Yesterday I started digging in to Matt McCall’s tease about a huge opportunity in Chinese biotech… and, as promised, today I’m finishing the job.
The basic premise is that China is pushing to make biopharma a bigger part of its economy in both the current five-year plan and the “made in China 2025” plan, and that will keep pushing a lot of money into companies who are both licensing in drugs to treat serious health issues in China, and those who are doing their own R&D to try to build up a pipeline of China-created treatments. You can click here for part one and the “#1 Biotech” pitched by McCall, but today we’re digging in to try to identify the other three stocks he dangles.
Ready? OK, let’s just jump right in with the first clues…
“Biotech Firm #2
“This next opportunity is LITERALLY the first biotech company to go public 14 months ago under the new exchange laws….
“… they struck a deal with pharmaceutical giant Roche for exclusive rights to sell and market several drugs to mainland China.
“Why all the attention?
“Because this company’s area of expertise is developing groundbreaking treatments for hepatitis.”
And apparently Hepatitis is a huge problem in China…
“In 2018, just 3.5% of infected people in the country were treated, which means 96.5% of the entire population received NO medical attention for this completely manageable disease!
“That spells massive upside for this little-known stock…
“It has already successfully developed and launched innovative drugs that combat hepatitis B, hepatitis C and HIV.
“Right now, this company trades for just a few dollars per share.
“And you can bet all that will change if the Chinese government gets behind it to tackle this nationwide pandemic.
“Just a tiny stake today could mean massive upside potential over the next six to 12 months.”
That’s Ascletis Pharma (1672 in Hong Kong, there’s an OTC ticker at ASCLF OTC in the US but it does not actually have any trading volume, so it would be much better to buy in Hong Kong if you’re interested), which did indeed go public last August in Hong Kong, under the new guidelines that were put into place a few months earlier to encourage fundraising for earlier stage companies (before the new rules, the Hong Kong Stock Exchange didn’t list unprofitable companies who have no revenue — which would almost always mean “no biotechs”).
And yes, they do focus on liver diseases, with their initial drugs licensed in from Roche and a pipeline that also includes early stage clinical trials for NASH and liver cancer, almost all of which are also licensed in from other companies. The stock has not done well so far, it’s down about 60% from the IPO.
There was a good story on Ascletis’ ambitions (and challenges) in July from the FT, and the sharp drop in the share price immediately after the IPO last year caught some attention.
Their licensed-in drugs from Roche do not yet generate much revenue, I have no idea what the potential might be of those or their other drugs… but, thanks to the IPO last year, they are at least well-funded to move forward with their R&D (as of June, about CNY 2.70 per share in cash) — that makes it seem like a relatively low-risk bet, since the share price is about HK$4, which translates to CNY 3.59, though it’s dangerous to think about “book value” of biotech companies since they are, of course, going to be spending all that money and more before (if) they really become sustainably profitable. But well-funded is good, these Chinese biotechs do seem to trade at a discount to their US peers, perhaps partly because Asian investors aren’t used to putting a rich valuation on R&D companies, and you can make your own call on whether or not the pipeline and potential is appealing to you.
You can see the interim report for the first half of 2019 here for more detail (like many overseas firms, they report twice a year instead of quarterly). There was also a little insider buying from the founder last week, though it was a relatively small purchase and the executives already own more than 50% of the company.
“Biotech Firm #3Are you getting our free Daily Update
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“The third company I’m excited about shares a lot of the same aspects as the first two…
“They have a world-class management team and the founder basically pioneered biopharmaceutical innovation in China for autoimmune and infectious diseases.
“And it too has signed exclusive partnerships with massive U.S. biotech companies like Bristol-Myers Squibb.
“It might have the most impressive pipeline out of the bunch and it currently has seven different drugs in phase 3 trials.”
OK, that’s probably not quite enough clues… anything else?
“But what makes this company truly unique is its focus on licensing drugs.
“Even though it creates its own innovative drugs, it has also secured license agreements and exclusive selling rights in China for some of the biggest household name drugs in the world….
“Big financial research firms are already calling this company the gateway to treating China’s massive 1.4 billion people.