Deutsche Bank Markets Research Rating Buy Asia China Health Care Pharmaceuticals / Biotechnology Company Humanwell Healthcare Date 20 June 2016 Initiation of Coverage The transformation of a CNS leader; initiating with Buy Reuters Bloomberg Exchange Ticker 600079.SS 600079 CH SHH 600079 Forecasts And Ratios Year End Dec 31 2014A 2015A 2016E 2017E 2018E Sales (CNYm) 7,051.6 10,054.0 12,976.0 16,466.9 20,128.4 DB EPS FD(CNY) 0.36 0.45 0.65 0.79 0.92 DB EPS growth (%) 8.0 22.2 45.8 21.4 16.2 PER (x) 37.2 40.5 24.4 20.1 17.3 Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close Emergence of a healthcare conglomerate; initiating with a Buy rating ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. Price at 17 Jun 2016 (CNY) 15.86 Price target - 12mth (CNY) 21.10 52-week range (CNY) 22.94 - 13.31 Shanghai Composite 2,885 Jack Hu, Ph.D Research Analyst (+852 ) 2203 6208 [email protected]Linc Yiu Research Associate (+852 ) 2203 6248 [email protected]Bo Yu Research Associate (+852 ) 2203 5928 [email protected]Price/price relative 12 16 20 24 28 32 36 6/14 12/14 6/15 12/15 Humanwell Healthcare Shanghai Composite (Rebased) Performance (%) 1m 3m 12m Absolute 0.4 -3.2 -34.5 Shanghai Composite 1.5 -0.7 -41.9 Source: Deutsche Bank As a leader in CNS therapeutics in China, Humanwell is transforming itself into a healthcare conglomerate. While the CNS franchise remains the largest profit driver, Humanwell is also involved in generics/OTC export, PDTs (plasma- derived therapeutics), contract sales for IVD (in vitro diagnostics), regional drug distribution, and healthcare services. We expect CAGRs 2015-18 of 26% and 27% for revenue and EPS, respectively. We initiate coverage on Humanwell with a Buy rating and a target price of RMB21.1. CNS therapeutics anchor stable growth; export adds another leg of growth Humanwell is the second largest player in the Chinese analgesic and anesthetic market with a 12% share. The flagship products fentanyl, sufentanil, and remifentanil contributed 83% of the sales of key subsidiary Yichuang Humanwell, or 51% of group profit, in 2015. We expect a CAGR 2015-18 of 18% for the entire CNS portfolio. In addition, PuraCap, a US subsidiary, delivered 184% YoY growth in 2015, after years of positioning in the US generic and OTC market. Humanwell recently completed a USD550m acquisition of an ex-Sandoz CNS subsidiary, Epic Pharma, in New York. We forecast exports should represent 23% of profit in 2018E, up from -3% in 2015. Scaling into hospital management; IVD and PDTs remain attractive assets With an ambitious objective to have 50 hospitals by 2020, Humanwell has been aggressively expanding into hospital management, primarily in its home province of Hubei. At present, the company manages four hospitals, with six more under framework agreement. It also plans to build one for-profit hospital. Additionally, Beijing Baron Medical, another Humanwell subsidiary, is the largest IVD distributor for Roche diagnostics in China, while Zhongyuan Ruide is a meaningful player in PDTs, with a collection volume of 100 tons in 2015. Target price of RMB21.1 based on SOTP; risks We derive our target price of RMB21.1 from a sum-of-the-parts valuation, by applying 30x on 2017E EPS of RMB0.58 for CNS therapeutics and drug exports, 35x on 2017E EPS of RMB0.01 for hospitals, and 11x/35x on 2017E EPS of RMB0.15/0.05 for IVD and PDTs. We believe the multiples are justified when compared with their respective A-share peers’. Key risks include: price cuts, slower progress in exports and hospitals, and delayed product launches. See pages 5-9 for more detail on valuation and risks. This report is in conjunction with our F.I.T.T. report “CNS therapeutics in China”.
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Deutsche Bank Markets Research
Rating
Buy Asia
China
Health Care
Pharmaceuticals / Biotechnology
Company
Humanwell Healthcare
Date
20 June 2016
Initiation of Coverage
The transformation of a CNS leader; initiating with Buy
Source: Deutsche Bank estimates, company data 1 DB EPS is fully diluted and excludes non-recurring items 2 Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses
the year end close
Emergence of a healthcare conglomerate; initiating with a Buy rating
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.
As a leader in CNS therapeutics in China, Humanwell is transforming itself into a healthcare conglomerate. While the CNS franchise remains the largest profit driver, Humanwell is also involved in generics/OTC export, PDTs (plasma-derived therapeutics), contract sales for IVD (in vitro diagnostics), regional drug distribution, and healthcare services. We expect CAGRs 2015-18 of 26% and 27% for revenue and EPS, respectively. We initiate coverage on Humanwell with a Buy rating and a target price of RMB21.1.
CNS therapeutics anchor stable growth; export adds another leg of growth Humanwell is the second largest player in the Chinese analgesic and anesthetic market with a 12% share. The flagship products fentanyl, sufentanil, and remifentanil contributed 83% of the sales of key subsidiary Yichuang Humanwell, or 51% of group profit, in 2015. We expect a CAGR 2015-18 of 18% for the entire CNS portfolio. In addition, PuraCap, a US subsidiary, delivered 184% YoY growth in 2015, after years of positioning in the US generic and OTC market. Humanwell recently completed a USD550m acquisition of an ex-Sandoz CNS subsidiary, Epic Pharma, in New York. We forecast exports should represent 23% of profit in 2018E, up from -3% in 2015.
Scaling into hospital management; IVD and PDTs remain attractive assets With an ambitious objective to have 50 hospitals by 2020, Humanwell has been aggressively expanding into hospital management, primarily in its home province of Hubei. At present, the company manages four hospitals, with six more under framework agreement. It also plans to build one for-profit hospital. Additionally, Beijing Baron Medical, another Humanwell subsidiary, is the largest IVD distributor for Roche diagnostics in China, while Zhongyuan Ruide is a meaningful player in PDTs, with a collection volume of 100 tons in 2015.
Target price of RMB21.1 based on SOTP; risks We derive our target price of RMB21.1 from a sum-of-the-parts valuation, by applying 30x on 2017E EPS of RMB0.58 for CNS therapeutics and drug exports, 35x on 2017E EPS of RMB0.01 for hospitals, and 11x/35x on 2017E EPS of RMB0.15/0.05 for IVD and PDTs. We believe the multiples are justified when compared with their respective A-share peers’. Key risks include: price cuts, slower progress in exports and hospitals, and delayed product launches. See pages 5-9 for more detail on valuation and risks.
Humanwell Healthcare was established in 1988 and is headquartered in Wuhan, Hubei. The company is a leading player in the narcotic analgesics market in China. In addition, Humanwell is also engaged in multiple sub-segments in the healthcare industry including TCM drugs, Uyghur medicines, plasma products, IVD business, healthcare services and exports.
Valuation ............................................................................. 5 Target price of RMB21.1 based on SOTP valuation method ............................... 5
Investment positives ......................................................... 10 Overview of business segments ....................................................................... 10 Growth driven by multiple segments ................................................................ 12 Driver 1: Sustainable growth from the CNS franchise ...................................... 14 Driver 2: Export as a strategic focus ................................................................. 20 Driver 3: Healthcare service drives long-term growth ...................................... 26 Driver 4: Solid growth from IVD and PDT assets .............................................. 29
Industry overview .............................................................. 33 Overview of the CNS market in China .............................................................. 33 Introduction to anesthetics and narcotic analgesics ......................................... 35 Overview of the analgesic market in China ...................................................... 36 Overview of the anesthetic market in China ..................................................... 40 Overview of industry policies ............................................................................ 43
Company profile ................................................................ 62 Company background and history .................................................................... 62 Management profile ......................................................................................... 63 Company events ............................................................................................... 64
Source: Deutsche Bank, Company data, Note: Net profit is referring to net profit post minorities for the group.Net profit for Tianfeng Securities is the consolidated part for the group.
Figure 10: Flagship products of major subsidiaries
Drug Name (EN) Drug Name (CN) Subsidiary Name Therapeutic class 2015E sales (RMB m)
We expect the exports of finished drugs to be a significant growth driver in the
near term, mainly through the existing business of PuraCap Pharma and newly
acquired Epic Pharma. We estimate the revenue contribution from exports will
grow from 2% in 2015 to 7% in 2018, while the net profit contribution should
grow from -3% in 2015 to 23% in 2018. We expect the segment to achieve
revenue of RMB1.4bn and net profit of RMB304m in 2018, up from revenue of
RMB200m and a loss of RMB14m in 2015.
Figure 35: Revenue and net profit for export business
(2010-2018E)
Figure 36: Contribution from export business (2014-
2018E)
(0.2)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2013 2014 2015 2016E 2017E 2018E
Revenue Net profit RMB bn
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2014 2015 2016E 2017E 2018E
as % of group revenue as % of group profit
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
After consolidating Epic Pharma at the end of May, Humanwell should own
around 18 ANDA approvals, covering therapeutic areas in mental disorders,
nervous system, analgesics, hypertension, etc. We summarize the product
details for PuraCap and Epic Pharma in Figure 37 and Figure 38.
Figure 37: Existing product offering for PuraCap US
Product name (EN) Product name (CN)
Indication/Description 2015 revenue
(RMB m)
YoY As % of subsidiary
revenue
Comments
EpiCeram N.A. A non-steroidal skin cream to treat dry skin and relieve the burning and itching associated with certain skin conditions
100 30% 50% Prescription product
OTC soft capsules (over 50 formulations)
N.A. Analgesics, cough and cold, gastrointestinal, allergy and sleep aids
100 N.A. 50% OTC branded and private-label products, with partners including Wal-Mart, CVS,
Dollar Tree;
Memantine Hydrochloride 盐酸美金刚 Moderate to severe Alzheimer’s disease None N.A. None First self-obtained ANDA approval for Humanwell. 17 manufacturers in the US.
The company hasn't started sales yet. Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 21
Figure 38: Existing ANDA approvals for Epic Pharma
Application No.
Approved Date
Drug Name (EN) Drug Name (CN)
Indication Comments
A072711 Mar-91 Sulindac 舒林酸 Rheumatoid arthritis, osteoarthritis, or ankylosing spondylitis
5 manufactures in the US.
A074673 Feb-97 Guanfacine Hydrochloride 盐酸胍法辛 Attention deficit hyperactivity disorder (ADHD) 11 manufactures in the US.
A074928 Mar-98 Nicardipine Hydrochloride 盐酸尼卡地平 Hypertension 11 manufactures in the US.
A040331 May-99 Meperidine Hydrochloride 盐酸哌替啶 A narcotic analgesic for moderate to severe pain Controlled substance. 11 manufactures in the US.
A075541 Oct-99 Betaxolol Hydrochloride 盐酸倍他洛尔 Ocular hypertension, open-angle glaucoma 6 manufactures in the US.
A075517 Mar-00 Ursodiol 熊去氧胆酸 Primary biliary cirrhosis 10 manufactures in the US.
A077045 Apr-05 Citalopram Hydrobromide 氢溴酸西酞普兰 Depression 20 manufactures in the US.
Humanwell plans to set up a management company, providing
management services for the hospital and building new facilities. Humanwell
will own shares between 51%- 66%.
Yet to start
Xianning Central Hospital
Tier 1 16-May N/A 520 1,200 PPP Partnering with Xianning Central Hospital, Humanwell plans to set up a
management company, providing management services, building a new
for-profit hospital, a for-profit rehabilitation hospital and a supply
chain company. Humanwell will own a 65% share.
In progress
Xianning Humanwell Rehabilitation Hospital
Tier 2 16-May N/A N/A 1,200 (planned for rehab hospital)
Greenfield hospital
Yet to start
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 29
Driver 4: Solid growth from IVD and PDT assets
Humanwell has a long and proven track record in M&A. We highlight that two
of its subsidiaries, Beijing Baron Medical and Zhongyuan Ruide, are well
positioned in two very attractive sectors: in-vitro diagnostics (IVD) and plasma-
derived therapeutics (PDTs).
A leading contract sales agent for Roche IVD in China
We expect the IVD segment to deliver a stable CAGR of 8% for the company
from 2015 to 2018. Due to the fast growth in other segments, we expect the
revenue contribution from IVD to decline from 12% in 2015 to 8% in 2018, and
the profit contribution to decline from 30% in 2015 to 18% in 2018. As such,
we expect the segment to achieve revenue and net profit of RMB1.6bn/229m
in 2018, up from RMB1.2bn/170m in 2015.
Figure 57: Revenue and net profit for IVD business
(2012-2018E)
Figure 58: Contribution from IVD business (2012-2018E)
0%
20%
40%
60%
80%
100%
120%
140%
160%
0.0
0.5
1.0
1.5
2.0
2012 2013 2014 2015 2016E 2017E 2018E
Revenue Net profit
Revenue YoY Net profit YoYRMB bn
0%
5%
10%
15%
20%
25%
30%
35%
2012 2013 2014 2015 2016E 2017E 2018E
as % of group revenue as % of group profit
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
There are three subsidiaries under Humanwell that are involved in contract
sales for Roche diagnostic products: Beijing Baron, Hanghzou Nuojia and
Humanwell Hubei. We summarize their details in Figure 59 and compare them
with Yestar’s IVD business for Roche.
Figure 59: Comparison of Roche IVD distributors
Subsidiary name Group name 2015 revenue for Roche IVD
(RMB m)
2015 Net
margin
Covered region
Hospital coverage Products from Roche Comments
Beijing Baron Medical Humanwell 852 22% Beijing 50 tier 1A hospitals; overall 70-75% of tier 1 and 2 hospitals
(Beijing has 108 Tier I hospitals and 125 Tier II hospitals in 2015)
All IVD products Acquired in 2012
Hangzhou Nuojia Humanwell 390 6% Zhejiang N.A. All IVD products Acquired in 2014
Humanwell Hubei Humanwell less than 100 N.A. Hubei N.A. Newly launched IVD products.
The company started this business from 2014.
Anbaida Group Yestar Intl 734 17% Shanghai 101 hospitals and clinics All IVD products Acquired in 2015
Source: Deutsche Bank, Company data
By acquiring Beijing Baron Medical and Hangzhou Nuojia in 2012 and 2014,
respectively, Humanwell successfully set its footprint in the IVD segment,
gaining a presence in the Beijing and eastern China markets and establishing a
relationship with global IVD players including Roche Diagnostics, Becton
Dickinson and Company (BD China) and Diagnostica Stago. We highlight that
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 30 Deutsche Bank AG/Hong Kong
Hangzhou Nuojia contributed net profit of around RMB17m in 2015. We
summarize the details in Figure 60.
Figure 60: Acquisition details of Beijing Baron and Hangzhou Nuojia
Company Acquired year
Acquired Stake
Price (RMB m)
Implied forward P/E
Comments
Beijing Baron Medical Jun-12 80% 776 8.7x Beijing Baron is the largest sales agent for Roche Diagnostics in China, with a focus in Beijing market. The company has established solid partnerships with 50 tier-1A
hospitals in Beijing.
Hangzhou Nuojia Nov-14 80% 120 8.8x Hangzhou Nuojia is the second-largest sales agent for Roche Diagnostics in eastern China, and an important sales agent for BD China and Diagnostica Stago as well.
Source: Deutsche Bank, Company data
A meaningful player in plasma-derived therapeutics
We expect the PDT segment to deliver a strong CAGR of 23% for the company
from 2015 to 2018. We expect the revenue contribution to stabilize at 2% from
2015 to 2018, while the profit contribution should increase slightly to 8% in
2018 from 7% in 2015. As such, we expect the segment to achieve revenue
and net profit of RMB342/99m in 2018, up from RMB184/42m in 2015.
Figure 61: Revenue and net profit for PDT business
(2011-2018E)
Figure 62: Contribution from PDT business (2011-2018E)
-50%
0%
50%
100%
150%
200%
0.0
0.1
0.1
0.2
0.2
0.3
0.3
0.4
0.4
2011 2012 2013 2014 2015 2016E 2017E 2018E
Revenue Net profit
Revenue YoY Net profit YoYRMB bn
0%
2%
4%
6%
8%
10%
12%
14%
2011 2012 2013 2014 2015 2016E 2017E 2018E
as % of group revenue as % of group profit
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
We highlight PDTs as one of the most attractive segments in the healthcare
industry at the moment, as the products are immune from pricing pressure due
to a supply shortage that is likely to continue for many years. In addition, we
believe indication expansion opportunities for albumin and IVIG should support
long-term growth as well as margin improvement with plasma economics.
The company has six products on the market: albumin, IVIG, human
immunoglobulin, Hepatitis B immunoglobulin, tetanus immunoglobulin, and
rabies immunoglobulin. Additionally, it received clinical trial approvals for
factor VIII and human fibrinogen in Jan 2016 and June 2016, respectively. We
expect the two products to be launched in 2020/2021, due to strict regulations
of the plasma industry.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 31
Figure 63: Existing and pipeline products for Zhongyuan Ruide
Drug name (CN) Drug name (EN) Indications Approval year
人血白蛋白 Human albumin 1. Hemorrhagic shocks caused by injury or burn. 2. Increased intracranial pressure caused by cerebral edema or injury. 3. Edema or ascites caused by
cirrhosis or nephrosis. 4. Preventive treatment to hypoalbuminemia. 5. Hyperbilirubinemia of newborns. 6. Adjuvant therapy to cardiopulmonary
bypass, burn or hemodialysis, and adult respiratory distress syndrome (ARDS).
1997
人免疫球蛋白 Human immunoglobulin Prevent measles and infectious hepatitis, and will enhance the therapeutic effect in preventing some severe bacterial and viral infections if used with
antibiotics
1999
静注人免疫球蛋白
(pH4)
IVIG 1. Primary immunoglobulin deficiency diseases, such as X-linked hypoimmunoglobinemia, common variable immunodeficiency disease (CVID),
IgG subclass deficiency, etc. 2. Secondary immunoglobulin deficiency diseases, such as severe infections, neonatal sepsis, etc. 3. Autoimmune
diseases (AID), such as primary thrombocytopenic purpura, Kawasaki disease (KD), etc.
2001
破伤风人免疫球蛋白 Human tetanus immunoglobulin
The product is used for prevention and treatment of tetanus, especially indicated for those with anaphylaxis to tetanus antitoxin (TAT).
2004
狂犬病人免疫球蛋白 Human rabies immunoglobulin The product is indicated for passive immunization of persons with wounds bitten or scratched by rabid dogs or other animals carrying rabies virus.
2005
乙型肝炎人免疫球蛋白 Human Hepatitis B Immunoglobulin
The product is used to prevent hepatitis B, and indicated for: 1. Newborns whose mothers are HBsAg positive. 2. Accidental infected population. 3. Close
contacts with hepatitis B patients or hepatitis B virus carriers.
2001
人凝血因子Ⅷ Human Coagulation Factor VIII Treatment for coagulopathies such as hemophilia A and increased concentration of coagulation factor VIII
Received clinical trial in 2016
人纤维蛋白原 Human Fibrinogen 1. Congenital fibrinogen decrease or deficiency. 2. Acquired fibrinogen decrease disease: severe liver injury; liver cirrhosis; disseminated intravascular
coagulation; postpartum hemorrhage and the disturbance of blood coagulation caused by fibrinogen deficiency due to major surgery, trauma, or bleeding.
Received clinical trial in 2016
Source: Deutsche Bank, Company data
We highlight that the top-three players in the plasma industry – CBPO, Hualan
and CNBG – have 8/11/11 plasma products on the market, respectively. We
remind investors that more products could bring higher plasma utilization and
hence higher margins for plasma companies.
Figure 64: Product portfolio comparison among Zhongyuan Ruide and top three players in China
Drug Name (CN) Drug Name (EN) Zhongyuan Ruide
CBPO Hualan CNBG
人血白蛋白 Human albumin Yes Yes Yes Yes
人免疫球蛋白 Human immunoglobulin Yes Yes Yes Yes
静注人免疫球蛋白(pH4) IVIG Yes Yes Yes Yes
破伤风人免疫球蛋白 Human tetanus immunoglobulin Yes Yes Yes Yes
狂犬病人免疫球蛋白 Human rabies immunoglobulin Yes Yes Yes Yes
乙型肝炎人免疫球蛋白 Human Hepatitis B Immunoglobulin Yes Yes Yes Yes
人凝血酶原复合物 Human Prothrombin Complex No Yes Yes Yes
人凝血因子Ⅷ Human Coagulation Factor VIII No Yes Yes Yes
外用冻干人凝血酶 Human Thrombin, Lyophilized No No Yes No
人纤维蛋白粘合剂/外科用冻干人纤维蛋白胶 Surgical Lyophilized Fibrin Sealant, Human No No Yes No
人纤维蛋白原 Human Fibrinogen No No Yes Yes
Source: Deutsche Bank, Company data
On plasma collection, we note that Zhongyuan Ruide collected 100 tons of
plasma in 2015 and is expected to collect 120 tons this year, with a market
share of 2% in 2015. We compare the plasma collection of the top players and
Zhongyuan Ruide in Figure 65.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 32 Deutsche Bank AG/Hong Kong
Figure 65: Plasma collection (2014-2016E)
2014 2015 2016E CAGR 2014-16E Average plasma collection per station in 2015 (ton)
CBPO 661 760 1000 23% 51
RAAS 800-900 827 1000 8% 24
Tiantan (CNBG) NA 960 NA NA 34
Hualan 540 723 1000 36% 48
Humanwell 90 100 120 15% 33 Source: Deutsche Bank estimates, Company data
Figure 66: Market breakdown by plasma collection volume (2015)
CBPO
13%
RAAS
14%
Tiantan
(CNBG)
17%Hualan
12%Humanwell
2%
Others
42%
Source: Deutsche Bank, Company data
On the number of collection sites, Zhongyuan Ruide currently operates four
plasma stations in Hubei. Among these, three stations are in operation and one
is in construction, which is expected to commence operation soon in 2016.
Figure 67: Collection sites for Zhongyuan Ruide
Station name (CN) Station name (EN) Establish year Progress
赤壁瑞祥单采血浆站有限公司 Chibi Ruixiang 2013 In operation
罗田瑞德单采血浆站有限公司 Luotian Ruide 2006 In operation
恩施天源单采血浆站有限公司 Enshi Tianyuan 2006 In operation
当阳瑞德单采血浆站有限公司 Dangyang Ruide 2015 Under construction
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 33
Industry overview
Overview of the CNS market in China
The CNS market outgrew the overall hospital drug market from 2012 to 2015
As the fifth largest therapeutic area in China, we estimate the hospital market
size of CNS therapeutics at RMB63bn in 2015. The market achieved a 13%
CAGR from 2012 to 2015, compared with 10% for the overall hospital drug
market. We forecast a CAGR of 10% for CNS therapeutics from 2015 to 2020
vs. 7% for the overall hospital drug market. We expect the CNS market to
continue to outperform the overall market despite a macro slowdown and
sector deceleration.
Figure 68: Market size of CNS drugs in China Figure 69: Growth of CNS drugs and total drugs in China
0
50
100
150
200
250
2012 2013 2014 2015 2016 2017 2018 2019 2020
Rebased
2012-15 CAGR: 13%
2015-20 CAGR: 10%
0%
4%
8%
12%
16%
20%
2013 2014 2015
CNS drugs Total drugs
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank, Company data
Major subtypes in the CNS market
Within the CNS market, the major therapeutics includes the following figure.
We highlight analgesics and anesthetics are two important subtypes in the
CNS market.
Figure 70: Overview of major segments in CNS drug market in China
Major segment Indication / uses Top selling drugs Regulation Market share in
2015
Market share in
2020
Key players
Anesthetics To produce loss of consciousness for surgery
Propofol, Sevoflurane, Dexmedetomidine
Strictly monitored during prescription
11% 12% Hengrui, Fresenius, AZN
Analgesics To achieve relief from pain Dezocine, Sufentanil, Remifentanil
Strictly regulated for narcotic analgesics
16% 19% Humanwell, SBP, Yangzijiang
Antipsychotics To treat serious mental health conditions
Olanzapine, Risperidone, Aripiprazole
No specific regulations 9% 10% Hansoh, Janssen, Eli Lilly
Antidepressant For the treatment of depressive disorder
Escitalopram, Paroxetine, Venlafaxine
No specific regulations 7% 8% Janssen, Eli Lilly, Huahai Pharm
Nootropics To improve cognitive functions Oxiracetam, Piracetam No specific regulations 13% 10% Shixin Pharma, Harbin Sanlian,
CSPC
Others 44% 41% Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 34 Deutsche Bank AG/Hong Kong
Figure 71 Market share of major subtypes in 2015 Figure 72: Market share of major subtypes in 2020
Anesthetics11%
Analgesics16%
Antipsychotics9%
Antidepressant7%
Nootropics13%
Others44%
Anesthetics12%
Analgesics19%
Antipsychotics
10%Antidepres
sant8%
Nootropics10%
Others41%
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 73: Major therapeutic areas in China by sales Figure 74: NRDL and non-NRDL drugs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015
CNS Anti-infective GI CCV Oncology Others
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
non-NRDL NRDL
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 35
Introduction to anesthetics and narcotic analgesics
Anesthetics and narcotic analgesics are important CNS drugs for patients to
tolerate surgical procedures. We summarize the major classifications below.
Figure 75: Classification of anesthetics and narcotic analgesics
Types Form Major drugs Regulation
Anesthetics General Inhalation Isoflurane Not strictly regulated
Inhalation Desflurane Not strictly regulated
Inhalation Enflurane Not strictly regulated
Inhalation Sevoflurane Not strictly regulated
Injection Dexmedetomidine Not strictly regulated
Injection Propofol Not strictly regulated
Injection Etomidate Not strictly regulated
Injection Midazolam Strictly regulated
Anesthetics, Local Injection Levobupivacaine Not strictly regulated
Injection Ropivacaine Not strictly regulated
Injection Lidocaine Not strictly regulated
Narcotic Analgesics Injection, tablet Morphine Very strictly regulated
Injection, tablet Hydromorphone Very strictly regulated
Injection, tablet Oxycodone Very strictly regulated
Injection, patch Fentanyl Very strictly regulated
Injection Remifentanil Very strictly regulated
Injection Sufentanil Very strictly regulated Source: Deutsche Bank, Company data
Comparison of major narcotic analgesics
Narcotic analgesics are used for treating moderate to severe pain. They are
strictly regulated by the government, as long-term usage will result in
tolerance, dependence and addiction. Narcotic analgesics are widely used in
surgeries as important components for surgical anesthesia. In addition, they
are used for cancer pain, post-surgical pain, labor pain, orthopedic pain,
neuropathic pain, etc. We summarize the major types of narcotic analgesics
and compare their characteristics in Figures 76-77.
Figure 76: Comparison of peak times among different analgesics
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 36 Deutsche Bank AG/Hong Kong
Figure 77: Comparison of major opioid analgesics
Drug Name (EN) Drug Name (CN)
Peak effect Duration of action Potency Comments Price (RMB)
Morphine 吗啡 At around 90 mins 3-5 h 3 per 10mg
Hydromorphone 氢吗啡酮 In 5-10 mins 3-5 h 5-10x as potent as morphine
Meperidine 哌替啶(度冷丁) In 15 mins 2-4 h 1/10 as potent as morphine 2 per 50mg
Fentanyl 芬太尼 At 3-5 mins 0.5-1 h 100x as potent as morphine 5 per 100ug
Sufentanil 舒芬太尼 Slightly slower than fentanyl 1-2 h 5x-10x as potent as fentanyl (Most Potent)
More rapid recovery than fentanyl
110 per 50ug
Alfentanil 阿芬太尼 At around 90 seconds (Fastest Onset)
10 mins 1/5-1/10 as potent as fentanyl
Causes more nausea and respiratory depression
N.A.
Remifentanil 瑞芬太尼 At around 90 seconds 5-10 mins Same potent as fentanyl 90 per 1mg
Dezocine 地佐辛
Oxycodone 羟考酮
Source: Deutsche Bank, Company data
Overview of the analgesic market in China
Analgesics are used to achieve relief from pain. In 2015, they accounted for
16% of the sales of the CNS market. This is the largest sub-segment in the
CNS market, outgrowing the overall CNS market in the past three years.
Analgesic products can be broadly divided into narcotic and non-narcotic
analgesics. The difference between narcotic and non-narcotic analgesics is the
mechanism of action. Narcotic analgesics reduce pain by working on receptors
in the nervous system, while non-narcotic analgesics work on injured body
tissues.
As of 2015, narcotic analgesics accounted for 67% of the sales in analgesics
products. They achieved a higher CAGR of 27% from 2012 to 2014, compared
with 13% for non-narcotic analgesics.
Figure 78: Growth of analgesics products and overall
CNS drugs, 2013-2015
Figure 79: Analgesics as % of CNS drugs, 2012-2015
0%
5%
10%
15%
20%
25%
30%
2013 2014 2015
Analgesics YoY growth CNS drugs YoY growth
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
Analgesics Others
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
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Deutsche Bank AG/Hong Kong Page 37
Figure 80: Breakdown of analgesics
Figure 81: Sales growth of narcotic analgesics and non-
narcotic analgesics
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Narcotic Analgesics Non-Narcotic Analgesics
0%
5%
10%
15%
20%
25%
30%
35%
2013 2014 2015
Narcotic Analgesics Non-Narcotic Analgesics
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Market size and growth for narcotic analgesic
The narcotic analgesic market in China grew rapidly at a CAGR of 24% from
2012 to 2015, achieving around RMB6.5bn sales in 2015, according to the
company. We highlight that the narcotic analgesic market outgrew the overall
CNS market in the past three years. Its market share increased steadily from
8% in 2012 to 10% in 2015.
Figure 82: Growth of narcotic analgesics and overall CNS
drugs (2013-2015)
Figure 83: Market breakdown by narcotic analgesics
and Southeastern China. Regional distributors can be approved by the
provincial FDA, and the number of distributors cannot exceed three for
one region.
The daily consumption of analgesic substances or psychotropic
substances by a patient is strictly controlled as physicians can only
prescribe limited dosages. We summarize the details below.
Figure 107: Number of manufacturing licenses for one drug
Controlled substances No. of manufacturing licenses
Narcotic analgesics
API 1-2
Single formula 1-3
Complex formula 1-7
Category I psychotropic substances 1-5
Category II psychotropic substances 1-10 Source: Deutsche Bank, CFDA
Figure 108: Regulated dosage per prescription
Dosage per prescription
Narcotic analgesics & Category I psychotropic Substances
Injection One-time use
Normal formula 3 days
Controlled/extended-release 7 days
Category II psychotropic Substances 7 days Source: Deutsche Bank, CFDA
We summarize the major policies for narcotic analgesics and psychotropic
drugs in Figure 109.
Figure 109: Major policies for controlled substances
Time Regulations Comments
1988 Narcotic analgesics Pricing Methods Removed the fixed national retail prices. Set fixed mark-up of 17%/10%/9% for tier 1/2/3 distributors and 15% for hospitals.
1996 Catalog of Narcotic analgesics and Catalog of Psychotropic Drugs Released catalogs of controlled substances for the first time.
2005 Regulation on the Control of Narcotic analgesics and Psychotropic Drugs Released the general guideline for the controlled substances.
2006 Regulation on the qualification of manufacturing sites for narcotic analgesics, category I & II psychotropic substances
To control on supply side
2006 Regulation on the qualification of distributors for narcotic analgesics, category I psychotropic substances
To control on drug distribution
2009 Opinions on price mechanism of drugs and healthcare services Changed fixed national retail prices to reference prices with capped mark-up for distributors.
2010 Notice on adjusting “NDRC-priced Drug List" Set price cap for ex-factory and retail prices.
2013 Catalog of Narcotic analgesics and Catalog of Psychotropic Drugs (2013) Released a new version of drug control list.
Source: Deutsche Bank, CFDA, NDRC
20 June 2016
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Deutsche Bank AG/Hong Kong Page 45
Policies on BE studies for generic drugs in China
We highlight that the SFDA’s recent policy on bioequivalence studies might
benefit the company, as it could simplify the registration process for products
that have already obtained manufacturing approvals in the US, EU and Japan.
However, it is still uncertain whether this policy will be implemented and how
simplified the process will become.
In November 2015, the SFDA released guidelines to establish a quality check
scheme and require bioequivalence studies for generics, which has put a lot of
pressure on the generic companies in China as it would phase out some
products/players, increase R&D costs and delay product launches. However,
for drugs that have been launched in the US, EU and JP, the clinical data
submitted in those areas can be used for the registration in China. We believe
this policy, if implemented, will help companies such as Huahai, Hengrui and
Humanwell to accelerate their domestic generics launches.
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Page 46 Deutsche Bank AG/Hong Kong
Company overview
Key subsidiaries
Humanwell, a bellwether in the analgesic and anesthetic market in China, has
a leading market share with its flagship analgesics franchise. In addition,
through a series of acquisitions, the company has entered other areas
including OTC and generics export, healthcare services, plasma products, IVD
business, etc. We highlight that Humanwell achieved a CAGR of 35% and 22%
in revenue and core profit in 2010-15.
In 2015, the company generated revenue/profit of RMB10/0.56bn, representing
YoY growth of 43%/32% respectively. Yichang Humanwell, the analgesic and
anesthetic arm of the company, is the largest contributor, accounting for 21%
and 62% of revenue and net profit in 2015, respectively. We highlight that the
growth slowdown for the group in 2013 and 2014 was due mainly to the
disposal of the property business in 2013 and sales restructuring of Yichang
Source: Deutsche Bank, Company data, Note: Net profit is referring to the net profit post minorities for the group.Net profit for Tianfeng Securities is the consolidated part for the Group.
Yichang Humanwell – CNS drugs
Yichang Humanwell, the core business segment of Humanwell, contributed
21% and 62% of revenue and net profit in 2015, respectively. The company is
primarily engaged in the R&D, manufacturing and sales of analgesics and
anesthetics. Yichang Humanwell was a joint venture by Humanwell and Hubei
Yichang Pharmaceutical Group formed in 2001. Following the acquisition by
Sinopharm CNCM in 2004, Humanwell, Sinopharm CNCM and the
management of Yichang Humanwell now hold 67%, 20% and 13% stakes in
the company, respectively.
Yichang Humanwell generated revenue and net profit of RMB2.08/0.52bn in
2015, representing YoY growth of 15%/7%, respectively, compared with
6%/3% and 22%/24% in 2014 and 2013. We construe from these numbers that
the sales growth deceleration in 2014 was mainly due to more competition in
the analgesic market, sales restructuring in order to penetrate low-tier
hospitals, and a reduction in other generics business.
The net margin was 27% in 2015, down 2ppt from 25% in 2014. The decline in
net margin was mainly due to the upgrading of the existing facilities. We
highlight that the revenue contribution from analgesics and anesthetics
continually increased from 77% in 2012 to about 87% in 2015.
Figure 148: Revenue and net profit of Beijing Baron Figure 149: NPM of Beijing Baron
0%
50%
100%
150%
200%
0
200
400
600
800
1,000
2012 2013 2014 2015
Revenue Net profit
Revenue YoY Net profit YoYRMB m
29%
24%22% 22%
0%
5%
10%
15%
20%
25%
30%
35%
2012 2013 2014 2015
Beijing Baron M edical
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
By acquiring Beijing Baron Medical and Hangzhou Nuojia in 2012 and 2014
respectively, Humanwell successfully set foot in the IVD segment, gaining a
presence in the Beijing and eastern China markets and establishing
relationships with global IVD players including Roche Diagnostics, Becton
Dickinson and Company (BD China) and Diagnostica Stago. We highlight that
Hangzhou Nuojia contributed net profit of around RMB17m in 2015. We
summarize the details in Figure 150.
Figure 150: IVD segments of Humanwell
Company Acquired year
Acquired Stake
Price (RMB m)
Implied forward P/E
Comments
Beijing Baron Medical Jun-12 80% 776 8.7x Beijing Baron is the largest sales agent for Roche Diagnostics in China, with a focus in Beijing market. The company has established solid partnerships with 50 tier-1A
hospitals in Beijing.
Hangzhou Nuojia Nov-14 80% 120 8.8 x Hangzhou Nuojia is the second largest sales agent for Roche Diagnostics in eastern China, and an important sales agent for BD China and Diagnostica Stago as well.
Source: Deutsche Bank, Company data
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Page 60 Deutsche Bank AG/Hong Kong
Gedian Humanwell – steroid drugs and APIs
Gedian Humanwell is mainly engaged in developing and manufacturing steroid
APIs and finished drugs. The company achieved revenue of RMB401m with
growth of 21% in 2015, and realized net profit of RMB18m vs. RMB-2m in
2014. It contributed 4% of total revenue and 3% of net profit for Humanwell.
Net margin was 4% in 2015, vs. -1% in 2014. We attribute the loss in 2014 to
higher R&D expenses and capital spending for exports in the US.
We summarize the profiles of the company’s senior management team and
board directors in Figure 158.
Figure 158: Management profile of Humanwell
Name Title Experience and academic qualification
Mr. Wang Xuehai Chairman Chairman of Contemporary Technology Industrial Group Co.,Ltd. since Jun 2015;
Chairman of Humanwell Healthcare since Sep 2006;
PhD of Corporate Management of Wuhan University
Mr. Li Jie Director, President Director of Humanwell Healthcare since May 2003;
President of Humanwell Healthcare since Sep 2006;
Bachelor's degree; Senior engineer.
Mr. Ai Luming Director Director of Contemporary Technology Industrial Group Co.,Ltd. and Anhui Huamao Group Co.,Ltd.;
Director of Humanwell Healthcare since Sep 2006;
PhD of Economics of Wuhan University
Mr. Zhang Xiaodong
Director Director of Contemporary Technology Industrial Group Co.,Ltd. and Tianfeng Securities;
Director of Humanwell Healthcare since Jun 1997;
Master's degree of Wuhan University
Mr. Deng Xiafei Director, Vice president
Director and Vice president of Humanwell Healthcare since Feb 1999;
PhD of Engineering of Beijing Institute of Technology
Mr. Xu Huabin Vice president Vice president of Humanwell Healthcare since Feb 2003;
Bachelor’s degree
Mr. Du Wentao Vice president Vice president of Humanwell Healthcare since Oct 2003;
MBA of Zhongnan University of Economics and Law
Ms. Wu Yajun Vice president CFO of Humanwell Healthcare since Mar 2004;
Vice president of Humanwell Healthcare since Mar 2005;
EMBA of Wuhan University
Mr. Liu Yi Vice president Vice president of Humanwell Healthcare since Jan 2008;
Board secretary of Humanwell Healthcare from Jan 2008 to May 2013;
EMBA of Wuhan University
Mr. Li Qianlun Vice president, Board secretary
Vice president and Board secretary of Humanwell Healthcare since Jan 2013;
Worked as CEO and Chairman of Wuhan Guanggu VC Management Ltd.;
Worked as Director of Wuhan Sante Cableway Group Co.,Ltd.;
Worked as manager of financial consultant department of Tianfeng Securities;
Worked as director and CEO of investment banking department of Tianfeng Securities;
PhD of Law of Wuhan University Source: Deutsche Bank, Company data
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Page 64 Deutsche Bank AG/Hong Kong
Company events
We summarize major company events for Humanwell in Figure 159.
Figure 159: Company events for Humanwell
Time Event
1988 Modern Biochemical Technology Research Center was founded by Mr. Ai Luming in Wuhan, Hubei.
1993 Wuhan Modern Hi-tech Industrial Ltd. (former Modern Biochemical Technology Research Center) was founded.
1996 Wuhan Modern Hi-tech Industrial Ltd. merged with Yangzijiang Biochemical Pharmaceutical Factory, which was renamed as Wuhan Humanwell Pharma in 1997.
Wuhan Modern Hi-tech Industrial Ltd was listed (600079) in Shanghai Exchange, and renamed as Wuhan Humanwell Tech Industrial Ltd.
2000 The Company invested and established Wuhan Kangle Ltd. which is mainly engaged with production of Chinese Traditional Medicine.
2001 Hubei Gedian Humanwell Steroid Chemical Ltd. was founded and renamed as Hubei Gedian Humanwell Pharmaceutical Ltd. in 2013. It focuses on birth control, steroids and oncology drugs.
Xinjiang Uyghur Pharmaceutical Ltd. was founded and focuses on manufacture and sales of Uyghur medicine.
Yichang Humanwell Ltd. was founded by Wuhan Modern Hi-tech Industrial and Hubei Yiyao Group. Modern Hi-tech Industrial held 70% shares.
2004 Mifepristone tablet and capsule manufactured by Gedian Humanwell was launched.
2006 Yichang Humanwell completed the anesthesia facility construction and launched Midazolam in 2007.
2009 Humanwell PuraCap was founded and focuses on exporting business.
2010 The Company was renamed as Wuhan Humanwell Healthcare (Group) Co.,Ltd.
The company acquired a 70% share of Zhongyuan Ruide, and had acquired the remaining shares by February 2013.
2011 Humanwell Healthcare cooperated with Academy of Military Medical Sciences, and established 'Military Guanggu Innovative R&D Center'.
2012 Fentanyl Citrate Injection registered in Vietnam and permitted to export to Vietnam.
Humanwell acquired Beijing Baron Medical Equipment Co.,Ltd. which is involved in distribution of IVD equipments for Roche.
2013 The Company was renamed as Humanwell Healthcare (Group) Co.,Ltd.
2014 Humanwell Healthcare signed agreement with local government in Zhongxiang that the Company would invest to build new branch of Zhongxiang People Hospital, Humanwell Zhongxiang Industrial Park and Zhongxiang Healthcare Service Center.
The Company founded Laohekou Humanwell Healthcare Management Ltd., and provides management service to Laohekou 1st People Hospital, and invested to build the new branch of the hospital.
Total equity and liabilities 4,228 6,170 7,861 9,707 12,167 18,152 22,747 26,630 28,139 Source: Deutsche Bank estimates, Company data
20 June 2016
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Page 68 Deutsche Bank AG/Hong Kong
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Humanwell Healthcare 600079.SS 15.86 (CNY) 17 Jun 16 NA *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=600079.SS
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Jack Hu
Historical recommendations and target price: Humanwell Healthcare (600079.SS) (as of 6/17/2016)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
20 June 2016
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Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 69
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.
Newly issued research recommendations and target prices supersede previously published research.
54 %
36 %
11 %16 % 15 % 22 %
050
100150200250300350400450500
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
Regulatory Disclosures
1.Important Additional Conflict Disclosures
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