024, showing a robust performance marked by a strong organic growth sales of 9% year-over-year.
• The diversified medical technology company’s balanced growth across its MedSurg and Neurotechnology and Orthopaedics and Spine segments underpins its broad performance and robust demand for its products.
• The global organic growth was evenly distributed with both U.S. and international markets expanding by approximately 9%.

• Bristol-Myers Squibb reported its second quarter 2024 earnings showcasing continued execution of its long-term strategy aimed at fostering sustainable growth.
• The company highlighted an 18% year over-year increase in its growth portfolio revenues, amounting to a 21% rise when excluding the impact of foreign exchange.
• This bolstered growth originated largely from several marketed products gaining traction in the market.

• Fruquintinib US sales continue to be the main performance driver. License-out expectations for surufatinib is low.Highlight for savolitinib is the combination with osimertinib for NSCLC, which would bring high growth.
• Future playbook of HUTCHMED is “continued sharp reduction of expenses + milestones from Takeda based on fruquintinib overseas sales = rapid narrowng of losses”.2024 overseas market sales may exceed US$300m.
• There is not much problem with HUTCHMED completing its performance guidance for the year 2024. Reasonable market value range for HUTCHMED is US$1.75-3.75 billion. Breakeven is expected in 2025.

• Organovo is a biotech company that has 3D technology enabling the company to produce various human tissues, allowing the company to target diseases and accelerate the drug development process.
• The company released its 1Q financial report that showed improved good cash balances and bested estimates.
• The company also recently reiterated positive Phase 2 results for one of its primary treatments-FXR314.

• The company reported YoY increases in sales (3.7%), operating profit (26.3%), recurring profit (11.6%), and net income (0.7%).
• Pharmaceuticals Business sales fell 1.6% YoY to JPY7.1bn, with notable declines in Domestic and Overseas Pharmaceuticals segments.
• R&D expenses were JPY1.6bn (20.4% of sales, excluding royalty income); significant pipeline developments include SI-6603 and SI-449.

• What disappoints investors is that privatization progress is slower-than-expected. Since approval is in “advanced stage”, August update is eye-catching. Investors may need more patience with this type of SOE deal. 
• The key to the success of this privatization lies in whether CNPGC is willing to abide by its commitments. If yes, CNPGC will take all measures to solve the problems.
• According to our valuation calculation, even without this privatization, HK$3.5/share is fair for China TCM. Reasonable share price is above HK$5/share. Don’t forget, the privatization is still on the agenda.

• Akums Drugs and Pharmaceuticals (0200361D IN) raised around US$222m in its India IPO, after pricing the deal at the top end of the range at INR679/share.
• Akums Drugs and Pharmaceuticals (ADP) is a pharmaceutical contract development and manufacturing organization (CDMO) offering a comprehensive range of pharmaceutical products and services in India and overseas.
• We have looked at various aspects of the deal in our previous notes. In this note, we talk about demand and trading dynamics.

• Q1 FY3/25 results were ahead of our expectations, with Shofu’s solid execution overseas, with overseas sales growth of 20.2% YoY, and making up 60.5% of the total.
• Its competitive and high-margin Chemical products (CAD/CAM resin materials and restorative filling materials) grew 27.9% YoY and made up 32.6% of total sales (29.1% in Q1 FY3/24).
• This combination of overseas growth and sales mix improvement resulted in a record-high quarterly OPM of 16.4%. 

• Saint Bella, a premium postpartum care service provider, filed to go public in Hong Kong. UBS and CITIC Securities are leading the offering.
• Saint Bella operates ultra-premium postpartum centers in Asia, which are located at luxury hotels and detached villas. The company opened its first postpartum center in Hangzhou in 2017.
• With strong multi-brand strategy and asset-light business model, Saint Bella is uniquely positioned in premium segment under Saint Bella, Bella Isla and Baby Bella brands.

• AstraZeneca’s recent financial performance has shown substantial growth, signaling robust underlying demand for its diverse product range across multiple therapy areas and geographies, as reflected in its first half of the year 2024 results.
• The company reported a significant 18% growth in total revenue, driven primarily by its core therapeutic areas including Oncology, Biopharmaceuticals, and Rare Diseases.
• This revenue increase translated to a core operating profit of $8.4 billion and a core EPS increase of 5% to $4.03.

• Quest Diagnostics delivered a mixed yet overall positive performance in its recent financial results.
• The company reported a 2.5% increase in total revenues, with base business revenues growing by nearly 4%.
• This growth is attributed to the expansion of new physician and hospital customers and an improved test mix, with advanced diagnostics seeing greater adoption and healthcare utilization remaining strong.

• DexCom, Inc. recently reported its second quarter earnings for 2024, presenting a mix of achievements and challenges that provide a nuanced view of the company’s current state and future outlook.
• DexCom, known for its continuous glucose monitoring (CGM) systems, has demonstrated continuous growth in the diabetes management market, yet faced several short-term hurdles that have impacted its performance this quarter.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

SIGA Technologies had another strong quarter in Q224, driven by intravenous TPOXX (IVT) deliveries to the Strategic National Stockpile (SNS) and incremental international orders for oral TPOXX. Product revenues of $20.7m (not including the $1.1m R&D income) improved materially from $1.3m in Q223 and comprised $17.6m from IVT sales and $3.1m from international deliveries (including $2.7m under the ASEAN deal). BARDA exercising the remaining $112.5m oral TPOXX option means that top-line momentum will continue into H224. SIGA’s cash position is healthy (post-dividend net cash $107m, no debt) and we expect it to improve further with the upcoming BARDA deliveries (from Q424). We tweak our estimates slightly to reflect the possible timing differences in deliveries and our valuation adjusts from $16.01/share to $15.89/share.

• Revenue: JPY43.7bn (+18.0% YoY), Operating profit: JPY10.6bn (+125.8% YoY), Recurring profit: JPY14.1bn (+135.7% YoY), Net Income: JPY11.2bn (+158.1% YoY).
• Domestic business revenue: JPY40.1bn (+21.7% YoY), China business revenue: JPY3.6bn (-12.1% YoY), Prescription Kampo formulations revenue: JPY38.8bn (+21.9% YoY).
• Cost of revenue ratio decreased by 7.2pp to 47.7%, SG&A expense ratio decreased by 4.3pp to 28.1%, driven by higher sales.

• West Pharmaceuticals experienced a challenging second quarter in 2024, with lower-than-expected performance due to ongoing customer destocking activities.
• Despite these conditions, the company remains confident in a recovery, expecting improvements in the latter half of the year with a focus on their Proprietary Products segment, particularly within biologics.
• This optimism for recovery is further supported by enhanced capabilities and expansions in manufacturing aimed at meeting the surging demand in biologics, high-value products (HVP), and regulatory-facing solutions.

• TCM formula granules VBP would cause some disturbance to related enterprises’ performance, but the substitution of TCM formula granules for TCM decoction pieces is a trend, indicating long-term optimistic growth.
• Keymed’s CM310 would probably miss the NRDL negotiation this year, which will put the Company in passive situation. Based on competitive landscape, we are worried about the performance of Keymed.
• Unsatisfactory performance of Taiji’s shares is related to concerns on China TCM’s privatization/24H1 results.However, even without the integration with China TCM, Taiji’s market value should be more than RMB20 billion.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), China Traditional Chinese Medicine (570 HK), Asia Cement China (743 HK), Canvest Environmental Protection Group (1381 HK), Shanghai Henlius Biotech (2696 HK). 
• Lowest spreads: Fancl Corp (4921 JP), Second Chance Properties (SCE SP), Tatsuta Electric Wire & Cable (5809 JP), Mimasu Semiconductor Industry (8155 JP), Alps Logistics (9055 JP). 

• During 1H24 Otsuka Holdings (4578 JP) reported 18% YoY growth in revenue from pharmaceuticals segment to ¥767B, mainly driven by a 27% YoY growth in Rexulti revenue to ¥122B.
• The company has revised upward 2024 revenue and business profit, while reduced 2024 operating and net profit guidance due to the recording of an impairment loss.
• Otsuka is acquiring Jnana Therapeutics for $800M. The transaction includes JNT-517, a potential first-in-class oral treatment for Phenylketonuria, a rare inherited metabolic disorder. The acquisition will close in 3Q24.

• We believe a 1-4-month pullback/consolidation is ongoing, and we would look for an important low to be made near the U.S. election.
• Supports to watch continue to be $110 on $ACWI and $41-42 on MSCI EM $EEM, and whether these levels hold or not will determine the severity of the pullback.
• Primary reasons for this bearish expectation include major bullish RS inflections for defensive Sectors, and bearish price action in the U.S. (SPX), Japan (TOPIX/Nikkei 225), and Europe (EURO STOXX 50)

• Tenet Healthcare Corporation delivered robust financial results in the second quarter of 2024, surpassing expectations with net operating revenues recorded at $5.1 billion.
• The performance was marked by a notable 12% year-over-year growth in consolidated adjusted EBITDA, which reached $945 million, translating to an adjusted EBITDA margin of 18.5%.
• This growth is primarily attributed to strong operational execution and strategic expansions across its segments.