Bottom-fishing at the bottom of the business cycle

 2025-05-20

 
Research published by Blue Lotus Research on April 15, 2024





 
(13 Pages, 20 graphs and tables)
Listen to analyst’s audio summary
  • C1Q24 was marked by liquidity crises in innovative drug and medical device, and depressed margin in digital health. We believe this is a buying opportunity;
  • PD-1(L1) has recovered nicely in C2H23 and exceeded our expectation made for 2023. We forecast 20% YoY growth in 2024. Further, pipeline maturity has led to new drugs in autoimmune and metabolic drugs;
  • Biosimilar has proven to be part of the solution to deal with low paying ability of Chinese healthcare and denial of access to the high paying US healthcare market. But biotech’s must treat biosimilar as a transient solution;
  • We believe there are three ways to benefit: (1) buy liquidity strapped biotech with promising pipelines, (2) buy proven players in biosimilars, (3) buy top quality biotech’s at cycle-bottom valuations. Our TOP PICK remains Akeso. We also like RemeGen. We recommend to look at Henlius, Ascentage, LEPU, KeyMed and HutchMed. We cut JDHealth and ZLAB’s TP and kept Innovent unchanged. We dropped coverage of AliHealth and JUNSHI.
 
Finding liquidity strapped biotech’s is a profitable strategy
At the time of our initiation of Akeso on October 2022, it only had six months of cash left but had a strong pipeline and a proven license-out track record. Since then, Akeso has turned profitable without resorting to external financing. Now, with the China’s innovative drug reform (2018) and the inflow of overseas returnees running their courses, liquidity crises again stroke the innovative drug sector and the medical device sector. However, we believe companies with quality pipelines should be able to mitigate their liquidity crises.  On January 25th, 2024, we upgraded RemeGen from SELL to BUY. We believe there are several companies undergoing liquidity crunches but with strong pipelines, including Ascentage and LEPU. Ascentage is China’s small molecule leader with nine drugs in clinical, one of which in Phase III, five in Phase II and one already selling. LEPU is a leading ADC platform with three ADC’s in Phase III, one of which was licenced to AstraZeneca.
 
Low valuation has justification, but execution has bright spots
With fresh evidence of US intention to deny Chinese innovative drugs’ access to the US market (Wuxi AppTec, etc.), there is reason to be pessimistic, but (TBC)

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