麦格理中国生物科技行业中国医疗生物科技的光明与黑暗20197561页

Pleaserefertopage59forimportantdisclosuresandanalystcertification,oronourwebsite:Companydata,MacquarieResearch,1July2019InsideOflightanddarkness2Light:fasterapprovalandeasierfunding4Darkness:lowerpeak,shorterlifecycle,morepolicy13Peoplecomefirst17Productspipeline20Sciencebehindthestory29Valuationitselfaprojectunderdevelopment40Appendices50BiotechcompaniesundercoverageSource:Factset,MacquarieResearch,1July2019Chinahealthcaresub-sectorperformanceSource:Factset,MacquarieResearch,1July,2019AnalystsMacquarieCapitalLimitedDavidNg,[e-mail],[e-mail]hnologyOflightanddarknessKeypointsWeinitiatecoverageonthesectorand7biotechnameswithapositiveviewonsupportivepolicy,innovationandfunding,butvaluationisdemanding.Fasterapprovalandclinicaldevelopmentarestrongcatalystsforthesector.Ourtoppickis3SBiowithstrongsalesgrowthofYisaipuandTPIAOin2019pluspotentialapprovalof302Hin2H19asamajorcatalyst.Attheoutset,Chinawas20yearsbehindtheUSinbiotechnologybuthasbeencatchingupfastwithaccomplishmentsinselectadvancedtherapy.R&Disdrivenbypolicyandfunding,focusingonnear-termcommercialoutcomeandheadlineexcellence.Thescientificcommunitymaylackpatienceandresolutetogodowntheuntroddenpathofbasicsciencebutintheneartermclosingthe20-yeargappresentstremendousupsidefromalowbaseofinnovation.Light:fasterapprovalandeasierfundingChinabiotechcompanieshaveenteredagoldenerawithsupportivepoliciesfromthecentralandlocalgovernments,abundantfundingfromcapitalmarkets,bloomofexperiencedscientistsreturningfromoverseas,fast-trackclinicalandapprovalprocesses,inexpensivetrialresourcesandexpensivestockvaluation.Approvaltimeofinnovativedrugsshrankfrom667daysto472daysin2018and412daysin1H19.Totalclinicalplusapprovalyearsdecreasedfrom10in2016to5in2019.Yetdevelopmentcostsarestill10%ofUSpeers.Webelievemoreaffordableinnovativeproductswillappearfasteronthemarket.Darkness:lowerpeak,shorterlifecycleandmorepolicyManystart-upswithlittleindustryexperiencecannowjointheindustry,leadingtofiercecompetitionwhentheirproductsarelaunched.Authoritieswelcomethistrendastheyenjoystrongerbargainingpowerwhennegotiatingreimbursementsandpricecuts.Asaresult,peaksalesofnewdrugsarelowerandtheirproductlifecyclesareshortened,evenwithpatentprotection.Inclusioninthedruglisthelpsexpandmarketsharebutpricecutsof60%ormoremayoccurbeforehand.Inexchangeforacheaper,easierandfasterpre-launchdrugdevelopmentandapproval,companiesmayneedtogiveuppost-launchpotentialandstability.Pipelinecompetition:timetomarketiskeyWithinourcoverage,BeiGeneandZaiLabhavethemostinnovativeproductsunderdevelopment.BeiGene’sPD-1,BTKinhibitorandPARPinhibitorareallearly-to-marketdrugs.SoareZaiLab’sHER2-targetingandFGFR-targetingMABandPARPinhibitor.Insalesexecution,3SBioandTonghuaDongbaoarethemostexperiencedduetotheirlonghistoryofcommercialoperationbutthelattersuffersfrommanagementturnover.InnoventandZaiLabshouldbethemostcompetitive.ZaiLab’slate-stagein-licensingstrategyshortenstimetomarket.InnoventhasonelaunchedPD-1andthreemorebiosimilarspendingapproval,havingtheprospectofachievinghugebiotechdrugsalesinthenextfewyears.Valuation:peaksalesmultipleforTP,rNPVforintrinsicvalueWeusepeaksalesmultipletoderivetargetpricesofbiotechcompaniesandrNPV(risk-adjusteddiscountedcashflows)toobjectivelyestimatetheirintrinsicvalues.AllrNPVsaresignificantlybelowcurrentstockpriceswhilepeaksalesmultiples,rangingfrom0.5(INDapproval)to4.0(launched),give-20%to59%TSRs.CompanyP3trialNDApendingMarket3SBioTPIAO2006InetetamabBeiGeneTislelizumabZanubrutinibHutchChi-MedElunate2018SavolitinibInnoventTyvyt2019IBI303ZaiLabZejulaMargetuximabJunshiTuoyi2019UBP-1211InsulinGlargineInsulinAspartTonghuaDongbaoTickerCompanyMkt.Cap.(US$bn)TPrNPVPriceRating1530-HK3SBio4.421.846.6513.90OP6160-HKBeiGene7.561.6428.5476.25UPHCM-USHCM3.025.588.2521.93OP1801-HKInnovent3.934.1916.5926.45OP1877-HKJunshi3.036.0919.2330.10OP600867-CNTHDB4.616.868.4315.78NZLAB-USZLab2.145.3812.1936.41OPListedCurr.-1,0002,0003,0004,0005,00009101112131415161718BiotechPharmaDistributorMacquarieResearchChinaHealthcareBiotechnology5July20192OflightanddarknessTherearetwoworldsinChinahealthcare:thebrightworldbeforeproductapprovalandthedarkworldaftercommercialization.Thecontrastbetweenthetwoworldsisevenwiderforbiotech.Inourview,biotechcompaniesareattractivetoinvestors,notjustbecauseoftheintriguingdiscoverythatcanpotentiallysavelives,butmoreduetotheincomprehensiblesciencebehindtheinnovativeproductswhichmayhaveimmenseupsidethatnobody,notevenmanagements,canaccuratelypredict(incalculable).Putitsimply,the5i’smakeupanicestory.Inourview,aperfectbiotechstockshouldbeonewithalotofinterestingcutting-edgeproductsunderdevelopment;withoutmaterialnear-termearnings;continuouslyreceivingfundingthroughequityraising(noEPSdilutiontoworryabout)orupfront/milestonepayments(orevendisposals);and,re-investmenttofurtherexpanditspipelinewithtremendousfuturepotential.This