20211122-招银国际-堃博医疗-B-02216.HK-Pioneer_in_interventional_pulmonology_market_56页_3mb

Summary of Broncus Holding Corporation (2216 HK)

Core Content

Broncus Holding Corporation (2216 HK) is a leading player in the interventional pulmonology market in China, offering a unique three-in-one in-house pulmonology platform with whole lung access navigation technology. This platform provides comprehensive solutions across the entire spectrum of lung disease treatment, including navigation, diagnosis, and therapy, with high accuracy, minimal side effects, and lower costs.

The company has developed the world's first and only real-time image whole lung access augmented reality navigation system, which enables precise access to any part of the lung, both inside and outside the airways. This is supported by its proprietary BTPNA (Bronchoscopic Trans-Parenchymal Nodule Access) technology, which allows direct access to lung lesions and improves diagnostic and therapeutic outcomes.

Main Products and Technologies

Navigation Platform

• LungPoint, LungPro (Archimedes), LungPoint Plus (Archimedes Lite)
• Whole lung access navigation with real-time image guidance
• Navigation accuracy within 3mm deviation from the target lesion
• Diagnostic yield of 90.2% for pulmonary nodules

Therapeutic Products

• InterVapor: The world's first and only thermal vapor energy ablation system for treating COPD and lung cancer
• RF-II: A radiofrequency ablation system specifically for lung cancer treatment, the only one of its kind globally
• H-Marker: A pulmonary surgery marker used for precise nodule localization during surgery

Diagnostic Products

• Offers a range of diagnostic medical consumables to facilitate early diagnosis and treatment of lung diseases

Market Opportunity

• The interventional pulmonology navigation platform market in China is expected to grow significantly, reaching US$188.7mn by 2025E, driven by:

  • Increasing penetration of bronchoscopy
  • More hospitals eligible for performing lung treatments
  • Large unmet medical needs in lung disease management

• COPD and lung cancer are the primary focus areas:

  • COPD-affected population in China is expected to grow from 105.3mn in 2020 to 109.6mn by 2025E
  • Lung cancer incidence in China is projected to increase from 0.9mn in 2020 to over 1mn by 2025E
  • Early diagnosis and treatment are critical to improving survival rates and reducing mortality

Financial Outlook

• Revenue growth is projected to be 133% CAGR from FY20 to FY23E
• Revenue forecasts:
  • FY21E: US$10mn (+216% YoY)
  • FY22E: US$19mn (+85% YoY)
  • FY23E: US$41mn (+118% YoY)
• Medical consumables are expected to contribute:
  • 12% in FY21E
  • 20% in FY22E
  • 34% in FY23E
• Net losses are projected to decline:
  • FY21E: US$27mn
  • FY22E: US$23mn
  • FY23E: US$13mn
• Profitability is expected to start in FY24E, driven by the commercialization of InterVapor and RF-II

Valuation and Investment Recommendation

• Initiation at BUY with a target price of HK$23.77, representing a +120.05% upside from the current price of HK$10.80
• Valuation method: Discounted Cash Flow (DCF) model with:
  • WACC of 10.4%
  • Terminal growth rate of 2.0%
• Key valuation metrics:
  • P/S (Price-to-Sales): 18x in FY23E
  • P/B (Price-to-Book): 57x in FY23E
  • ROE (Return on Equity): -102% in FY23E (reflecting net losses)

Investment Risks

• Dependence on product success: Revenue growth is heavily reliant on the commercialization of product candidates
• Price uncertainty: Bidding processes may lead to downward pressure on pricing
• Insurance reimbursement: Uncertainty remains around medical insurance coverage for its products
• Regulatory hurdles: Future legislation could increase approval and CE certification costs
• Clinical uncertainty: Product development outcomes are not guaranteed

Competitive Advantages

• High entry barriers due to proprietary technology and whole lung access navigation
• Efficient R&D model combining international expertise with cost advantages in China
• Strong partnerships with KOLs, hospitals, and research institutions
• Integrated and streamlined procedures that reduce invasiveness and cost compared to traditional methods
• Compatibility with a wide range of ablation systems and consumables

Key Milestones

• 2012: Broncus Medical established in the US and acquired assets from Broncus Technology, Inc.
• 2014: Archimedes approved for marketing in the US
• 2016: Broncus Hangzhou established in PRC; InterVapor acquired through Uptake Medical
• 2018: InterVapor received CE Marking Certification
• 2019: Empower RF Ablation catheter received FDA and CE approvals
• 2020: NMPA expert panel review for InterVapor; RF-II first-in-man trial completed
• 2021: Confirmatory clinical trial of RF-II commenced; H-Marker clinical trial completed

Conclusion

Broncus is positioned as a market leader in the interventional pulmonology field in China, with a comprehensive product portfolio and proprietary technology that offer high accuracy and safety. The company is well-equipped to capitalize on the growing demand for lung disease treatment through its innovative solutions and efficient R&D processes. While the company is currently unprofitable, it is expected to turn profitable by FY24E as its core products become more widely adopted. The BUY recommendation is based on DCF valuation and strong growth potential in the fast-expanding interventional pulmonology market.