20171130-招银国际-Shanghai_company_visits_takeaways_5页_834kb

China Healthcare Sector Summary

Core Content

This document provides an overview of the recent visits to five healthcare companies in Shanghai, highlighting their operational status, strategic initiatives, and growth prospects. The companies are 3SBio, Haohai Biological Technology, Rici Healthcare, Yestar Healthcare, and Fudan Zhangjiang. Each section outlines key takeaways related to their business models, market positions, and future plans.

Key Companies and Their Insights

3SBio Inc. (1530 HK, BUY)

• Manufacturing Capacity: The company has a current annual capacity of over 8,000 liters for antibody production, with 6 new lines under trial run, increasing total capacity to 38,000 liters.
• CDMO Strategy: Management is targeting to allocate 15,000 liters for CDMO business, leveraging its experience in commercializing products like Yisaipu.
• Product Development:
  • Byetta: Targeting inclusion in 15 Provincial Reimbursement Drug Lists (PRDL) and eventual inclusion in the National Reimbursement Drug List (NRDL). Expected to be approved for its long-acting version, Bydureon, in 1Q18.
  • Trastuzumab: Audit results for clinical data are expected in 1Q18, which will determine whether the company can resubmit a NDA to the CFDA.

Haohai Biological Technology (6826 HK, BUY)

• Wound Care Product: rhEGF (Healin) has been included in the NRDL, leading to increased demand. The company is planning to add a fully automated production line in 1H18.
• Product Strategy:
  • Janlane: A second-generation HA product with premium pricing, targeting high-end hospitals.
  • Matrifill: First-generation HA product with competitive pricing.
• Investment Fund: Launched an investment fund with Rmb890mn contribution, aiming to invest in early-stage companies with unique technologies.

Rici Healthcare (1526 HK, BUY)

• Expansion Plans: Aiming to open 20–25 new medical examination centers in 2018 and 2019, increasing total capacity by over 1.4 times by 2019.
• Partnership with Ping An: Forming a joint venture with Ping An Health Technology Fund to boost sales and market exposure, with a target of capturing 60% of the platform's medical examination sales.
• Hospital Expansion: Two new O&G hospitals are set to open in 4Q17, with potential revenue contributions from 2018 onwards. Plans to open 4 more specialty hospitals in 2018–2019 and expand existing Class III hospitals in Nantong.
• Financial Impact: Heavy pre-opening and marketing expenses may impact profit performance in 2018–2019, but the company is laying the foundation for long-term growth.

Yestar Healthcare (2393 HK, Not rated)

• IVD Distribution: One of the leading distributors of Roche Diagnostics in China, accounting for over 15% of Roche's revenue in China. Roche is a market leader in the IVD industry.
• Policy Opportunities: The two-invoice system may force smaller distributors out of the market, creating opportunities for Yestar to expand its market share or acquire smaller distributors.
• Hierarchical Diagnosis System: Expected to increase demand from lower-tier hospitals.
• ICL Development: Launched an independent clinical laboratory (ICL) in Sep 17, which is expected to breakeven in the second year and achieve a net margin of 30–40% when fully operational. ICLs are expected to grow at a CAGR of 22% in China over the next 10 years.

Fudan Zhangjiang (1349 HK, Not rated)

• Sales Challenges: Sales of Libod have been affected by the two-invoice system and aggressive competition from CSPC's Duomeisu.
• Product Development:
  • ALA: Expected to see mild growth in the low-teens range. Potential development for HPV infection and moderate to severe acne, with the latter expected to launch in three years.
  • Generic Strategy: Plans to launch one high-end generic drug per year for major diseases to support growth between blockbuster launches.

Main Viewpoints

• Growth Drivers: Expansion strategies, inclusion in reimbursement lists, and strategic partnerships are key growth drivers across the companies.
• Market Positioning: Companies are leveraging their positions in the IVD and biopharma sectors, with strong brand and technology backing from Roche and their own capabilities.
• Challenges: The two-invoice system, pricing pressures, and high investment costs pose challenges to short-term profitability but are seen as long-term growth enablers.
• CDMO Potential: 3SBio is positioning itself as a strong CDMO player, with clear plans for capacity expansion and strategic acquisitions.

Key Information

• Ratings:
  • BUY: Stocks with potential return of over 15% over the next 12 months.
  • NOT RATED: Stocks not rated by CMBIS.
• Investment Fund: Haohai has invested Rmb890mn in an early-stage investment fund.
• ICL Market Potential: ICLs are expected to grow significantly in China, with Yestar's ICL serving as a testing ground.
• Reimbursement Impact: Inclusion in the NRDL and PRDL has a direct impact on sales and growth targets.
• Strategic Acquisitions: Yestar has acquired 6 Roche distributors and may halt further acquisitions for consolidation.

Analysts

• Cyrus Ng, CFA: Lead analyst.
• Amy Ge: Supporting analyst.

Disclaimer

• The report is for informational purposes only and does not constitute investment advice.
• There are risks involved in investing in securities, and actual outcomes may differ from projections.
• CMBIS does not guarantee the accuracy or completeness of the information provided.
• The report is not an offer or solicitation to buy or sell any security.