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
Linc Yiu
Research Associate
(+852 ) 2203 6248
Bo Yu
Research Associate
(+852 ) 2203 5928
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”.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 2 Deutsche Bank AG/Hong Kong
Model updated:18 June 2016
Running the numbers
Asia
China
Pharmaceuticals / Biotechnology
Humanwell Healthcare Reuters: 600079.SS Bloomberg: 600079 CH
Buy Price (17 Jun 16) CNY 15.86
Target Price CNY 21.10
52 Week range CNY 13.31 - 22.94
Market Cap (m) CNYm 20,397
USDm 3,096
Company Profile
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.
Price Performance
12
16
20
24
28
32
36
Jun 14Sep 14Dec 14Mar 15Jun 15Sep 15Dec 15Mar 16
Humanwell HealthcareShanghai Composite (Rebased)
Margin Trends
11
12
14
15
17
18
13 14 15 16E 17E 18E
EBITDA Margin EBIT Margin
Growth & Profitability
9
10
10
11
11
12
0
10
20
30
40
50
13 14 15 16E 17E 18E
Sales growth (LHS) ROE (RHS)
Solvency
0
2
4
6
8
10
12
0
20
40
60
80
13 14 15 16E 17E 18E
Net debt/equity (LHS) Net interest cover (RHS)
Jack Hu, Ph.D
+852 2203 6208 [email protected]
Fiscal year end 31-Dec 2013 2014 2015 2016E 2017E 2018E
Financial Summary
DB EPS (CNY) 0.34 0.36 0.45 0.65 0.79 0.92
Reported EPS (CNY) 0.36 0.39 0.52 0.66 0.79 0.92
DPS (CNY) 0.05 0.08 0.10 0.16 0.20 0.23
BVPS (CNY) 3.7 4.0 6.1 6.6 8.4 9.1
Weighted average shares (m) 1,172 1,172 1,267 1,286 1,415 1,415
Average market cap (CNYm) 15,816 15,888 22,895 20,397 20,397 20,397
Enterprise value (CNYm) 17,140 18,759 25,936 28,195 26,999 28,349
Valuation Metrics P/E (DB) (x) 40.0 37.2 40.5 24.4 20.1 17.3
P/E (Reported) (x) 37.9 35.2 35.0 24.2 20.1 17.3
P/BV (x) 3.80 3.17 3.63 2.40 1.88 1.74
FCF Yield (%) nm nm nm nm nm nm
Dividend Yield (%) 0.4 0.6 0.6 1.0 1.2 1.4
EV/Sales (x) 2.9 2.7 2.6 2.2 1.6 1.4
EV/EBITDA (x) 16.9 16.5 18.7 14.1 10.1 8.9
EV/EBIT (x) 19.3 19.3 22.8 17.8 12.5 11.1
Income Statement (CNYm)
Sales revenue 6,010 7,052 10,054 12,976 16,467 20,128
Gross profit 2,495 2,914 3,654 4,797 6,175 7,548
EBITDA 1,017 1,137 1,390 2,002 2,677 3,175
Depreciation 100 137 215 393 499 598
Amortisation 27 28 38 21 21 21
EBIT 890 972 1,136 1,588 2,157 2,556
Net interest income(expense) -149 -143 -100 -266 -365 -374
Associates/affiliates 0 0 0 0 0 0
Exceptionals/extraordinaries 0 0 0 0 0 0
Other pre-tax income/(expense) 30 -7 36 38 19 -55
Profit before tax 770 821 1,072 1,360 1,812 2,128
Income tax expense 169 186 219 264 362 434
Minorities 183 184 199 252 333 396
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 418 452 654 844 1,116 1,297
DB adjustments (including dilution) -22 -25 -89 -8 0 0
DB Net profit 396 427 565 836 1,116 1,297
Cash Flow (CNYm)
Cash flow from operations 498 503 311 775 1,085 1,481
Net Capex -909 -895 -828 -1,231 -1,484 -1,736
Free cash flow -411 -392 -517 -456 -399 -255
Equity raised/(bought back) 1,027 161 2,573 0 2,572 0
Dividends paid -63 -96 -129 -209 -279 -324
Net inc/(dec) in borrowings 420 762 -222 3,500 0 0
Other investing/financing cash flows -449 35 -523 -3,841 -365 -374
Net cash flow 523 469 1,183 -1,005 1,530 -953
Change in working capital -381 -481 -914 -1,001 -1,249 -1,205
Balance Sheet (CNYm)
Cash and other liquid assets 1,206 1,480 2,411 1,406 2,936 1,982
Tangible fixed assets 2,333 3,217 4,650 5,710 6,694 7,833
Goodwill/intangible assets 1,427 1,628 2,201 5,533 5,513 5,492
Associates/investments 570 581 1,135 1,135 1,135 1,135
Other assets 4,170 5,261 7,754 8,963 10,353 11,697
Total assets 9,707 12,167 18,152 22,747 26,630 28,139
Interest bearing debt 2,362 3,926 5,286 8,786 8,786 8,786
Other liabilities 2,265 2,513 3,683 3,891 4,032 4,172
Total liabilities 4,627 6,439 8,970 12,678 12,819 12,958
Shareholders' equity 4,342 4,723 7,881 8,516 11,925 12,898
Minorities 738 1,005 1,301 1,553 1,887 2,283
Total shareholders' equity 5,080 5,728 9,182 10,069 13,812 15,181
Net debt 1,156 2,446 2,875 7,381 5,851 6,804
Key Company Metrics
Sales growth (%) 13.0 17.3 42.6 29.1 26.9 22.2
DB EPS growth (%) 15.9 8.0 22.2 45.8 21.4 16.2
EBITDA Margin (%) 16.9 16.1 13.8 15.4 16.3 15.8
EBIT Margin (%) 14.8 13.8 11.3 12.2 13.1 12.7
Payout ratio (%) 15.2 21.4 19.7 24.8 25.0 25.0
ROE (%) 11.3 10.0 10.4 10.3 10.9 10.5
Capex/sales (%) 15.2 12.7 8.2 9.5 9.0 8.6
Capex/depreciation (x) 7.2 5.4 3.3 3.0 2.9 2.8
Net debt/equity (%) 22.7 42.7 31.3 73.3 42.4 44.8
Net interest cover (x) 6.0 6.8 11.4 6.0 5.9 6.8
Source: Company data, Deutsche Bank estimates
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 3
Table Of Contents
Investment thesis ................................................................ 4 Outlook ............................................................................................................... 4 Valuation............................................................................................................. 4 Risks ................................................................................................................... 4
Valuation ............................................................................. 5 Target price of RMB21.1 based on SOTP valuation method ............................... 5
Investment risks .................................................................. 9
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 overview ............................................................ 46 Key subsidiaries ................................................................................................ 46 Yichang Humanwell – CNS drugs ..................................................................... 47 Wuhan Humanwell – CNS drugs ...................................................................... 51 PuraCap Pharmaceutical – generics and OTC export ....................................... 52 Healthcare services .......................................................................................... 55 Zhongyuan Ruide – PDTs .................................................................................. 57 Beijing Baron Medical – IVD ............................................................................. 58 Gedian Humanwell – steroid drugs and APIs ................................................... 60
Company profile ................................................................ 62 Company background and history .................................................................... 62 Management profile ......................................................................................... 63 Company events ............................................................................................... 64
Financials ........................................................................... 65
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 4 Deutsche Bank AG/Hong Kong
Investment thesis
Outlook
As the third largest CNS manufacturer 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 and OTC export,
plasma-derived therapeutics, contract sales for IVD (in vitro diagnostics),
regional drug distribution, and healthcare services. We estimate CNS
therapeutics contributed 65% of profit in 2015, decreasing to 48% in 2018. We
forecast CAGRs 2015-18 of 26% and 27% for revenue and EPS for Humanwell.
We expect stable growth from CNS therapeutics, increasing exports, and rapid
expansion into hospital management. Humanwell is the second largest player
in the Chinese analgesic and anesthetic market with a 3% market share in CNS
therapeutics, a segment that has enjoyed the highest growth among the top
five therapeutic areas due to a large patient base, under-diagnosis and under-
treatment, increasing reimbursement, and stringent government regulation.
We expect limited price erosion for its flagship products fentanyl, sufentanil,
and remifentanil. Meanwhile, PuraCap Pharma, a US subsidiary of Humanwell,
delivered 184% YoY growth in 2015, after years of positioning in the US
generics and OTC market. Additionally, Humanwell recently completed a
USD550m acquisition of an ex-Sandoz CNS subsidiary, Epic Pharma, in New
York. We forecast that export will represent 23% of group profit in 2018, up
from -3% in 2015. Lastly, the company plans to have 20 hospitals under its
umbrella by YE2016 and 50 by 2020, through leveraging its financial resources
and network in home province Hubei.
We believe Humanwell is uniquely positioned in every business segment with
an attractive product or service mix that is likely to outgrow the general
healthcare sector. We also expect future value unlocking via the potential
listing of its subsidiaries.
Valuation
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 export,
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 that the target multiples are
justified when compared with their respective A-share peers’. Our target price
implies a P/E multiple of 27x on 2017E EPS of RMB0.79, with 27% EPS growth
during 2016-18.
Risks
Key downside risks include larger-than-expected price cuts from tendering,
delays in product launches, and slower-than-expected progress in the export
and hospital businesses.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 5
Valuation
Target price of RMB21.1 based on SOTP valuation method
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 export,
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 these multiples for each segment
are justified as follows:
CNS therapeutics and drug export: The target multiple of 30x is
derived from 1.41x PEG on an EPS CAGR 2016-18 of 21%, which is
slightly higher than its peers, which are trading at 1.34x PEG with a
23x 2017E EPS multiple on 17% EPS growth. We believe the flagship
analgesic and anesthetic franchise deserves a premium due to its
higher entry barriers than for common generic drugs.
Hospitals: We use a target P/E multiple of 35x, in line with its peers,
which are trading at 35x 2017E EPS. We believe the multiple is
justified, as the company is at a very early stage of a high growth
cycle in the hospital segment.
IVD: The target multiple of 11x is derived from 1.76x PEG on an EPS
CAGR 2016-18 of 6%. We apply a 17% premium to PEG compared
with its A-share peers, which are trading at 1.50x PEG with a 39x
2017E EPS multiple on 26% EPS growth. We believe that the IVD
segment is entering another stage of growth with the emergence of
new technologies, while Roche diagnostics is one of the leaders.
Subsidiary Beijing Baron Medical is the largest contract sales agent for
Roche diagnostics in China, while Humanwell Hubei also started to
sell the new generation of Roche IVD products from 2014.
PDTs: The target multiple of 35x is derived from 1.33x PEG on a CAGR
2016-18 of 26%. We apply a 38% discount to PEG compared with
peers, which are trading at 2.15x PEG with a 46x 2017E EPS multiple
on 21% EPS growth. We believe that the discount is justified, as the
Zhongyuan Ruide subsidiary is a small player in the plasma industry in
China, with a smaller size of product offering than the top players.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 6 Deutsche Bank AG/Hong Kong
Figure 1: A-share pharma peers
17-Jun
BBG Ticker Name Price
(LC) High Low Crncy
2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E
600079 CH Equity HUMANWELL HEAL-A 16.1 22.9 13.3 3,138 24.7 20.0 17.5 CNY 45.9 23.8 13.8 11.6 8.5 7.7 45.6 29.6 19.0 24.2
600276 CH Equity JIANGSU HENGRU-A 46.2 44.5 31.2 13,734 34.1 27.5 22.3 CNY 23.4 23.9 23.3 26.4 20.9 16.4 21.0 23.2 23.5 23.3
600867 CH Equity TONGHUA DONGBA-A 20.2 22.6 15.7 4,181 45.1 35.6 28.4 CNY 30.3 26.7 25.3 30.0 25.4 20.7 27.1 17.6 20.2 18.9
600196 CH Equity SHANGHAI FOSUN-A 18.7 32.7 17.3 6,455 17.2 14.3 20.4 CNY 1.7 20.2 (29.7) 21.1 18.4 15.8 8.7 7.0 8.1 15.7
601607 CH Equity SHANG PHARM -A 18.0 27.1 15.2 6,959 15.4 13.7 12.3 CNY 9.3 12.8 10.9 10.1 9.1 8.1 8.3 5.6 5.8 11.8
600062 CH Equity CHINA RESOURCE-A 17.9 30.8 15.7 1,974 14.6 12.8 11.1 CNY 34.3 14.7 15.3 9.5 8.5 7.6 15.1 5.7 5.9 11.9
600085 CH Equity BEIJING TONGRE-A 27.1 44.6 21.9 5,652 37.2 32.9 30.5 CNY 13.2 12.9 8.0 17.3 15.5 14.8 5.4 5.7 2.4 8.2
600201 CH Equity JINYU BIO-TECH-A 26.8 40.1 22.0 2,328 22.4 16.8 12.7 CNY 40.7 33.4 31.6 16.7 12.5 NA 14.8 15.6 NA NA
600332 CH Equity GUANGZHOU BAIY-A 24.0 40.1 20.2 4,413 20.4 18.5 16.9 CNY 17.0 10.4 9.2 15.4 13.9 14.0 8.9 5.1 (0.1) 5.0
600351 CH Equity YABAO PHARMACE-A 9.8 16.3 9.6 1,177 27.3 21.4 17.6 CNY 12.1 27.8 21.7 15.7 13.0 10.9 10.6 9.8 9.1 19.8
600420 CH Equity SHANGHAI SHYND-A 28.7 53.7 23.6 1,253 31.8 27.3 22.2 CNY 17.2 16.7 22.9 NA NA NA NA NA NA NA
600422 CH Equity KPC PHARMACEUT-A 12.8 23.7 12.4 1,529 19.0 16.0 11.8 CNY 26.1 18.4 35.5 13.3 11.3 8.9 18.4 8.2 13.0 22.3
600436 CH Equity ZHANGZHOU PIEN-A 38.5 49.6 29.8 3,526 40.6 34.1 28.4 CNY 22.6 19.0 19.9 33.5 27.9 23.5 10.8 9.5 8.9 19.3
600518 CH Equity KANGMEI PHARMA-A 15.4 21.3 12.4 10,349 20.4 16.5 13.4 CNY 21.5 23.5 23.0 NA NA NA NA NA NA NA
600521 CH Equity ZHEJIANG HUAHA-A 24.6 24.7 16.4 3,846 45.9 34.7 28.0 CNY 24.2 32.3 23.9 27.8 22.1 18.2 17.7 12.1 10.3 23.6
600535 CH Equity TASLY PHARMAC-A 34.9 52.1 31.5 5,736 22.4 20.0 18.2 CNY 13.1 11.9 9.7 15.9 14.2 13.2 5.5 5.9 3.7 9.9
600557 CH Equity JIANGSU KANION-A 20.6 35.0 16.6 1,607 22.9 19.1 16.1 CNY 26.8 20.0 18.5 15.3 12.2 9.6 14.0 11.9 12.8 26.2
600572 CH Equity ZHEJIANG CONBA-A 6.6 11.8 6.0 2,499 25.7 23.0 20.5 CNY 36.6 11.8 12.3 13.6 11.9 11.1 10.2 6.7 3.5 10.4
600587 CH Equity SHINVA MEDICAL-A 22.5 52.7 22.1 1,387 28.1 22.0 18.9 CNY 15.9 27.5 16.7 16.2 13.5 12.1 7.3 9.6 5.7 15.9
600594 CH Equity GUIZHOU YIBAI-A 14.9 32.5 12.6 1,789 23.7 19.0 15.1 CNY 162.3 24.6 26.1 18.4 15.1 11.2 39.7 10.3 16.1 28.1
600645 CH Equity ZHONGYUAN UNIO-A 34.0 71.4 33.0 1,995 64.2 48.6 NA CNY (1.9) 32.1 NA 46.8 39.7 NA 36.4 8.5 NA NA
600750 CH Equity JIANGZHONG PHM-A 30.1 49.5 21.7 1,372 21.0 17.5 14.8 CNY 17.2 20.3 18.3 14.2 12.7 10.9 9.7 5.6 8.0 14.1
600976 CH Equity JIANMIN PHARMA-A 24.9 42.7 21.3 579 37.9 32.3 27.2 CNY 17.0 17.6 18.8 30.3 25.3 21.4 28.9 9.5 8.6 18.9
600993 CH Equity MAYINGLONG PHA-A 18.7 30.7 14.9 1,228 31.2 26.8 22.9 CNY 15.4 16.7 17.1 NA NA NA NA NA NA NA
A-share Pharma 28.1 23.2 19.7 22.8 20.4 14.9 20.5 17.2 14.2 15.9 12.0 11.0 16.7
EBITDA Growth %EPS Growth % EV/EBITDA
52-week Mkt cap
(US$m) PE
Source: Deutsche Bank estimates, Bloomberg Finance LP for NR companies
Figure 2: Chinese hospital peers
17-Jun
BBG Ticker Name Price
(LC) High Low Crncy
2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E
1515 HK Equity PHOENIXHEALTH 10.3 15.6 5.8 1,105 25.6 21.9 18.6 CNY 24.2 18.0 11.0 16.1 13.5 11.8 43.6 20.4 14.9 17.7
300015 CH Equity AIER EYE HSPTL-A 33.5 36.3 23.5 5,029 48.8 36.3 27.8 CNY 43.3 34.3 30.6 29.1 21.9 16.7 35.6 30.8 29.2 30.0
600763 CH Equity TOPCHOICE MEDI-A 27.7 52.0 26.6 1,347 52.4 42.1 34.2 CNY 32.0 24.4 23.3 28.2 22.1 18.0 53.4 27.0 20.5 23.7
China Hospitals 46.0 35.2 27.6 38.4 30.1 26.4 27.0 20.7 16.2 40.0 28.6 25.5 27.1
EBITDA Growth %EPS Growth % EV/EBITDA
52-week Mkt cap
(US$m) PE
Source: Deutsche Bank estimates, Bloomberg Finance LP
Figure 3: A-share IVD peers
17-Jun
BBG Ticker Name Price
(LC) High Low Crncy
2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E
002022 CH Equity SHANGHAI KEHUA-A 19.9 50.0 17.0 1,548 40.1 28.4 29.2 CNY 19.0 41.4 (2.9) 30.9 26.0 21.3 13.2 9.1 10.4 20.5
300030 CH Equity GUANGZHOU IMPR-A 13.9 32.1 11.7 650 99.0 81.5 72.9 CNY 7.7 21.4 11.8 NA NA NA NA NA NA NA
300244 CH Equity ZHEJIANG DIAN-A 30.1 58.6 25.0 2,504 58.4 43.0 34.0 CNY 42.9 35.7 26.4 40.7 30.1 NA 33.9 16.3 NA NA
300463 CH Equity SICHUAN MAKER -A 26.2 42.5 19.1 2,221 47.6 36.9 28.2 CNY 12.2 29.1 31.0 28.4 21.8 18.5 21.3 14.0 8.5 23.8
300406 CH Equity BEIJING STRONG-A 19.7 29.3 13.5 1,494 32.4 25.6 20.8 CNY 23.9 26.9 23.0 26.2 20.8 17.3 10.2 12.3 9.7 23.2
603108 CH Equity SHANGHAI RUNDA-A 24.9 35.9 16.1 1,068 60.7 43.7 36.9 CNY 12.8 39.0 18.4 30.3 24.9 20.5 4.8 10.4 10.3 21.7
300396 CH Equity DIRUI INDUSTRI-A 35.1 75.0 28.6 818 41.3 34.8 29.3 CNY 19.7 18.8 18.8 NA NA NA NA NA NA NA
IVD 51.0 38.8 32.5 22.8 31.9 20.2 32.2 25.1 19.2 19.6 13.1 9.6 22.5
EBITDA Growth %EPS Growth % EV/EBITDA
52-week Mkt cap
(US$m) PE
Source: Deutsche Bank estimates, Bloomberg Finance LP for NR companies
Figure 4: A-share plasma peers
17-Jun
BBG Ticker Name Price
(LC) High Low Crncy
2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E 2016-18E
002252 CH Equity SHANGHAI RAAS -A 37.2 46.3 29.4 15,577 59.9 50.9 44.8 CNY 19.2 17.7 13.7 NA NA NA NA NA NA NA
002007 CH Equity HUALAN BIOLOGI-A 30.1 34.1 21.7 4,248 39.5 30.9 24.6 CNY 36.5 28.1 25.4 28.0 21.9 17.5 29.3 26.5 24.1 25.3
300294 CH Equity JIANGXI BOYA B-A 56.8 62.5 24.7 2,307 54.2 38.3 29.9 CNY 58.6 41.6 28.1 NA NA NA NA NA NA NA
Chinese Plasma 55.4 45.7 39.4 26.6 22.2 17.5 28.0 21.9 17.5 29.3 26.5 24.1 25.3
EBITDA Growth %EPS Growth % EV/EBITDA
52-week Mkt cap
(US$m) PE
Source: Deutsche Bank estimates, Bloomberg Finance LP for NR companies
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 7
Our target price implies a P/E multiple of 27x on 2017E EPS of RMB0.79,
representing a 21% discount to its historical 12-month forward P/E of 34.1x.
We believe the discount is justified, as Humanwell is still at an early stage of
its transformation in the export and hospital segments. We also believe the
rally in 2015 could have been overdone, with expectations too high for the
export business and Epic acquisition. We remind investors that the
accelerating 12m forward EPS growth is due to the acquisition of Epic Pharma
in 2016.
Figure 5: Historical one-year forward P/E
0%
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70%
80%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Jun-1
2
Aug
-12
Oct-
12
Dec-1
2
Feb
-13
Ap
r-13
Jun-1
3
Aug
-13
Oct-
13
Dec-1
3
Feb
-14
Ap
r-14
Jun-1
4
Aug
-14
Oct-
14
Dec-1
4
Feb
-15
Ap
r-15
Jun-1
5
Aug
-15
Oct-
15
Dec-1
5
Feb
-16
Ap
r-16
12m forward P/E Average forward P/E -1 SD
forward EPS growth +1 SD
Average: 34.1x
Source: Deutsche Bank estimates, Bloomberg Finance LP
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 8 Deutsche Bank AG/Hong Kong
DCF valuation
We use a discounted cash flow analysis to cross-check our valuation. Our DCF
valuation yields a value per share of RMB21.2, in line with our target price of
RMB21.1. We forecast free cash flow until 2025 and summarize our analysis in
Figure 6.
Figure 6: Discounted cash flow analysis
RMB millions 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Terminal value
Revenue 20,128 24,242 28,832 34,003 39,762 46,099 52,984 60,897
Growth 22% 20% 19% 18% 17% 16% 15% 15%
EBIT 2,556 3,079 3,662 4,318 5,050 5,855 6,729 7,734
Growth 19% 20% 19% 18% 17% 16% 15% 15%
EBIT margin 13% 13% 13% 13% 13% 13% 13% 13%
Tax (434) (628) (747) (881) (1,030) (1,194) (1,373) (1,578)
Tax rate 20% 20% 20% 20% 20% 20% 20% 20%
EBIT*(1-Tax rate) 2,122 2,451 2,915 3,437 4,020 4,660 5,356 6,156
Adjus tment :
Add D&A 618 895 987 1,107 1,232 1,256 1,281 1,307
Less CAPEX (1,736) (1,990) (1,973) (2,012) (2,053) (2,094) (2,136) (2,178)
CAPEX as a % of revenue 9% 8% 7% 6% 5% 5% 4% 4%
Less change in WC (1,205) (1,306) (1,398) (1,467) (1,527) (1,575) (1,612) (1,649)
Others (55) - - - - - - -
FCF (255) 51 530 1,065 1,672 2,247 2,890 3,636 3,691
Termina l Va lue
57,114
Terminal growth rate 1.5%
WACC 8.0%
PV of CF - discounting to Jan 1, 2018 (237) 43 422 784 1,140 1,419 1,691 1,970 30,943
NPV - Enterprise Value 38,175
Cash 2,936
Debt 8,786
Minorities at book value 1,553
Minorities at market value - 1.5x book 2,330
Equity Value 29,994
Fully Diluted Shares 1,415
Value/Share (RMB) 21.2 Source: Deutsche Bank estimates, Company data
We base our DCF valuation on a perpetual growth rate of 1.5% and a WACC of
8.0%. We derive the WACC using a risk-free rate of 3.9%, equity risk premium
of 5.6%, beta of 1.1, tax rate of 20%, and 40% debt proportion. We summarize
our DCF sensitivity analysis in Figure 7.
Figure 7: DCF sensitivity analysis
1.00% 1.25% 1.50% 1.75% 2.00%
21.5 22.5 23.5 24.6 25.8
20.5 21.4 22.3 23.3 24.4
WACC 19.5 20.3 21.2 22.1 23.2
18.6 19.4 20.2 21.0 22.0
17.8 18.5 19.2 20.0 20.9
Perpetua l growth
Source: Deutsche Bank estimates
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 9
Investment risks
Slower-than-expected development in the export business for PuraCap US
On OTC capsules, the company is still in the ramp-up stage and has not
reached the breakeven point. It has built a second production line, as the first
one reached full capacity in 2015. A slower-than-expected ramp-up of sales
would lead to Humanwell taking longer to reach breakeven. On ANDA
products, Humanwell has received only one ANDA approval, in November
2015, and has not started sales in the US. With over 40 products in the
pipeline, delays in receiving ANDA approvals would affect the launches of new
products in the US, which would lead to slower-than-expected growth in the
export business for Humanwell.
Growth slowdown for Epic Pharma
Humanwell completed the acquisition of Epic Pharma and Epic RE Holdco in
May 2016, together valued at USD550m. Epic Pharma is mainly engaged in
developing, manufacturing, and marketing generic CNS drugs, including
Ursodiol, Amlodipine Besylate, Citalopram, etc., in the US. In addition, the
company provides contract manufacturing services. It achieved revenue and
net profit of RMB734m and RMB361m in 2015, representing YoY growth of
90% and 443%, respectively, mainly due to a price hike for Ursodiol on supply
shortages. If Ursodiol prices start to fall back to normal, this might affect Epic
Pharma’s revenue growth. In addition, the integration progress might affect
Humanwell, as the company has limited overseas experience.
Delays in the launch of new products in China
The fentanyl series is the largest profit contributor for Humanwell, accounting
for 51% of group profit in 2015. With the flagship products reaching the
mature stage of their life cycles, the launch of new products will be critical for
the company. Currently, Humanwell has around 10 major products in different
stages of development, covering the therapeutic areas of analgesics,
anesthetics, oncology, and others. Any delays in the development and launch
of new drugs might affect the company’s future growth.
Slower-than-expected profit growth for non-core business
The non-core business accounted for 57.8% of revenue but only 0.8% of net
profit in 2015. As the company has a presence in multiple sub-segments, it
might not have enough resources to support the non-core business, which
might lead to a slowdown in profit growth.
Risk for potential financing
As the company has an ambitious plan to have 50 hospitals by 2020, we
highlight the risk for financing which includes potential debt raising and equity
raising. Currently, the company has signed agreements with 10 different
hospitals to provide management services and supply chain services, upgrade
old facilities, or build new facilities.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 10 Deutsche Bank AG/Hong Kong
Investment positives
Overview of business segments
We highlight that Humanwell is uniquely positioned in multiple sub-segments
in the healthcare industry with an attractive product offering and service mix,
including CNS therapeutics, plasma products, exports, contract sales for IVD,
healthcare services, etc. We summarize the major segments and subsidiaries,
along with their flagship products, in the following exhibits.
Figure 8: Major segments of Humanwell
Drug Manufacturing
Yichang Hunmanwell
Exports
IVD
Healthcare services
Distribution
Non-healthcare investments
Gedian Hunmanwell
Zhongyuan Ruide
PuraCap US
Epic Pharma
Beijing Baron Medical
Hangzhou Nuojia Medical
Wuhan Humanwell
Healthcare
Daye Non-ferrous Metal
Hospital Mgmt Company
Humanwell Pharma (Hubei)
Jiande Pharma
Tianfeng Securities
67% stake
81% stake
100% stake
51% stake
100% stake
80% stake
80% stake
100% stake
75% stake
100% stake
70% stake
11% stake
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 11
Figure 9: Major subsidiaries of Humanwell
Type Company name Main business Stake (%)
2015 revenue
(RMB m)
YoY As % of group
revenue
2015 net profit
(RMB m)
YoY As % of group
profit*
Drug manufacturing Yichang Humanwell Narcotic analgesics and anesthetics (CNS drugs) 67.0% 2,079 15% 21% 348 7% 62%
Drug manufacturing Wuhan Humanwell CNS drugs 98.3% 234 23% 2% 66 187% 12%
Drug manufacturing Gedian Humanwell Steroid hormone drugs and APIs 81.1% 401 21% 4% 14 n.a. 3%
Drug manufacturing Uyghur Medicine Uyghur Medicine 70.7% 296 22% 3% 26 17% 5%
Drug manufacturing Zhongyuan Ruide Plasma products 100.0% 184 31% 2% 42 -5% 7%
Exports PuraCap (Wuhan) OTC capsule manufacturing for PuraCap US 75.0% n.a. n.a. n.a. n.a. n.a. n.a.
Exports PuraCap Pharma (US) OTC capsules and EpiCeram – a prescription product for dermatitis
51.0% 200 184% 2% -14 n.a. -3%.
Exports Epic Pharma (US) Narcotic analgesics and other CNS drugs 100.0% 734 90% n.a. n.a. n.a. n.a.
IVD Beijing Baron Medical Contract sales for Roche 80.0% 852 11% 8% 153 14% 27%
IVD Hangzhou Nuojia Contract sales for Roche 80.0% 390 n.a. 4% 17. n.a. 3%
Healthcare services WH Humanwell Healthcare
Hospital investment and management 100.0% n.a. n.a. n.a. -0.20 n.a. n.a.
Healthcare services Daye Non-ferrous Hospital Mgmt
Hospital management 75.0% n.a. n.a. n.a. -0.01 n.a. n.a.
Distribution Humanwell Pharma (Hubei)
Pharmaceutical distribution 100.0% 2,500 n.a. 25% 25 n.a. 4%
Distribution Jiande Pharma Pharmaceutical distribution 70.0% 452 n.a. 4% 41 n.a. 7%
Non-healthcare investments
Tianfeng Securities 11.2% 3,224 190% n.a. 131 267% 23%
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)
YoY As % of subsidiary revenue
Fentanyl Citrate injection 枸橼酸芬太尼注射液 Yichang Humanwell Analgesics 110 -8% 5%
Remifentanil Injection 注射用盐酸瑞芬太尼 Yichang Humanwell Analgesics 600 7% 29%
Sufentanil Citrate Injection 枸橼酸舒芬太尼注射液 Yichang Humanwell Analgesics 1,020 22% 49%
Deproteinized calf blood 小牛血去蛋白注射液 Wuhan Humanwell CNS therapeutics 40 15% 17%
Mifepristone 米非司酮 Gedian Humanwell Anti-progesterone 200 10% 14%
Albumin 人血白蛋白 Zhongyuan Ruide Plasma-derived therapeutics 90 15% 49%
Ursodiol 熊去氧胆酸 Epic Pharma Gastrointestinal agent 440 400% 60%
Epiceram Epiceram 皮肤膏. PuraCap US A prescription product for dermatitis
100 32% 50%
Source: Deutsche Bank estimates, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 12 Deutsche Bank AG/Hong Kong
Growth driven by multiple segments
We believe growth will mainly be driven by four factors.
Flagship CNS franchise: We expect the CNS franchise to be a solid
growth driver and a major profit contributor for a long time, driven by
a large and underpenetrated market in China, stable prices given
stringent regulation, and usage expansion. We highlight that the
flagship products fentanyl, sufentanil, and remifentanil accounted for
85% of the CNS franchise in 2015. In addition, we believe the launch
of new products in anesthetics would add another leg of growth. We
expect the revenue contribution from the CNS franchise to decline
from 20% to 17% and the net profit contribution to decline from 65%
to 48% due to outgrowth by other segments.
Exports: 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. While we are
concerned about the future growth of Epic Pharma, we are still
optimistic on the potential domestic opportunity for overseas ANDA
products. We estimate that the revenue contribution from exports will
grow from 2% in 2015 to 7% in 2018, while we expect the net profit
contribution to grow from -3% in 2015 to 23% in 2018.
Healthcare services: Given Humanwell’s optimistic plan of achieving
20 hospitals by 2016 and 50 by 2020 in Hubei province, we estimate
revenue contribution to be 3%/5%/6% and profit contribution to be -
2%/1%/3% in 2016, 2017, and 2018, respectively. We believe the
financial impact is still limited in the near term. However, we think
PPP/IOT is the most preferred model for non-SOE players to get
involved in public hospital reform.
PDTs and IVD: We highlight that Humanwell has uniquely positioned
itself in two attractive segments. Beijing Baron is the largest contract
sales agent for Roche IVD products in China, while Zhongyuan Ruide
is also a meaningful player in the plasma industry. We expect PDTs
and IVD to contribute 8% and 18% of group profit in 2018, compared
with 7% and 30% in 2015.
Figure 11: Revenue breakdown (2014-2018E) Figure 12: Profit breakdown (2014-2018E)
24% 20% 19% 17% 17%0%
10%
20%
30%
40%
50%
0%
20%
40%
60%
80%
100%
2014 2015 2016E 2017E 2018E
CNS drugs IVD
Exports Hospitals
Others YoY revenue growth
70% 65%53% 47% 48%
0%
10%
20%
30%
40%
50%
60%
-20%
0%
20%
40%
60%
80%
100%
2014 2015 2016E 2017E 2018E
CNS drugs IVD
Exports Hospitals
Others YoY profit growth
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 13
We model CAGRs 2016-18 of 26% and 32% for revenue and net profit,
respectively. We expect margins for Humanwell to improve slightly in the next
three years, driven by economies of scale, improving operating leverage, and
the acquisition of Epic Pharma; however, this is partly offset by increasing
capital spending in the hospital business. We estimate gross margin and EBIT
margin expansion from 36.3%/11.3% in 2015 to 37.5%/12.7% in 2018,
respectively.
Figure 13: Revenue forecast (2011-18E) Figure 14: EBIT forecast (2011-18E)
0%
10%
20%
30%
40%
50%
60%
70%
0
5
10
15
20
25
Revenue YoYRMB bn
0%
10%
20%
30%
40%
50%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
EBIT YoYRMB bn
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
Figure 15: Core net profit forecast (2011-18E) Figure 16: Gross margin and EBIT margin (2011-18E)
0%
10%
20%
30%
40%
50%
60%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Net profit YoYRMB bn
10%
15%
20%
25%
30%
35%
40%
45%
Gross margin EBIT margin
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 14 Deutsche Bank AG/Hong Kong
Driver 1: Sustainable growth from the CNS franchise
We expect the CNS franchise to achieve revenue and net profit of
RMB3.4bn/623m in 2018, with CAGRs 2015-18 of 18% and 19%, respectively,
driven by the analgesic and anesthetic products from Yichang Humanwell as
well as CNS drugs from Wuhan Humanwell. Importantly, we expect margin
expansion for Yichang Humanwell in the next few years, due to operating
efficiency improvement after the completion of sales restructuring. Although it
is the largest contributor for the group, we expect the revenue and net profit
contribution from the CNS franchise to decline from 20%/65% in 2015 to
17%/48% in 2018, respectively, due to the outgrowth of other segments.
Figure 17: Revenue and net profit for the CNS franchise
(2010-2018E)
Figure 18: Contribution from the CNS franchise
(2014-2018E)
0%
10%
20%
30%
40%
50%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2011 2012 2013 2014 2015 2016E2017E2018E
Revenue Net profit
Revenue YoY Net profit YoYRMB bn
0%
10%
20%
30%
40%
50%
60%
70%
80%
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 summarize the major existing CNS drugs for Humanwell in Figure 19.
Figure 19: Flagship CNS products of Yichang Humanwell and Wuhan Humanwell
Drug name (EN) Drug name (CN)
Approval date
Therapeutic class
Reimbursement status
Subsidiary name
Competitors Market share
(2015)
2015 sales
(RMB m)
YoY as % of subsidiary
revenue
Fentanyl 枸橼酸芬太尼 6/8/2001 Analgesics EDL Yichang Nhwa Pharma, Langfang 40% 110 -8% 5%
Remifentanil 盐酸瑞芬太尼 7/10/2002 Analgesics NRDL category B Yichang Nhwa Pharma, Langfang 98% 600 7% 29%
Sufentanil 枸橼酸舒芬太尼 9/13/2004 Analgesics NRDL category B Yichang IDT Biologika GmbH 90% 1,020 22% 49%
Hydromorphone 盐酸氢吗啡酮 12/2/2009 Analgesics None Yichang None 100% n.a. n.a. n.a.
Nalbuphine 盐酸纳布啡 3/3/2009 Analgesics None Yichang None 100% n.a. n.a. n.a.
Midazolam 咪达唑仑 9/26/2012 Anesthetic adjunct
EDL for injection Yichang Nhwa Pharma, Novartis, Roche, etc.
n.a. n.a. n.a. n.a.
Deproteinized calf blood
小牛血去蛋白 5/12/2004 Improve brain blood supply
NRDL category B Wuhan Fosun Pharma, ZBD Pharma, etc.
2.6% 40 15% 17%
Oxcarbazepine 奥卡西平 5/24/2012 Anti-epilepsy NRDL category B Wuhan Novartis, Sihuan 8% 40 14% 17%
Source: Deutsche Bank, Company data
Analgesics and anesthetics are the largest contributor
We highlight that the franchise of analgesics and anesthetics accounted for
18% of group revenue and 88% of the CNS franchise in 2015. In terms of net
profit, the segment contributed 53% of group profit and 82% of the CNS
franchise in 2015. We expect the segment of analgesics and anesthetics to
continue to deliver stable growth of 19% in 2015-18, compared with a CAGR
2011-15 of 23%, driven by usage expansion into different departments such as
ICU, orthopedics, etc., for hydromorphone and sufentanil.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 15
We highlight that fentanyl, remifentanil, and sufentanil are the three largest
products, accounting for 96% of the analgesic and anesthetic franchise, while
the remaining 4% of revenue comes from hydromorphone, nalbuphine, and
midazolam.
Figure 20: Revenue growth of analgesics and anesthetics
(2011-2015)
Figure 21: Sales breakdown of analgesics and
anesthetics (2015)
0%
5%
10%
15%
20%
25%
30%
35%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2011 2012 2013 2014 2015 2016E 2017E 2018E
Analgesics and anesthetics YoYRMB bn
6%
33%
57%
4%
Fentanyl
Remifentanil
Sufentanil
Others
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank, Company data
We highlight that Humanwell achieved leading market shares in sufentanil
with 90% and remifentanil with 98% in 2015. For fentanyl, Janssen had 50%
market share as transdermal patches in 2015, while Humanwell had 40% as
injections. We summarize the data in Figure 22-27.
Figure 22: Market breakdown of sufentanil Figure 23: Sales growth of manufacturers of sufentanil
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Humanwell IDT Biologika GmbH
0%
10%
20%
30%
40%
Humanwell IDT Biologika GmbH
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 16 Deutsche Bank AG/Hong Kong
Figure 24: Market breakdown of remifentanil Figure 25: Sales growth of manufacturers of remifentanil
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Humanwell Langfang Pharma Ehwa Pharma
0%
10%
20%
30%
2013 2014 2015
Humanwell
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 26: Market breakdown of fentanyl Figure 27: Sales growth of manufacturers of fentanyl
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Humanwell Janssen Changzhou No.4 Others
-20%
-10%
0%
10%
20%
2013 2014 2015
Humanwell Janssen Changzhou No.4
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
We believe that narcotic analgesics have longer product life cycles than
common generic drugs due to a high entry barrier set by strict regulations.
CFDA has released a list for controlled substances, which include narcotic
analgesics and category I&II psychotropic substances. We compare the
regulations on manufacturing, distribution, and sales for controlled substances
and common generic drugs in China in Figure 28. Midazolam is classified as a
category II psychotropic substance according to CFDA regulations. We
highlight that it could be treated as an induction agent for general anesthesia
when in the form of injections, or it could be indicated for anti-anxiety when in
oral formulation.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 17
Figure 28: Regulation comparison for controlled substances and general drugs
Narcotic analgesics Category I psychotropic substances
Category II psychotropic substances
Other generic drugs
Examples Fentanyl, sufentanil, remifentanil, oxycodone, etc.
Buprenorphine, mescaline, metamfetamine, etc.
Midazolam, benzfetamine, caffeine, etc.
Amlodipine, etc.
Manufacturing Production volume and manufacturing licenses are
controlled by SFDA; 1-3 players for each single formula
Production volume and manufacturing licenses are controlled by SFDA; 1-5 for
each generic name
Production volume and manufacturing licenses are
controlled by SFDA or provincial FDA; 1-10 for each generic name
General drug regulatory
Distribution 3 national distributor licenses 3 national distributor licenses Distributor licenses are issued by provincial FDA
General drug regulatory
Tendering and pricing No tender; ex-factory price cap and retail price cap set by NDRC
No tender; ex-factory price cap and retail price cap set
by NDRC
No tender; online procurement Tendering
Prescription 3 days for normal formula 3 days for normal formula 7 days Respective guidelines
Pharmacy sales No No Yes for specific drug stores Yes for some drugs
Entry barrier Highest High Moderate Low
Competitive landscape Low Low Moderate High Source: Deutsche Bank, SFDA
Importantly, we believe that the stringent regulations create a mild competitive
landscape for the controlled substances and stable prices as well. Based on
our tracked hospital data, fentanyl, sufentanil, and remifentanil exhibited small
price volatilities in the past four years.
Figure 29: Price trends of fentanyl, sufentanil, and remifentanil (rebased)
95
96
97
98
99
100
101
102
103
Fentanyl Sufentanil Remifentanil
Source: Deutsche Bank, CPA
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 18 Deutsche Bank AG/Hong Kong
In addition, we believe that the strategy of replacing fentanyl with newly
launched products of sufentanil and remifentanil could help improve prices, as
sufentanil and remifentanil are about twice as expensive as fentanyl for the
same potency.
Figure 30: Sales growth of fentanyl, sufentanil, and
remifentanil in China (1Q13-1Q16)
Figure 31: Price comparison of fentanyl, sufentanil, and
remifentanil for the same potency in China (1Q16)
-20%
-10%
0%
10%
20%
30%
40%
Fentanyl Sufentanil Remifentanil
0 2 4 6 8 10
Remifentanil
Sufentanil
Fentanyl
Price for same potency (100 ug fentanyl)
RMB
Source: Deutsche Bank, CPA
Source: Deutsche Bank, CPA
Marching into the anesthetic market
We highlight that Humanwell has seven anesthetic products currently in the
stage of clinical trials or pending manufacturing. We expect new product
launches to ramp up fast and add another leg of growth in the long run, as
anesthetics are targeting similar departments in hospitals as its existing
analgesic products. We highlight that the anesthetic market is the second
largest category in the CNS drug market, and propofol is the largest anesthetic
drug with sales of RMB2.5bn in 2015 and a CAGR of 7% from 2012 to 2015.
Figure 32: Market size for anesthetics in China (2012-15)
Figure 33: Market breakdown by anesthetic
(2012 vs. 2015)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-
20
40
60
80
100
120
140
160
2012 2013 2014 2015
M arket size YoYRebased
43% 38%
18%19%
6% 15%6%
5%
27% 22%
0%
20%
40%
60%
80%
100%
2012 2015
Propofol Sevoflurane Dexmedetomidine M idazolam Others
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 19
Among the pipeline products, we highlight that dexmedetomidine, propofol,
etmoidate, and alfentanil might have greater market potential. With two class
1.1 drugs under clinical trials, we believe that fospropofol has benefits of less
infusion-site pain and less hyperglycemia over propofol. However, we remind
investors that the originator manufacturer, Eisai Inc., has discontinued this
drug on the US market since 2012, after it was approved by FDA in 2008. For
the other class 1.1 drug, remimazolam, we believe it is similar to the one from
Hengrui. We summarize the details of pipeline products for CNS drugs at
Humanwell in Figure 34.
Figure 34: Pipeline summary for CNS drugs for Humanwell
Registration Chemical name (EN) Chemical name (CN) Class Category Status Date
CYHS1501503 Dexmedetomidine 盐酸右美托咪定注射液 6 Anesthetic Pending manufacturing approval 5/11/2016
CYHS1401832 Levobupivacaine hydrochloride 盐酸左布比卡因注射液 6 Anesthetic Pending manufacturing approval 5/29/2015
CYHS1401390 Midazolam maleate 马来酸咪达唑仑片 6 Anesthetic Pending manufacturing approval 3/26/2015
CYHS1401119 Levetiracetam 左乙拉西坦片 6 Anti-epileptics Pending manufacturing approval 12/23/2014
CYHS1400876 Propofol 丙泊酚中/长链脂肪乳注射液 6 Anesthetic Pending manufacturing approval 12/19/2014
CYHS1400247 Etomidate 依托咪酯 6 Anesthetic Pending manufacturing approval 9/15/2014
CYHS1301897 Mirtazapin 米氮平片 6 Antidepressant Pending manufacturing approval 6/11/2014
CXHS1300003 Alfentanil 盐酸阿芬太尼注射液 3.1 Analgesics Pending manufacturing approval 3/10/2016
CXHL1400786 Oxycodone and ibuprofen 布洛羟考酮片 3.2 Analgesics Clinical trial ongoing 3/17/2016
CXHL1400483 Nalbuphine hydrochloride 盐酸纳布啡注射液 3.4 Analgesics Clinical trial ongoing 3/10/2016
CXHL0800018 Fospropofol 磷丙泊酚钠 1.1 Anesthetic Clinical trial ongoing (Phase III) 8/31/2009
CXHL1301412 Remimazolam 注射用苯磺酸瑞马唑仑 1.1 Anesthetic Clinical trial ongoing (Phase I) 6/17/2015
CXHL0700084 Buprenorphine Hydrochloride 复方盐酸丁丙诺啡舌下片 3.2 Others Clinical trial ongoing (Phase II) 11/28/2008
CXHL1501957 Methylphenidate hydrochloride 盐酸苏右旋哌甲酯缓释胶囊 3.1 Others Pending clinical trial approval 1/14/2016
CXHL1401726 Acetaminophen 对乙酰氨基酚注射液 3.3 Analgesics Pending clinical trial approval 6/1/2016
Source: Deutsche Bank
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 20 Deutsche Bank AG/Hong Kong
Driver 2: Export as a strategic focus
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.
A076835 Nov-05 Flavoxate Hydrochloride 盐酸黄酮哌酯 Symptomatic relief of dysuria, urgency, nocturia, suprapubic pain
2 manufactures in the US.
A077070 Nov-05 Sotalol Hydrochloride 盐酸索他洛尔 Arrhythmia 11 manufactures in the US.
A078508 Jun-08 Trandolapril 群多普利 Hypertension 8 manufactures in the US.
A078552 Apr-09 Amlodipine Besylate 苯磺酸氨氯地平 Hypertension 30 manufactures in the US.
A200294 Apr-12 Meclizine Hydrochloride 盐酸美克洛嗪 An antihistamine to treat nausea, vomiting, and dizziness
7 manufactures in the US.
A202220 Nov-12 Protriptyline Hydrochloride 盐酸伪麻黄碱片 Depression 4 manufactures in the US.
A202333 Mar-14 Sodium Polystyrene Sulfonate 聚磺苯乙烯钠 To treat high potassium levels in the blood 10 manufactures in the US.
A065447 Aug-15 Demeclocycline Hydrochloride 盐酸地美环素 Bacterial infections 4 manufactures in the US.
A202662 Sep-15 Oxycodone Hydrochloride 盐酸羟考酮 A narcotic analgesic for moderate to severe pain Controlled substance. 24 manufactures in the US.
A090346 Dec-15 Benzphetamine Hydrochloride 盐酸苄非他明 Obesity Controlled substance. 7 manufactures in the US.
Source: Deutsche Bank, FDA
Expecting PuraCap Pharma to break even, likely in 2017
We estimate the sales of PuraCap to post a CAGR of 38% during 2015-18,
achieving RMB527m in 2018. We expect the revenue contribution of PuraCap
Pharma to grow from 2% in 2015 to 2.6% in 2018, while the net profit
contribution should reach 2.1% in 2018 from -2.5% in 2015. The company
generated revenue of RMB200m in 2015, representing YoY growth of 184%,
and is still loss-making. We believe PuraCap is likely to break even in 2017,
driven by the ramp-up of EpiCeram and OTC capsules. We highlight the two
major businesses below.
We expect EpiCeram to provide solid and stable growth, as the
company put together a sales team of 50 people in 2015. The product
is mainly promoted through clinics. It is a high-margin patent product
for the treatment of various types of dermatoses and is covered for
reimbursement by many private insurers. In 2015, EpiCeram generated
sales of around RMB100m at a YoY growth rate of 30%. We believe
EpiCeram is already making profits. In April 2015, Humanwell obtained
marketing approval for EpiCeram in China.
On OTC capsules, the company is loss-making due to high R&D costs.
With economics of scale, we expect OTC business to break even in
2017. In 2015, OTC capsules achieved sales of around RMB100m. The
company built a second production line in 2015, as the first one
achieved full capacity.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 22 Deutsche Bank AG/Hong Kong
Figure 39: Revenue for PuraCap Pharma (2013-18E) Figure 40: Net profit for PuraCap Pharma (2013-18E)
0%
50%
100%
150%
200%
0
100
200
300
400
500
600
2013 2014 2015 2016E 2017E 2018E
Revenue YoYRMB m
(80)
(60)
(40)
(20)
0
20
40
60
80
2013 2014 2015 2016E 2017E 2018E
Net profit RMB m
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank, Company data
Expanding in the US through the acquisition of Epic Pharma
Additionally, we expect Epic Pharma to achieve revenue of RMB838m in 2018,
with a CAGR of 5% during 2015-18. We expect the company to contribute
4.2% and 21.3% of revenue and net profit in 2018. As a reminder, Humanwell
completed the acquisition by the end of May and should consolidate about
seven months’ revenue and net profit for 2016. We estimate its net profit will
reach RMB288m in 2016 on a full-year basis, after finance cost, taxes and
other deal-related costs.
Epic Pharma generated revenue and net profit of RMB734/361m in 2015,
representing YoY growth of 90% and 443% respectively. NPM reached 49% in
2015, compared with 17% in 2014. We highlight that the strong growth in
2015 was mainly driven by ursodiol, whose revenue increased by about four-
fold with continuous price increases due to supply shortage. However, we
believe the price increase is not sustainable and remain cautious on growth
going forward. We believe new ursodiol entrants are likely to emerge in 2017,
leading to intensified competition and a growth slowdown for the company.
Figure 41: Revenue for Epic Pharma (2014-18E) Figure 42: Net profit for Epic Pharma (2015)
-20%
0%
20%
40%
60%
80%
100%
-
100
200
300
400
500
600
700
800
900
2014 2015 2016E 2017E 2018E
Revenue YoYRMB m
-100%
0%
100%
200%
300%
400%
500%
-
50
100
150
200
250
300
350
400
2014 2015 2016E 2017E 2018E
Net profit YoY
RMB m
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 23
We highlight that the retail price and total value of the Rx for ursodiol both
doubled in the US market during 2H14. As for ursodiol from Epic Pharma, its
retail price almost tripled during 2H14. We believe the price increase for
ursodiol was likely triggered by an imbalance of supply and demand in the
market.
Figure 43: Retail price trend for ursodiol (1Q13-1Q16)
Figure 44: Ursodiol market in the US (retail data, 1Q13-
1Q16)
0
50
100
150
200
250
Rebased
0
50
100
150
200
250
300
Total Rx Value Rebased
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 45: Retail price trend for ursodiol from Epic
Pharma (1Q13-1Q16)
Figure 46: Total Rx value for ursodiol from Epic Pharma
(1Q13-1Q16)
0
50
100
150
200
250
300
350
Rebased
0
100
200
300
400
500
600
700
800
900
Total Rx Value Rebased
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
We highlight that ursodiol contributed 60% of revenue for the company in
2015. In terms of total Rx value YTD April 20, Epic Pharma is the third-largest
manufacturer with a market share of 20%. While the first three players
accounted for 74% of market share, we note that there are 10 manufacturers
in total in the US market.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 24 Deutsche Bank AG/Hong Kong
Figure 47: Revenue breakdown for Epic Pharma
Figure 48: Market share breakdown for ursodiol in terms
of total Rx value (2013-YTD May 2016)
Ursodiol
60%
Other
generic
drugs
20%
CM O
20%
8%
15% 22% 23%
0%
20%
40%
60%
80%
100%
2013 2014 2015 YTD Apr 16
Actavis Pharma Lannett Epic Pharma Llc Others
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank, Company data
Humanwell announced its plan to acquire 100% shares of Epic Pharma and
Epic RE Holdco with cash of USD529m and USD21m, respectively, on 30
March 2016. The deal is mainly funded by bank loans and corporate bonds.
Epic Pharma is primarily engaged in developing and manufacturing generic
prescription drugs and contract manufacturing, while the sole business for
Epic RE is renting offices to Epic Pharma. We highlight the financial details of
the acquisition and analyze the EPS impact in Figure 49.
Figure 49: EPS impact and implied P/E for the acquisition of Epic Pharma
Acquisition details for Epic Pharma
Deal valuation (USD m) 529
Deal valuation (RMB m) 3,471
Current price of Humanwell (as of 13 June 2016)
15.88
Financial details for Epic Pharma
RMB m 2014 2015 2016E 2017E 2018E
Revenue 386 734 822 847 838
Net profit 66 361 288 288 277
YoY growth
Revenue 90% 12% 3% -1%
Net profit 443% -20% 0% -4%
Margin
Gross Margin 44% 64% 54% 52% 50%
Net Margin (assumption) 17% 49% 35% 34% 33%
EPS impact 2014 2015 2016E 2017E 2018E
EPS - Epic Pharma (RMB) 0.22 0.20 0.20
EPS - Humanwell (RMB) 0.36 0.45 0.54 0.59 0.72
EPS - Humanwell + Epic Pharma (RMB) 0.65 0.79 0.92
Implied P/E for Epic Pharma 12.1x 12.1x 12.5x
Implied trading P/E for Humanwell and Epic Pharma, as of 13 June 2016
24.4x 20.0x 17.3x
Source: Deutsche Bank estimate, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 25
Potential domestic opportunity for existing ANDA approvals
In addition, we believe the acquisition of Epic Pharma could help Humanwell
to bring some overseas products back to the domestic market. We think it
carries strategic significance amid the CFDA’s increasingly stringent standards
for drug applications. According to the latest CFDA guidelines, bioequivalence
studies might be exempted for products that are already being marketed in the
US. We estimate the near-term domestic opportunity for Humanwell to be
around RMB330m in terms of 2015 revenue. However, the timeline is hard to
estimate at the moment as the CFDA policy has not yet been finalized. In
Figure 50 we summarize our estimates for the domestic market opportunities.
Figure 50: Domestic market opportunities for Epic Pharma’s product portfolio in near term
Drug Name (EN)
Drug Name (CN)
Indication Market size in China (2015 DBe, RMB m)
Market growth in China (2015 DBe)
Manufacturers in China Market opportunity in China (DBe, RMB m)
Oxycodone 盐酸羟考酮 A narcotic analgesic for moderate to severe pain
590 26% Mundi Pharma 300
Ursodiol 熊去氧胆酸 Primary biliary cirrhosis 800 24% 24 manufacturers. Top 3 are Dr. Falk Pharma (Ursofalk),
Bruschettini, Daewoong.
20
Citalopram 氢溴酸西酞普兰 Anti-depressant 210 10% 11 manufacturers. The top 3 are Janssen-Xian, Nhwa, Kelun.
10
Source: Deutsche Bank estimates, Company data
Rich pipeline for ANDA approvals to drive future growth in exports
After consolidating Epic Pharma, Humanwell has over 70 products in the
pipeline that are targeting ANDA approval. We highlight that Epic Pharma has
around 37 pipeline products, covering narcotic analgesics, nervous system
diseases, hypertension, etc. Ten of them have already applied for ANDA.
Meanwhile, PuraCap Pharma and Yichang Humanwell together have more
than 40 products in their pipelines to apply for ANDA and 505(b)(2). Going
forward, management expects to obtain 2-3 ANDA approvals each year.
In the near term, we expect oxycodone controlled-release tablets, azithromycin
suspension and hydrocodone to be launched in 2016-18. We highlight that the
controlled release of oxycodone is likely to be launched this year, as Epic
Pharma has won the patent challenge and will be awarded 180-day exclusive
rights.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 26 Deutsche Bank AG/Hong Kong
Driver 3: Healthcare service drives long-term growth
We expect the revenue contribution of the hospital business to reach
3%/5%/6% and profit contribution to reach -2%/1%/3% in 2016, 2017 and 2018
respectively. The growth should be driven mainly by the expansion of the
hospital network, as the company is aiming to have 20 hospitals under its
umbrella by 2016 and 50 by 2020, in its home province of Hubei. While we
expect the profit contribution from hospitals to be small in the near term, we
believe the growth potential could be significant in the long run.
Figure 51: Revenue and net profit for hospital business
(2015-2018E)
Figure 52: Contribution from hospital business (2015-
2018E)
0%
50%
100%
150%
200%
250%
300%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2015 2016E 2017E 2018E
Revenue Revenue YoYRMB bn
(0.0)
(0.0)
0.0
0.0
0.0
0.0
0.0
0.1
2015 2016E 2017E 2018E
Net profit RMB bn
Source: Deutsche Bank estimates, Company data
Source: Deutsche Bank estimates, Company data
Figure 53: Targets for number of hospitals
Figure 54: Contribution from hospital business (2015-
2018E)
7
20
50
0
10
20
30
40
50
60
2015 2016E 2020E
-4%
-2%
0%
2%
4%
6%
8%
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 believe healthcare service is the segment least affected by this round of
reforms, which mainly focuses on the control of drug prices, medical spending
on drugs, increasing standards on drug applications, and tax reform for drug
manufacturers and distributors. In addition, private capital has been highly
encouraged to enter the public hospital market. We believe IOT or PPP is the
most preferred model in the initial stage of public hospital reforms. This is a
win-win strategy, in our view, as the nature of hospitals would remain the
same, while the asset-light model ensures a high ROI and provides a buffer
zone for margin erosion during the expansion phase.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 27
We highlight that the PPP model for Humanwell is slightly different from the
IOT model for Phoenix. Under the PPP model for Humanwell, the local
government and Humanwell jointly set up a management company, with
Humanwell taking the majority stake. The local government injects related
hospital assets into the management company, while Humanwell provides
capital for the hospital. In addition, the management company takes over the
supply chain business and provides management services for the hospital.
Under the IOT model for Phoenix, however, no such management company is
set up. However, both models are making profits through the supply chain
service and management service.
However, we highlight the risk for financing which includes potential debt
raising and equity raising, in order to fund its ambitious expansion strategy.
Long-term strategies for hospital business
The company has elaborated on its strategies for the long-term development of
the hospital business.
At the initial stage, the company will mainly focus on the PPP model
with local governments providing management services, building new
facilities and taking over the supply chain for hospitals. We expect
minimal capital spending for the company at this stage.
Later, the company will build for-profit centers near the hospitals, such
as postpartum services. We expect moderate capital spending for the
company at this stage.
Finally, the company will build for-profit hospitals to provide premium
services such as in-vitro fertilization (IVF). We expect moderate to high
capital spending at this stage.
In addition, the company will utilize innovative methods to get involved in
healthcare investment, including setting up private equity funds with other
partners. We believe these innovative ways could bring external funding and
also help Humanwell to expand its hospital network with less capital. We
summarize the healthcare-related investments in Figure 55.
Figure 55: Healthcare service-related investments
Company / Fund Name Date Comments
Wuhan Humanwell Healthcare Service Group
Sep-15 Humanwell invested RMB500m to set up a whole subsidiary, as the investment and
management arm of healthcare services.
Yijian Xinghe Investment Fund Dec-15 Humanwell invested RMB50m to obtain 12.5% share of the fund. The fund is focusing
on investment in biological drugs and innovative healthcare services.
Yangtze River Humanwell Industrial Fund May-16 Humanwell signed an unbinding framework agreement with SOEs and private companies
to set up a PE fund to invest in healthcare industry. The fund size should not exceed
RMB5bn. Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 28 Deutsche Bank AG/Hong Kong
The company has so far signed agreements with 10 public hospitals and plans
to build one for-profit hospital in Hubei province. In Figure 56 we provide a list
of hospitals that are under agreements with Humanwell.
Figure 56: Humanwell − Existing hospital portfolio
Hospital Name Class Date of agreement
Capital required (RMB m)
Revenue (2015E, RMB m)
Number of beds
Business model Content of agreement Mgmt contract
status
Zhongxiang People's Hospital
Tier 1 14-Aug 200 242 1,050 IOT+ brown-field projects
Humanwell plans to invest RMB200m to set up a wholly-owned management
company, providing management services and building new facilities for
the hospital.
Started
Laohekou First Hospital
Tier 2 14-Dec 200 120 460 IOT+ brown-field projects
Humanwell plans to invest RMB200m to set up a wholly-owned management
company, providing management services and building new facilities for
the hospital.
Started
Xiaonan Maternity and Child Health Hospital
Tier 2 15-Sep 150 9 107 PPP Humanwell plans to set up a management company, providing
management services for the hospital.
Started
Huangshi Daye Non-ferrous Metal Hospital
Tier 2 15-Sep 106 70 360 PPP Humanwell acquired a 75% share of Huangshi Daye Non-ferrous Metal
Hospital Management Company at a cost of RMB106.4m.
Started
Yichang Maternity and Child Health Hospital
Tier 1 15-Oct 500 89 110 PPP+ brown-field projects
Humanwell plans to invest RMB500m to set up a management company,
providing management services and building new facilities for the hospital.
Humanwell will own a 66% equity share of the company.
In progress
Linan TCM Hospital Tier 2 15-Dec 420 50 250 PPP+ brown-field projects
Humanwell plans to set up a management company with Guorui
Healthcare (Linan TCM hospital), a local SOE, to build new facilities for Linan
TCM hospitals. Humanwell will own a 70% share.
In progress
Zhongxiang Maternity and Child Health Hospital
Tier 2 15-Dec N/A 70 85 PPP+ brown-field projects
Humanwell plans to set up a management company, providing
management services for the hospital and building new facilities. Humanwell
will own no less than a 51% share.
Yet to start
Zhongxiang TCM Hospital
Tier 1 16-Jan N/A 130 680 PPP Humanwell plans to set up a management company, providing
management services for the hospital. Humanwell will own no less than a 51%
share.
Yet to start
Jingzhou Second Hospital
Tier 2 16-Feb N/A 180 703 PPP+ brown-field projects
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
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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
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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
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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
Pharmaceuticals / Biotechnology
Humanwell Healthcare
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
(2012-2015)
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
2013 2014 2015
Narcotic Analgesics YoY growth CNS drugs YoY growth
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Dezocine Sufentanil Remifentanil Oxycodone
Morphine Fentanyl Others
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
We believe the high growth during 2012-15 was mainly driven by the growing
number of surgeries and fast ramp-up of new products, including dezocine
(launched in 2009) and oxycodone (launched in 2004). However, we remind
investors that dezocine, which is mainly indicated for post-surgical pain and
cancer pain, was discontinued for usage in the US and Canada in 2011.
Sufentanil and remifentanil were the second-largest narcotic analgesics with
16% and 14% market shares, respectively, in 2015.
High industry concentration for narcotic analgesics
We summarize the top 10 players in narcotic analgesics in Figure 84.
Yangzijiang Pharma is the largest player, as it is the only manufacturer of
dezocine. Humanwell is the second-largest player with leading market shares
for sufentanil, remifentanil and fentanyl. These two companies combined hold
a 78% market share, while the top 10 players account for 99% of the market in
20 June 2016
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Page 38 Deutsche Bank AG/Hong Kong
narcotic analgesics. We believe this is a result of the regulation by the Chinese
government, as there can only be a maximum of three manufacturers for a
narcotic analgesic.
Figure 84: Top 10 companies for narcotic analgesics
Company 2015 market share
Yangzijiang Pharma 45%
Humanwell 33%
Mundi Pharma 11%
Shuanghe Pharma 3%
Hengrui 3%
Janssen 2%
Taiji Xinan Pharma 1%
Eurocept BV 1%
Shengyang No.1 0%
Changzhou No.4 0%
Subtotal 99% Source: Deutsche Bank, Company data
Competitive landscape of fentanyl, remifentanil and sufentanil
We summarize the sales data of fentanyl, remifentanil and sufentanil below.
These three products accounted for approximately 38% of the narcotic
analgesic market in 2015. In terms of sales growth, remifentanil and sufentanil
grew in the high teens in 2015, while fentanyl had negative growth as it is a
mature product being replaced by the other two products.
Figure 85: Sales of fentanyl, remifentanil and sufentanil
as a percentage of narcotic analgesics
Figure 86: Sales growth of fentanyl, remifentanil and
sufentanil, 2013-2015
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
Fentanyl Remifentanil Sufentanil Others
-10%
0%
10%
20%
30%
2013 2014 2015
Fentanyl Remifentanil Sufentanil
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
We highlight that Humanwell achieved a leading market share in sufentanil
with 90% and remifentanil with 98% in 2015. For fentanyl, Janssen had a 50%
market share as a transdermal patch in 2015 while Humanwell had 40% as an
injection. We summarize the data in the following charts.
20 June 2016
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Deutsche Bank AG/Hong Kong Page 39
Figure 87: Market breakdown of sufentanil Figure 88: Sales growth of manufacturers of sufentanil
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Humanwell IDT Biologika GmbH
0%
10%
20%
30%
40%
Humanwell IDT Biologika GmbH
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 89: Market breakdown of remifentanil Figure 90: Sales growth of manufacturers of remifentanil
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Humanwell Langfang Pharma Nhwa Pharma
0%
10%
20%
30%
2013 2014 2015
Humanwell
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 91: Market breakdown of fentanyl Figure 92: Sales growth of manufacturers of fentanyl
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Humanwell Janssen Changzhou No.4 Others
-20%
-10%
0%
10%
20%
2013 2014 2015
Humanwell Janssen Changzhou No.4
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
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Page 40 Deutsche Bank AG/Hong Kong
Overview of the anesthetic market in China
Market size and growth
The anesthetic market in China posted a CAGR of 11% from 2012 to 2015,
achieving c.RMB6.8bn sales in 2015, according to the company. We highlight
that the growth of anesthetic market slightly lagged the growth of the overall
CNS market in the past two years. Its market share remained the same as the
11% level in 2015.
Figure 93: Growth of narcotic analgesics and overall CNS
drugs (2013 -2015)
Figure 94: Anesthetics as % of CNS drugs, 2012-2015
0%
4%
8%
12%
16%
20%
2013 2014 2015
CNS drugs YoY Anesthetic drugs YoY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
Anesthetics Others
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Anesthetics are categorized into two main classes: general anesthetics and
local anesthetics. General anesthetics, which account for 79% of the
anesthetics market, have the ability to bring about a reversible loss of
consciousness in patients. In contrast, local anesthetic products are injected
into the immediate area to be operated on. Local anesthetics accounted for
21% of the anesthetics market in 2015. Additionally, general anesthetics
achieved higher growth rates than local anesthetics in the past three years.
Figure 95: Growth of general anesthetics and local
anesthetics, 2013-2015
Figure 96: Breakdown of anesthetics
-5%
0%
5%
10%
15%
20%
2013 2014 2015
Anesthetics Local Anesthetics General
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
General Anesthetics Local Anesthetics
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 41
General anesthetics
Propofol is the most common general anesthetic agent in China, with a 49%
market share in 2015. Sevoflurane and dexmedetomidine were the second and
third largest drugs, with 21% and 20% market shares in 2015, respectively.
The major difference between propofol and sevoflurane is the mode of action
as propofol is administrated through injection while sevoflurane is an
inhalational anesthetic. Dexmedetomidine is administered through infusion.
This drug has been developed more recently and is often used in an intensive
care setting.
Figure 97: Major drugs used in general anesthetics Figure 98: Sales growth of anesthetics
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Propofol Sevoflurane Dexmedetomidine Midazolam Others
-5%
0%
5%
10%
15%
20%
2013 2014 2015
Anesthetic YoY General anesthetics YoY
Local anesthetics YoY
-Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
We summarize the market share of the top five companies in the general
anesthetic market in China in Figure 99. Hengrui was the largest player with a
32% market share in 2015 as it manufactures both sevoflurane and
dexmedetomidine. Fresenius and AstraZeneca were the second and third
largest players with 17% and 15% market shares, respectively.
Figure 99: Top five companies in general anesthetic market
Company Product 2015 market share
Hengrui Sevoflurane, Dexmedetomidine 32%
Fresenius Propofol 17%
Astrazeneca Propofol 15%
Nhwa Pharma Dexmedetomidine 10%
Libang Pharma Propofol 7%
Subtotal 80% Source: Deutsche Bank, Company data
For propofol, the market leaders are Fresenius and AstraZeneca, which hold
34% and 31% market shares, respectively. The third-largest player is Libang
Pharma. Sales growth of this product was 13% in 2014, before falling to single
digits in 2015. Fresenius achieved solid growth in 2014 and 2015 and became
the market leader in 2015.
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Figure 100: Market breakdown of propofol
Figure 101: Sales growth of propofol for the major
players, 2013-2015
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Astrazeneca Fresenius Libang Pharma
Guorui Pharma Others
-20%
-10%
0%
10%
20%
30%
2013 2014 2015
Astrazeneca Fresenius
Libang Pharma Guorui Pharma
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
For sevoflurane, sales growth was healthy in the low-teens in 2015, in line with
the growth of CNS drugs. Hengrui was the market leader with a 60% market
share and it achieved mid-teen to approximately 20% sales growth in the past
three years. AbbVie and Baxter were the second and third largest players, with
25% and 10% market shares, respectively.
Figure 102: Market breakdown of sevoflurane
Figure 103: Sales growth of sevoflurane for the major
players, 2013-2015
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Hengrui AbbVie Baxter Lunan Pharma
-20%
0%
20%
40%
60%
80%
2013 2014 2015
Hengrui AbbVie Baxter Lunan Pharma
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
The dexmedetomidine market is dominated by domestic players, with Hengrui
holding a 90% market share in 2015. This product experienced robust growth
of 35%, 56% and 70% in 2015, 2014 and 2013, with a ramp-up after being
launched in China in 2009.
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Deutsche Bank AG/Hong Kong Page 43
Figure 104: Market breakdown of dexmedetomidine in
2015
Figure 105: Sales growth of dexmedetomidine for the
major players, 2013-2015
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015
Hengrui Guorui Pharma Nhwa Pharma Others
0%
50%
100%
150%
200%
250%
2013 2014 2015
Nhwa Pharma Hengrui Guorui Pharma
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Overview of industry policies
Regulations on controlled substances
As narcotic analgesics and psychotropic substances are generally addictive
and may develop tolerance in users, they are highly controlled by various
government entities to prevent drug abuse. We summarize the regulations for
and compare the characteristics of the controlled substances and other
common generic drugs in the following figures.
Figure 106: Regulation comparison of five subclasses of CNS drugs
Subclasses Definition Manufacture Distribution Prescription Administration
Antipsychotics General RX drug regulatory General RX drug regulatory General RX drug regulatory
General RX drug regulatory
General RX drug regulatory
Antidepressant General RX drug regulatory General RX drug regulatory General RX drug regulatory
General RX drug regulatory
General RX drug regulatory
Anti-epileptics General RX drug except for Clonazepam (Psy. II), Phenobarbital
(Psy. II) and compound drugs containing controlled substances
General RX drug regulatory General RX drug regulatory
General RX drug regulatory
General RX drug regulatory
Analgesics Narcotic analgesics
Analgesic Substances, e.g. Oxycodone, Fentanyl, Pethidine
Production volume and manufacturing licenses are controlled
by SFDA; 1-3 players for each single formula
3 days for normal formula
3 national distributor
licenses
Strictly monitored
Category I psychotropic Substances, e.g. Buprenorphine
Production volume and manufacturing licenses are controlled
by SFDA; 1-5 for each generic name
3 days for normal formula
3 national distributor
licenses
Strictly monitored
Category II psychotropic Substances, e.g. Dezocine,
Butorphanol, Pentazocine
Production volume and manufacturing licenses are controlled
by SFDA or provincial FDA; 1-10 for each generic name
7 days for normal formula
Distributor licenses are
issued by provincial FDA
Strictly monitored
Non-narcotic
analgesics
General RX drug, including compound drugs containing
controlled substances less than amount regulated by "Administration
of Compound Drugs Containing Controlled Substances"
SFDA[2004]No.71
General RX drug regulatory General RX drug regulatory
General RX drug regulatory
General RX drug regulatory
Anesthetics General RX drug except for Midazolam (Psy. II), Ketamine (Psy. I)
General RX drug regulatory General RX drug regulatory
Strictly monitored
General RX drug regulatory
Source: Deutsche Bank, CFDA
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We summarize the key regulations below:
We highlight that the government has limited the number of players
for each generic name, leading to relatively mild competition.
Analgesic substances and category-I psychotropic substances have a
relatively higher entry barrier as the numbers of licenses provided are
lower than in other sectors. However, sales volume growth is also
confined to the annual production budget set by the SFDA.
SFDA has only approved three national distributors – Sinopharm,
Shanghai Pharma, Chongqing Pharma – covering Northern, Eastern
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
Pharmaceuticals / Biotechnology
Humanwell Healthcare
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.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
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
Humanwell in 2014.
Figure 110: Revenue growth (2010-2015) Figure 111: Net profit growth (2010-2015)
0%
10%
20%
30%
40%
50%
60%
70%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2010 2011 2012 2013 2014 2015
Revenue YoYRMB bn
0%
5%
10%
15%
20%
25%
30%
35%
0.0
0.1
0.2
0.3
0.4
0.5
0.6
2010 2011 2012 2013 2014 2015
Net profit YoYRMB bn
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 112: Revenue breakdown by major subsidiary
(2015)
Figure 113: Core profit breakdown by major subsidiary
21%
8%
4%
2%
3%2%
2%
58%
Yichang Humanwell
Beijing Baron M edical
Gedian Humanwell
PuraCap & Epic Pharma
Uyghur M edicine
Wuhan Humanwell
Zhongyuan Ruide
Others
62%
27%
7%
4%
Yichang Humanwell
Beijing Baron M edical
Zhongyuan Ruide
Others
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 47
We summarize the major subsidiaries and their businesses in Figure 114.
Figure 114: Major subsidiaries of Humanwell
Type Company name Main business Stake (%)
2015 revenue
(RMB m)
YoY As % of group
revenue
2015 net profit*
(RMB m)
YoY As % of group
profit*
Drug manufacturing Yichang Humanwell Narcotic analgesics and anesthetics (CNS drugs) 67.0% 2,079 15% 21% 348 7% 62%
Drug manufacturing Gedian Humanwell Steroid hormone drugs and APIs 81.1% 401 21% 4% 66 187% 12%
Drug manufacturing Uyghur Medicine Uyghur Medicine 70.7% 296 22% 3% 14 n.a. 3%
Drug manufacturing Wuhan Humanwell CNS drugs 98.3% 234 23% 2% 26 17% 5%
Drug manufacturing Zhongyuan Ruide Plasma products 100.0% 184 31% 2% 42 -5% 7%
Exports PuraCap (Wuhan) OTC capsules manufacturing for PuraCap US 75.0% n.a. n.a. n.a. n.a. n.a. n.a.
Exports PuraCap Pharma (US) OTC capsules and EpiCeram – a prescription product for dermatitis
51.0% 200 184% 2% -14 n.a. -3%.
Exports Epic Pharma (US) Narcotic analgesics and other CNS drugs 100.0% 734 90% n.a. n.a. n.a. n.a.
IVD Beijing Baron Medical Contract sales for Roche 80.0% 852 11% 8% 153 14% 27%
IVD Hangzhou Nuojia Contract sales for Roche 80.0% 390. n.a. 4% 17. n.a. 3%
Healthcare services WH Humanwell Healthcare
Hospital investment and management 100.0% n.a. n.a. n.a. -0.20 n.a. n.a.
Healthcare services Daye Non-ferrous Hospital Mgmt
Hospital management 75.0% n.a. n.a. n.a. -0.01 n.a. n.a.
Distribution Humanwell Pharma (Hubei)
Pharmaceutical distribution 100.0% 2,500 n.a. 25% 25 n.a. 4%
Distribution Jiande Pharma Pharmaceutical distribution 70.0% 452 n.a. 4% 41 n.a. 7%
Non-healthcare investments
Tianfeng Securities 11.2% 3,224 190% n.a. 131 267% 23%
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.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 48 Deutsche Bank AG/Hong Kong
Figure 115: Revenue contribution (Yichang Humanwell,
as % of group revenue)
Figure 116: Profit contribution (Yichang Humanwell,
as % of group profit)
36%
29%26%
28%26%
21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2010 2011 2012 2013 2014 2015
69%76% 78% 80%
76%
62%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2010 2011 2012 2013 2014 2015
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 117: Revenue and net profit of Yichang
Humanwell (2010-2015)
Figure 118: Net profit margin of Yichang Humanwell
(2010-2015)
0%
10%
20%
30%
40%
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013 2014 2015
Revenue Net profit
Revenue YoY Net profit YoYRMB m
29% 30%27% 28% 27%
25%
0%
5%
10%
15%
20%
25%
30%
35%
2010 2011 2012 2013 2014 2015
Yichang Humanwell
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 119: Revenue for analgesics and anesthetics
(2011-2015)
Figure 120: Contribution from analgesics and anesthetics
(2012-2015)
0%
5%
10%
15%
20%
25%
30%
35%
0.0
0.5
1.0
1.5
2.0
2011 2012 2013 2014 2015
Analgesics and anesthetics YoYRMB bn
77%
80%
84%
87%
72%
74%
76%
78%
80%
82%
84%
86%
88%
2012 2013 2014 2015
Analgesics and anesthetics as % of revenue of Yichang Humanwell
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 49
Figure 121: Sales breakdown of analgesics and
anesthetics franchise (2015)
Figure 122: Shareholding of Yichang Humanwell
6%
33%
57%
4%
Fentanyl
Remifentanil
Sufentanil
Others
67%
20%
13%
Humanwell
Sinopharm CNCM
M anagement of
Yichang
Humanwell
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
We summarize the major CNS drugs in Figure 123.
Figure 123: Major CNS drugs of Yichang Humanwell
Drug Name (EN) Drug Name (CN) Drug Class Therapeutic class Reimbursement Competitors
Fentanyl Citrate 枸橼酸芬太尼注射液 Class 6 Analgesics EDL Nhwa Pharma, Sinopharm CNPIC
Remifentanil 注射用盐酸瑞芬太尼 Class 2 Analgesics NRDL category B Nhwa Pharma, Sinopharm CNPIC
Sufentanil Citrate 枸橼酸舒芬太尼注射液 Class 3 Analgesics NRDL category B IDT Biologika GmbH
Hydromorphone Hydrochloride 盐酸氢吗啡酮注射液 Class 3 Analgesics None Janssen, Qinghai Pharma
Nalbuphine Hydrochloride 盐酸纳布啡注射液 Class 3 Analgesics None None
Midazolam Injection 咪达唑仑注射液 Class 6 Anesthetic Adjunct EDL for injection; NRDL category B
for oral formula
Nhwa Pharma, Novartis, Roche and another 5 companies
Source: Deutsche Bank, Company data
We highlight that the price trend for the fentanyl series has been largely stable
for Humanwell in the past few years. If we compare the prices of different
products on the same potency basis, we would find that the prices of newly
launched sufentanil and remifentanil are 2.3x and 1.9x the price of fentanyl, as
sufentanil and remifentanil have more benefits, like faster onset and better
recovery.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 50 Deutsche Bank AG/Hong Kong
Figure 124: Price trends of fentanyl, sufentanil and
remifentanil (rebased)
Figure 125: Price for the same potency as 100ug fentanyl
95
96
97
98
99
100
101
102
103
Fentanyl Sufentanil Remifentanil
0 2 4 6 8 10
Remifentanil
Sufentanil
Fentanyl
Price for same potency (100 ug fentanyl)
RMB
Source: Deutsche Bank, CPA
Source: Deutsche Bank, CPA
Pipeline products
The company is expanding its products from analgesics to anesthetics. There
are four major pipeline products for Yichang Humanwell and three of them are
anesthetics. We believe the sales of the three products will ramp up quickly by
leveraging the existing sales team, as anesthetics and analgesics are mainly
used in surgeries and targeted at similar departments in hospitals. We
highlight that the anesthetic market is the third largest category in the CNS
market. It posted a CAGR of 11% from 2012 to 2015, achieving approximately
RMB6.8bn sales in 2015
Figure 126: Pipeline summary of CNS drugs for Humanwell
Registration Chemical name (EN) Chemical name (CN) Class Category Status Date
CYHS1501503 Dexmedetomidine 盐酸右美托咪定注射液 6 Anesthetic Pending manufacturing approval 5/11/2016
CYHS1401832 Levobupivacaine hydrochloride 盐酸左布比卡因注射液 6 Anesthetic Pending manufacturing approval 5/29/2015
CYHS1401390 Midazolam maleate 马来酸咪达唑仑片 6 Anesthetic Pending manufacturing approval 3/26/2015
CYHS1401119 Levetiracetam 左乙拉西坦片 6 Anti-epileptics Pending manufacturing approval 12/23/2014
CYHS1400876 Propofol 丙泊酚中/长链脂肪乳注射液 6 Anesthetic Pending manufacturing approval 12/19/2014
CYHS1400247 Etomidate 依托咪酯 6 Anesthetic Pending manufacturing approval 9/15/2014
CYHS1301897 Mirtazapin 米氮平片 6 Antidepressant Pending manufacturing approval 6/11/2014
CXHS1300003 Alfentanil 盐酸阿芬太尼注射液 3.1 Analgesics Pending manufacturing approval 3/10/2016
CXHL1400786 Oxycodone and ibuprofen 布洛羟考酮片 3.2 Analgesics Clinical trial ongoing 3/17/2016
CXHL1400483 Nalbuphine hydrochloride 盐酸纳布啡注射液 3.4 Analgesics Clinical trial ongoing 3/10/2016
CXHL0800018 Fospropofol 磷丙泊酚钠 1.1 Anesthetic Clinical trial ongoing (Phase III) 8/31/2009
CXHL1301412 Remimazolam 注射用苯磺酸瑞马唑仑 1.1 Anesthetic Clinical trial ongoing (Phase I) 6/17/2015
CXHL0700084 Buprenorphine Hydrochloride 复方盐酸丁丙诺啡舌下片 3.2 Others Clinical trial ongoing (Phase II) 11/28/2008
CXHL1501957 Methylphenidate hydrochloride 盐酸苏右旋哌甲酯缓释胶囊 3.1 Others Pending clinical trial approval 1/14/2016
CXHL1401726 Acetaminophen 对乙酰氨基酚注射液 3.3 Analgesics Pending clinical trial approval 6/1/2016
Source: Deutsche Bank; Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 51
Wuhan Humanwell – CNS drugs
Wuhan Humanwell is mainly engaged in developing and manufacturing CNS
drugs. The company achieved revenue of RMB234m with growth of 23% in
2015, and realized net profit of RMB68m with growth of 187%. It contributed
2% of total revenue and 12% of net profit for Humanwell in 2015. Net margin
was 29% in 2015, vs. 12% in 2014. We believe the net margin expansion is
due to a one-time gain of RMB30m from the disposal of an old facility, as well
as improvement in operating leverage.
Figure 127: Revenue contribution (Wuhan Humanwell,
as % of group revenue)
Figure 128: Profit contribution (Wuhan Humanwell, as %
of group profit)
3%
2% 2%2%
3%
2%
0%
1%
1%
2%
2%
3%
3%
4%
2010 2011 2012 2013 2014 2015
3%4%
5% 5%5%
12%
0%
2%
4%
6%
8%
10%
12%
14%
2010 2011 2012 2013 2014 2015
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 129: Revenue and net profit of Wuhan Humanwell Figure 130: NPM of Wuhan Humanwell
0%
50%
100%
150%
200%
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015
Revenue Net profit
Revenue YoY Net profit YoYRMB m
12% 13% 13%15%
12%
29%
0%
5%
10%
15%
20%
25%
30%
35%
2010 2011 2012 2013 2014 2015
Wuhan Humanwell
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 52 Deutsche Bank AG/Hong Kong
The company currently has 62 product approvals and 22 are in NRDL. We
summarize the major existing products in Figure 131.
Figure 131: Flagship CNS products of Wuhan Humanwell
Drug name (EN) Drug name (CN) Therapeutic class Reimbursement status
Deproteinized calf blood 小牛血去蛋白注射液 Improve brain blood supply
NRDL category B
Oxcarbazepine 奥卡西平 Anti-epilepsy NRDL category B
Ibuprofen Suspension 布洛芬混悬液 Analgesics N/A
Doxofylline Injection 注射用多索茶碱 Asthma and COPD NRDL category B
Urokinase Injection 注射用尿激酶 Thrombolytic NDRL category A
Octreotide Acetate Injection 醋酸奥曲肽注射液 Endocrine metabolic agent N/A
Source: Deutsche Bank, Company data
PuraCap Pharmaceutical – generics and OTC export
PuraCap Pharma generated revenue of RMB200m in 2015, representing YoY
growth of 184%. It contributed 2% of total revenue for Humanwell in 2015 and
is still loss-making. The company was a US joint venture formed between
Humanwell and Enspire Group, a US pharmaceutical company, in Dec 2008.
Humanwell currently holds an 80% stake in PuraCap Pharma.
Figure 132: Revenue contribution (PuraCap, as % of
group revenue)
Figure 133: Profit contribution (PuraCap, as % of group
profit)
1%
1%
2%
0%
1%
1%
2%
2%
3%
2013 2014 2015
-6%
-7%
-3%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
2010 2011 2012
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
PuraCap Pharma is primarily engaged in OTC and prescription products in the
US.
At the end of 2012, the company spent USD18.5m to acquire
EpiCeram, a patent prescription product for the treatment of various
types of dermatoses. In April 2015, it obtained marketing approval for
EpiCeram in China. We highlight that this is a high-margin product.
In addition, the company markets a broad line of OTC soft gels for the
treatment of cough/cold, pain relief, insomnia, etc., under store
brands/private labels, with partners including Wal-Mart, CVS, DollarTree,
Perrigo and LNK. PuraCap Wuhan, a USFDA GMP-compliant facility, is
mainly responsible for the manufacturing of soft gels.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 53
Figure 134: Revenue of PuraCap US (2013-2015) Figure 135: Net profit of PuraCap US (estimate)
0%
50%
100%
150%
200%
(60)
(10)
40
90
140
190
240
2013 2014 2015
Revenue Revenue YoYRMB m
-60
-50
-40
-30
-20
-10
0
2013 2014 2015
Net profit RMB m
Source: Deutsche Bank estimate, Company data
Source: Deutsche Bank estimate, Company data
Different export business model to Hengrui and Huahai
Compared with the major players, including Hengrui, Huahai and Hisun, we
highlight that Humanwell expands its export business mainly through
external sources, including acquiring ANDA approvals from overseas
companies and sourcing APIs from domestic companies. We believe this
strategy should save both cost and time by avoiding large investments in API
facilities, and help Humanwell quickly become a leading player in the export
business.
Existing ANDA approvals
PuraCap Pharma currently has one ANDA approval. In addition, Humanwell
has more than 40 products in its pipeline targeting ANDA approval. We
provide the details of the existing ANDA approval in Figure 136.
Figure 136: Existing ANDA approval for PuraCap
Application No.
Approved date
Drug name (EN) Drug Name (CN)
Indications Comments
A206855 Nov-15 Memantine Hydrochloride 盐酸美金刚 Moderate to severe Alzheimer’s disease
First self-obtained ANDA approval for Humanwell. 17 manufacturers in the US.
Source: Deutsche Bank, Company data
Expanding in the US through the acquisition of Epic Pharma
On 30 March 2016, Humanwell announced its plan to acquire a 100% share of
Epic Pharma and Epic RE Holdco with cash of USD550m in total, to be funded
by bank loans and corporate bonds. The deal was closed at the end of May
2016. We believe this deal will expand the presence of Humanwell in the US
generics market.
Epic Pharma is primarily engaged in developing and manufacturing generic
prescription drugs and contract manufacturing. With about 15 generic drugs
marketed in the US, the company generated revenue and net profit of
RMB734/361m in 2015, representing YoY growth of 90% and 443%
respectively. NPM stood at 49% in 2015, compared with 17% in 2014. Epic
Pharma has around 37 products in its pipeline, covering narcotic analgesics,
nervous diseases, hypertension, etc. Ten of these have already applied for
ANDA.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 54 Deutsche Bank AG/Hong Kong
We summarize the 17 ANDA approvals that Epic Pharma owns in Figure 137.
Figure 137: ANDA approvals for Epic Pharma
Approval 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.
A076835 Nov-05 Flavoxate Hydrochloride 盐酸黄酮哌酯 Symptomatic relief of dysuria, urgency, nocturia, suprapubic pain
2 manufactures in the US.
A077070 Nov-05 Sotalol Hydrochloride 盐酸索他洛尔 Arrhythmia 11 manufactures in the US.
A078508 Jun-08 Trandolapril 群多普利 Hypertension 8 manufactures in the US.
A078552 Apr-09 Amlodipine Besylate 苯磺酸氨氯地平 Hypertension 30 manufactures in the US.
A200294 Apr-12 Meclizine Hydrochloride 盐酸美克洛嗪 An antihistamine to treat nausea, vomiting, and dizziness
7 manufactures in the US.
A202220 Nov-12 Protriptyline Hydrochloride 盐酸伪麻黄碱片 Depression 4 manufactures in the US.
A202333 Mar-14 Sodium Polystyrene Sulfonate 聚磺苯乙烯钠 To treat high potassium levels in the blood 10 manufactures in the US.
A065447 Aug-15 Demeclocycline Hydrochloride 盐酸地美环素 Bacterial infections 4 manufactures in the US.
A202662 Sep-15 Oxycodone Hydrochloride 盐酸羟考酮 A narcotic analgesic for moderate to severe pain Controlled substance. 24 manufactures in the US.
A090346 Dec-15 Benzphetamine Hydrochloride 盐酸苄非他明 Obesity 7 manufactures in the US.
Source: Deutsche Bank, FDA
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 55
Healthcare services
By leveraging a strong relationship with the local government in its home
province of Hubei, Humanwell became actively involved in public hospital
reform from 2014. The company has so far signed initial agreements with 10
public hospitals in Hubei. It mainly focuses on PPP models with local
governments, providing management services and building new facilities for
public hospitals. Humanwell is aiming to establish partnerships with 20
hospitals by YE2016 and 50 by 2020.
The company has elaborated on its strategies for the long-term development of
the hospital business.
At the initial stage, the company will mainly focus on the PPP model
with local governments, providing management services, building new
facilities and taking over the supply chain for hospitals. We expect
minimal capital spending for the company at this stage.
Later, the company will build for-profit centers near the hospitals, such
as postpartum services. We expect moderate capital spending for the
company at this stage.
Finally, the company will build for-profit hospitals to provide premium
services such as in-vitro fertilization (IVF). We expect moderate to high
capital spending at this stage.
In addition, the company is utilizing innovative methods to become involved in
healthcare industry investment, such as setting up an investment PE fund with
other partners. We summarize healthcare-related investments in Figure 138.
Figure 138: Healthcare service-related investments
Company / Fund Name Date Comments
Wuhan Humanwell Healthcare Service Group
Sep-15 Humanwell invested RMB500m to set up a whole subsidiary, as the investment and
management arm of healthcare services.
Yijian Xinghe Investment Fund Dec-15 Humanwell invested RMB50m to obtain a 12.5% share of the fund. The fund is
focusing on investment in biological drugs and innovative healthcare services.
Yangtze River Humanwell Industrial Fund May-16 Humanwell signed an unbinding framework agreement with SOEs and private
companies to set up a PE fund to invest in healthcare industry. The fund size should
not exceed RMB5bn.
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 56 Deutsche Bank AG/Hong Kong
We provide a list of hospitals that are already under agreements with
Humanwell in Figure 139.
Figure 139: Existing hospital portfolio of Humanwell
Hospital Name Class Date of agreement
Capital required (RMB m)
Revenue (2015E, RMB m)
Number of beds
Business model Content of agreement Mgmt contract
status
Zhongxiang People's Hospital
Tier 1 14-Aug 200 242 1,050 IOT+ brown-field projects
Humanwell plans to invest RMB200m to set up a wholly-owned management
company, providing management services and building new facilities for
the hospital.
Started
Laohekou First Hospital
Tier 2 14-Dec 200 120 460 IOT+ brown-field projects
Humanwell plans to invest RMB200m to set up a wholly-owned management
company, providing management services and building new facilities for
the hospital.
Started
Xiaonan Maternity and Child Health Hospital
Tier 2 15-Sep 150 9 107 PPP Humanwell plans to set up a management company, providing
management services for the hospital.
Started
Huangshi Daye Non-ferrous Metal Hospital
Tier 2 15-Sep 106 70 360 PPP Humanwell acquired a 75% share of Huangshi Daye Non-ferrous Metal
Hospital Management Company at a cost of RMB106.4m.
Started
Yichang Maternity and Child Health Hospital
Tier 1 15-Oct 500 89 110 PPP+ brown-field projects
Humanwell plans to invest RMB500m to set up a management company,
providing management services and building new facilities for the hospital.
Humanwell will own a 66% equity share of the company.
In progress
Linan TCM Hospital Tier 2 15-Dec 420 50 250 PPP+ brown-field projects
Humanwell plans to set up a management company with Guorui
Healthcare (Linan TCM hospital), a local SOE, to build new facilities for Linan
TCM hospitals. Humanwell will own a 70% share.
In progress
Zhongxiang Maternity and Child Health Hospital
Tier 2 15-Dec N/A 70 85 PPP+ brown-field projects
Humanwell plans to set up a management company, providing
management services for the hospital and building new facilities. Humanwell
will own no less than a 51% share.
Yet to start
Zhongxiang TCM Hospital
Tier 1 16-Jan N/A 130 680 PPP Humanwell plans to set up a management company, providing
management services for the hospital. Humanwell will own no less than a 51%
share.
Yet to start
Jingzhou Second Hospital
Tier 2 16-Feb N/A 180 703 PPP+ brown-field projects
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 57
Zhongyuan Ruide – PDTs
Zhongyuan Ruide generated revenue and net profit of RMB184m and RMB42m
in 2015, representing YoY growth of 31% and -5% respectively. It contributed
2% of total revenue and 7% of total net profit for Humanwell in 2015. Net
profit margin was 23% in 2015, compared with 31% in 2014 and 36% in 2013.
We attribute the margin erosion to increased investment in plasma stations,
facility relocation, as well as higher R&D costs in factor VIII.
Figure 140: Revenue contribution (Zhongyuan Ruide,
as % of group revenue)
Figure 141: Profit contribution (Zhongyuan Ruide, as %
of group profit)
2% 2%
2%
2%2%
0%
1%
1%
2%
2%
3%
2011 2012 2013 2014 2015
5%
11%
13%
10%
7%
0%
2%
4%
6%
8%
10%
12%
14%
2011 2012 2013 2014 2015
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 142: Revenue and net profit of Zhongyuan Ruide Figure 143: NPM of Zhongyuan Ruide
-50%
0%
50%
100%
150%
200%
0
50
100
150
200
2011 2012 2013 2014 2015
Revenue Net profit
Revenue YoY Net profit YoYRMB m
18%
36% 36%
31%
23%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2011 2012 2013 2014 2015
Zhongyuan Derui
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Humanwell currently holds a 100% share of Zhongyuan Ruide, after three
separate acquisitions in 2010, 2011, and 2013. We summarize the details in
Figure 144.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 58 Deutsche Bank AG/Hong Kong
Figure 144: Acquisitions of Zhongyuan Ruide
Time Stake acquired
Acquisition price (RMB m)
Total valuation (RMB m)
Implied 12m forward P/E
First acquisition Dec-10 70% 164.3 235 18.6x
Second acquisition Jun-11 15% 35.2 235 9.6x
Third acquisition Feb-13 15% 52.5 350 7.0x Source: Deutsche Bank estimates, Company data
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. The company collected around
100 tons of plasma in 2015 and expects 20% growth for plasma collection
volume in 2016.
Figure 145: 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
The company has six products on the market, including 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 regulation
in the plasma industry.
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 utilization of plasma
and hence higher margins for plasma companies.
Beijing Baron Medical – IVD
Beijing Baron is the second-largest contributor to Humanwell, generating 8%
of total revenue and 27% of net profit pot minorities in 2015. The company
realized revenue and net profit of RMB8.52/1.91bn, representing YoY growth
of 11%/14% in 2015, compared with 23%/12% in 2014. Net margin was 22%
in 2015, the same as in 2014.
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 59
Figure 146: Revenue contribution (Beijing Baron Medical,
as % of group revenue)
Figure 147: Profit contribution (Beijing Baron Medical,
as % of group profit)
5%
10%11%
8%
0%
2%
4%
6%
8%
10%
12%
2012 2013 2014 2015
18%
30%31%
27%
0%
5%
10%
15%
20%
25%
30%
35%
2012 2013 2014 2015
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
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
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
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.
Figure 151: Revenue contribution (Gedian Humanwell,
as % of group revenue)
Figure 152: Profit contribution (Gedian Humanwell, as %
of group profit)
6% 6%
8%
7%
5%
4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2010 2011 2012 2013 2014 2015
10%
9%9%
8%
0%
3%
-2%
0%
2%
4%
6%
8%
10%
12%
2010 2011 2012 2013 2014 2015
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
Figure 153: Revenue and net profit of Gedian Humanwell Figure 154: NPM of Gedian Humanwell
-150%
-100%
-50%
0%
50%
100%
150%
(50)
50
150
250
350
450
2010 2011 2012 2013 2014 2015
Revenue Net profit
Revenue YoY Net profit YoYRMB m
23%
14%
9% 9%
-1%
4%
-5%
0%
5%
10%
15%
20%
25%
2010 2011 2012 2013 2014 2015
Gedian Humanwell
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 61
We summarize the major existing products in Figure 155.
Figure 155: Existing products of Gedian Humanwell
Drug Name (EN) Drug Name (CN)
Brand Name (EN) Brand Name (CN)
Indication Comments
Mifepristone 米非司酮 Hua Dian; Bi Yun 华典; 碧韵 To terminate a pregnancy within 49 days Market share of 5.73% in 2015
Compound Mifepristone 复方米非司酮 Zi Yun 紫韵 To terminate a pregnancy within 49 days An exclusive product, with 100% market share in 2015.
Misoprostol 米索前列醇片 Hua Dian 华典 To reduce risk of stomach ulcers from taking nonsteroidal anti-inflammatory
drugs
Levonorgestrel 左炔诺孕酮胶囊 Ai Wu You 艾无尤 To prevent pregnancy by preventing or delaying ovulation
Finasteride 非那雄胺 N/A N/A To treat benign prostatic hyperplasia (BPH)
Cyproterone acetate 醋酸环丙孕酮 N/A N/A The palliative treatment of patients with advanced prostatic carcinoma
Budesonide 布地奈德 N/A N/A To treat inflammatory bowel disease and asthma
Progesterone 黄体酮 N/A N/A To treat amenorrhea and abnormal uterine bleeding
Source: Deutsche Bank, Company data
Gedian Humanwell is also exploring opportunities in exports of APIs in the US.
We summarize the details of the active DMF list for Humanwell in Figure 156.
Figure 156: Active DMFs of Humanwell, as of 1Q16
Drug Name (EN) Drug Name (CN) Description DMF# Submit Date Holder
Finasteride 非那雄胺 A type of steroid reductase inhibitor, decreasing the amount of a hormone called dihydrotestosterone
25056 6/17/2011 Gedian Humanwell
Dutasteride 度他雄胺 A 5 alpha-reductase enzyme inhibitor, lowering levels of a hormone called dihydrotestosterone
26803 1/9/2013 Gedian Humanwell
16Alpha-Hydroxyprednisolone
16Α-羟基-泼尼松龙 Intermediate for prednisolone 27423 8/26/2013 Gedian Humanwell
Progesterone 黄体素 Progestogen 27668 11/1/2013 Gedian Humanwell
Dutasteride Acid 度他雄胺酸 A 5 alpha-reductase enzyme inhibitor, lowering levels of a hormone called dihydrotestosterone
27763 12/16/2013 Gedian Humanwell
Medroxyprogesterone Acetate
醋酸甲羥孕酮 Progestogen 27995 2/24/2014 Gedian Humanwell
Dihydrofinasteride 二氢波斯卡 Intermediate for finasteride 29764 9/20/2015 Gedian Humanwell
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 62 Deutsche Bank AG/Hong Kong
Company profile
Company background and history
Figure 157: Corporate and shareholding structure
12.00% 10.00%
Drug manufacturing
IVD
Beijing
Baron
Medtech
Hangzhou
Nuojia
Medtech
Humanwell Pharma
(600079.SH)
Yichang
Humanwell
Gedian
Humanwell
Wuhan
Humanwell
Xinjiang
Uyghur
Medicine
Zhongyuan
Ruide
Humanwell
PuraCap
(Wuhan)
PuraCap
Pharmaceutical
LLC
Export
Humanwell
Zhongxiang
Laohekou
Humanwell
Wuhan
Hongsheng
Healthcare service
Wuhan Modern Hi-tech Industrial
24.88% 12.35%
Wuhan Jiuheng Investment Ltd.Ai Luming Zhou Hansheng Zhang Xiaodong Zhang Xiaodong Wang Xuehai
28.21% 14.00% 10.00%
8.82%8.82%10.58%
11.81%
24.49%
100%
81.1%
100% 80% 75% 51%100% 100%
67% 98.3%
70.7%
80%
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 63
Management profile
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
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
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.
Source: Deutsche Bank, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 65
Financials
Figure 160: Income statement
Income Statement (RMB millions) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Revenue 2,205 3,621 5,317 6,010 7,052 10,054 12,976 16,467 20,128
As % of full year
COGS (1,180) (2,135) (3,199) (3,515) (4,138) (6,400) (8,179) (10,292) (12,580)
Gross profit 1,025 1,487 2,118 2,495 2,914 3,654 4,797 6,175 7,548
Selling expenses (417) (577) (836) (1,030) (1,265) (1,609) (2,022) (2,519) (3,080)
General and administrative expenses (198) (289) (415) (532) (626) (847) (1,105) (1,400) (1,791)
Business Taxes and Surcharges (33) (66) (108) (44) (52) (63) (83) (99) (121)
EBIT 377 556 759 890 972 1,136 1,588 2,157 2,556
Depreciation and amortization 43 62 89 127 165 254 414 520 618
EBITDA 421 618 848 1,017 1,137 1,390 2,002 2,677 3,175
Impairments (6) (11) (45) 3 (33) (52) (12) (30) (75)
Other income 22 38 86 46 44 107 63 82 81
Other expenses (7) (28) (21) (19) (17) (19) (13) (33) (60)
Others (1)
Net interest expense (18) (50) (83) (149) (143) (100) (266) (365) (374)
Income before income taxes and minority interests - reported368 506 696 770 821 1,072 1,360 1,812 2,128
Taxation as reported (64) (76) (133) (169) (186) (219) (264) (362) (434)
Net income after tax 304 429 563 601 636 853 1,096 1,450 1,694
Minority interests (88) (129) (157) (183) (184) (199) (252) (333) (396)
Net income attributable to Equity holders 216 300 406 418 452 654 844 1,116 1,297
Core Net income attributable to Equity holders 206 274 331 396 427 565 836 1,116 1,297
EPS: Basic (CNY) 0.19 0.26 0.36 0.36 0.39 0.52 0.66 0.79 0.92
EPS: Diluted (CNY) 0.19 0.26 0.36 0.36 0.39 0.52 0.66 0.79 0.92
Core EPS: Basic (CNY) 0.18 0.24 0.29 0.33 0.36 0.45 0.65 0.79 0.92
Core EPS: Diluted (CNY) 0.18 0.24 0.29 0.34 0.36 0.45 0.65 0.79 0.92 Source: Deutsche Bank estimates, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Page 66 Deutsche Bank AG/Hong Kong
Figure 161: Revenue model
Revenue 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
CNS drugs 648 863 1,202 1,496 1,719 2,034 2,429 2,874 3,374
yoy 33.2% 39.3% 24.5% 14.8% 18.4% 19.4% 18.3% 17.4%
% of total revenue 29% 24% 23% 25% 24% 20% 19% 17% 17%
Plasma derived therapeutics 69 101 142 141 184 226 278 342
yoy na 47.3% 40.0% -0.6% 30.5% 23.0% 23.0% 23.0%
% of total revenue 2% 2% 2% 2% 2% 2% 2% 2%
Other drugs 526 781 1,177 1,232 1,203 1,556 1,895 2,291 2,751
yoy 48.5% 50.8% 4.7% -2.4% 29.3% 21.8% 20.9% 20.1%
% of total revenue 24% 22% 22% 21% 17% 15% 15% 14% 14%
IVD 252 626 814 1,242 1,358 1,466 1,569
yoy 148.4% 30.0% 52.5% 9.3% 8.0% 7.0%
% of total revenue 5% 10% 12% 12% 10% 9% 8%
Exports 41 70 200 701 1,252 1,366
yoy na 70.0% 183.7% 250.8% 78.7% 9.0%
% of total revenue 1% 1% 2% 5% 8% 7%
Hospital services 94 325 786 1,277
yoy 245.8% 141.4% 62.6%
% of total revenue 1% 3% 5% 6%
Distribution and others 1,031 1,909 2,584 2,472 3,104 4,744 6,042 7,519 9,450
yoy 85.1% 35.4% -4.4% 25.6% 52.8% 27.4% 24.4% 25.7%
% of total revenue 47% 53% 49% 41% 44% 47% 47% 46% 47%
Total revenue 2,205 3,621 5,317 6,010 7,052 10,054 12,976 16,467 20,128
yoy 64.3% 46.8% 13.0% 17.3% 42.6% 29.1% 26.9% 22.2% Source: Deutsche Bank estimates, Company data
Figure 162: Cash flow statement
Cash flow statement (RMB m) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Net income 304 429 563 601 636 853 1,096 1,450 1,694
Adjustments:
Depreciation 39 51 69 100 137 215 393 499 598
Amortization 4 11 20 27 28 38 21 21 21
Finance cost 41 78 136 167 180 242 266 365 374
Others (16) (13) (3) (17) 2 (123) - - -
Net change in working capital (262) (462) (613) (381) (481) (914) (1,001) (1,249) (1,205)
Inventories (87) (276) 76 (155) (343) (581) (589) (622) (647)
Accounts receivable (337) (357) (815) (310) (678) (608) (620) (768) (697)
Accounts payable 163 160 112 71 535 275 161 85 81
Others - 11 14 13 5 - 47 56 58
Cash flow operating activities 111 94 172 498 503 311 775 1,085 1,481
Payment for property, plant and equipment (297) (560) (805) (911) (897) (829) (1,231) (1,484) (1,736)
Cash from investment returns 12 3 1 7 7 37 - - -
Proceeds from sale of property, plant and equipment 1 0 1 1 2 1 - - -
Cash from investments 183 7 550 85 51 - - - -
Cash for investments (246) (231) (134) (528) (284) (626) (3,575)
Others (136) (40) (320) (24) 65 (775)
Net cash used in investing activities (483) (821) (706) (1,369) (1,056) (2,193) (4,806) (1,484) (1,736)
Dividend, profit and interest paid (130) (141) (333) (337) (396) (548) (209) (279) (324)
Proceeds from loans 1,193 1,797 2,554 3,427 3,377 3,859 5,000 1,000 1,000
Repayment of bank loans (820) (1,145) (2,143) (3,007) (2,615) (4,081) (1,500) (1,000) (1,000)
Cash from capital raising 2 519 31 1,027 161 2,573 - 2,572 -
Others (75) 605 13 196 839 (266) (365) (374)
Net cash generated from (used in) financing activities 245 954 714 1,123 723 2,642 3,025 1,928 (698)
Net increase (decrease) in cash and cash equivalents (127) 228 180 252 169 761 (1,005) 1,530 (953)
Effect of exchange rate changes on cash (1) (1) (3) (3) 0 3 - - -
Cash and cash equivalents at end of year 466 693 871 1,121 1,290 2,053 1,047 2,577 1,624 Source: Deutsche Bank estimates, Company data
20 June 2016
Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 67
Figure 163: Balance sheet
Balance sheet (RMB m) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Assets
Cash and cash equivalents 466 768 938 1,206 1,480 2,411 1,406 2,936 1,982
Accounts receivable 428 781 1,332 1,901 2,497 3,778 4,398 5,166 5,863
Inventories 632 930 757 910 1,251 1,722 2,311 2,933 3,581
Others 753 1,027 1,488 1,296 1,112 1,413 1,413 1,413 1,413
Current assets 2,278 3,506 4,515 5,313 6,340 9,325 9,528 12,448 12,839
Property, plant and equipment, net 427 691 1,196 1,630 2,152 3,933 4,992 5,977 7,115
Construction in progress 128 274 342 560 783 576 576 576 576
Construction assets 83 89 91 144 281 142 142 142 142
Intangible assets 176 285 441 580 669 821 800 779 759
Goodw ill 151 167 828 847 959 1,380 4,733 4,733 4,733
Others 986 1,159 448 633 982 1,976 1,976 1,976 1,976
Non current assets 1,950 2,664 3,346 4,394 5,827 8,827 13,219 14,183 15,301
Total assets 4,228 6,170 7,861 9,707 12,167 18,152 22,747 26,630 28,139
Equity and Liabilities
Short-term bank loans, including current portion of long-term bank loans917 1,072 1,382 1,304 2,288 3,735 3,235 3,235 3,235
Accounts payable 180 355 486 687 978 1,488 1,649 1,734 1,816
Others 745 1,337 1,305 1,448 1,335 1,879 1,925 1,981 2,040
Current liabilities 1,842 2,764 3,173 3,439 4,601 7,102 6,810 6,951 7,090
Long-term bank loans, excluding current 34 227 367 459 439 951 4,951 4,951 4,951
Bonds - - 598 599 1,199 600 600 600 600
Deferred income - - - - 194 310 310 310 310
Other liabilities 24 41 73 129 6 7 7 7 7
Non current liabilities 58 267 1,038 1,187 1,839 1,868 5,868 5,868 5,868
Total liabilities 1,901 3,031 4,212 4,627 6,439 8,970 12,678 12,819 12,958
Shareholders’ equity: - - - - -
Common stock 472 493 493 529 529 1,286 1,286 1,415 1,415
Capital reserves 737 1,131 1,132 2,047 2,033 3,872 3,872 6,316 6,316
Surplus 105 125 160 167 180 204 204 204 204
Retained earnings 639 900 1,237 1,598 1,974 2,507 3,143 3,980 4,953
Others (0) (0) (1) 1 7 11 11 11 11
Minority interests 375 488 627 738 1,005 1,301 1,553 1,887 2,283
Total equity 2,328 3,139 3,650 5,080 5,728 9,182 10,069 13,812 15,181
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
Pharmaceuticals / Biotechnology
Humanwell Healthcare
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
Pharmaceuticals / Biotechnology
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
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20 June 2016
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Page 70 Deutsche Bank AG/Hong Kong
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Pharmaceuticals / Biotechnology
Humanwell Healthcare
Deutsche Bank AG/Hong Kong Page 71
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Humanwell Healthcare
Page 72 Deutsche Bank AG/Hong Kong
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