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19July2017HealthCareChinaHealthcareHealthCareHealthCareIndustryUpdateAsiaChinaHongKongIndustryChinaHealthcareDate19July2017DeutscheBankMarketsResearch36drugsincludedinNRDLthroughnegotiationImpact:newadditionstobenefitclearly;azerosumgameWebelieveall36newadditionsarelikelytobenefitfromsignificantvolumegrowthacceleration,whileindustryexpertsexpect2-4xupsidedependingonthemagnitudeofexistingcoverageonPRDL.Wehighlightthefollowing:■HengruiandCMSshouldbenefitfromthenewadditionsaswell.WekeepapatinibestimatesunchangedaswehavealreadyassumedNRDLinclusion,whileweincreaseourXinhuosuestimatefor2018by34%.■WealsobelievetheinclusionofSeroquelispositiveforHCMbutnegativeforFosun,asFosunmarketsagenericversion.Also,theinclusionofVictozashouldbeslightlynegativefor3SBio.■InclusionofnumerousMNCcancerdrugs,especiallyAvastin,HerceptinandRituxan,islikelytobenegativefortheentirebiosimilarspaceasconsensusestimateswillprobablybereviseddown.ThisisnegativeforcompaniesengagedinTKIaswell.Assuch,wereduceourtopsalesestimateforanlotinibfromRMB4bntoRMB3.6bn.■Wealsohighlightthesignificancebeyondtheaforementionedquantitativemeasures.Forexample,fordomesticcompanies,itwillbeincreasinglychallengingorevenimpossibletoidentifypatientpopulations(mainly3Lmetastaticcancer)thattheyhopetoenrollforChina-specificinnovativedrugs.NRDLnegotiationresultsreleasedOnJuly19th,resultsfromNRDLnegotiationson44selecteddrugswerereleased,with36drugsincludedintheNRDLasmanufacturersagreedtopriceconcessions.Amongthese,22werefromMNCsand14fromdomesticcompanies.Onaverage,theASPerosionwas37%comparedtothemostrecenttenderASP,withAvastin/Revlimid/Tarcevaregisteringthehighestpricecutsof61%/60%/58%,respectively.JackHu,PhDResearchAnalyst+852-22036208LincYiuResearchAssociate+852-22036248ToppicksHengruiMedicine(600276.SS),CNY50.55BuySinoBiopharmaceutical(1177.HK),HKD6.85BuyUniversalMedical(2666.HK),HKD6.16BuySource:DeutscheBankCompaniesfeaturedHengruiMedicine(600276.SS),CNY50.55Buy2016A2017E2018EP/E(x)49.245.036.3EV/EBITDA(x)39.735.327.8Price/book(x)10.349.297.50SinoBiopharmaceutical(1177.HK),HKD6.85Buy2016A2017E2018EP/E(x)20.221.619.0EV/EBITDA(x)10.411.09.5Price/book(x)4.64.73.9UniversalMedical(2666.HK),HKD6.16Buy2016A2017E2018EP/E(x)9.98.46.2EV/EBITDA(x)20.320.518.6Price/book(x)1.41.21.1Source:DeutscheBankDeutscheBankAG/HongKongDeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)083/04/2017.Distributedon:19/07/201714:57:07GMT0bed7b6cf11c19July2017HealthCareChinaHealthcareSummaryoftheNRDLnegotiationresultsOfthe44drugsundernegotiation,36wereincluded,withanaverageASPcutof37%comparedtothelastesttenderprices,whileanother8drugsweredroppedfromreimbursementcoverageduetoseverepriceerosion.Accordingtothegovernment,theaveragereimbursementpricewas44%belowthe2016retaildrugpricingforthe36drugs.Notably,domesticflagshipproductsincludingAiTan(apatinib)fromHengrui,LangMu(conbercept)fromKanghongPharmaandTaiXinSheng(nimotuzumab)fromBiotechPharmawereincluded,withcutsof37%/17%/50%,respectively.Wesummarizethelistof44drugswithcorrespondingstatusasbelow:Figure1:SummaryofNRDLnegotiationresultsGenericname(CN)Genericname(EN)Drugname(EN)CompanyTypeOutcomeDosageLatesttenderASPNRDLprice%changeFulvestrantinjectionOncologyFaslodexAstraZenecaMNCIN5ml:0.25g5,4202,400-56%QuetiapinesustainedreleasetabletsCNSSeroquelAstraZenecaMNCIN50mg19.1614.68-23%TicagrelortabletsOthersBrilintaAstraZenecaMNCIN90mg11.008.45-23%SorafenibtosylatetabletsOncologyNexavarBayerMNCIN0.2g388203-48%-1bRecombinanthumaninterferon-1bforinjectionCNSBetaferonBayerMNCIN0.3mg827590-29%LapatinibditosylatetabletsOncologyTykerbGSKMNCIN0.25g11970-41%ParoxetinehydrochlorideCRtabletsCNSPaxilGSKMNCIN12.5mg7.764.59-41%SevelamercarbonatetabletsOthersRenvelaSanofiMNCIN0.8g12.608.10-36%BevacizumabinjectionOncologyAvastinRocheMNCIN4ml:100mg5,1761,998-61%ErlotinibhydrochloridetabletsOncologyTarcevaRocheMNCIN150mg460195-58%RituximabinjectionOncologyRituxan/MabTheraRocheMNCIN100mg3,7092,418-35%TrastuzumabinjectionOncologyHerceptinRocheMNCIN50ml:0.5g16,0417,600-53%LiraglutideinjectionOthersVictozaNovoNordiskMNCIN3ml:18mg723410-43%VIIaRecombinanthumancoagulationfactorVIIainjectionOthersNovoSevenNovoNordiskMNCIN1mg(50KIU)6,3505,780-9%RanibizumabinjectionOthersLucentisNovartisMNCIN1ml:10mg7,1255,700-20%EverolimustabletsOncologyAfinitorNovartisMNCIN0.2ml(10mg/ml)238148-38%LanthanumcarbonatechewabletabletsAnti-infectionFosrenolShirepharmaMNCIN0.5g20.8614.65-30%LenalidomidecapsulesOncologyRevlimidCelgeneMNCIN25mg2,7861,102-60%AbirateroneacetatetabletsOncologyZytigaJanssenMNCIN0.25g308145-53%BortezomibforinjectionOncologyVelcadeJanssenMNCIN3.5mg4,9062,344-52%TolvaptantabletsOthersSamscaOtsukapharmaMNCIN15mg16899-41%PosaconazoleoralsuspensionAnti-infectionNoxafilMerckMNCIN105ml(40mg/ml)4,9052,800-43%Ginkgolideinjec