What's new
Venus Medtech announced on December 8 a plan to acquire Israel-based Cardiovalve for an aggregate consideration of nearly US$300mn to enhance its presence in transcatheter mitral valve repair (TMVR) and transcatheter edge-to-edge tricuspid valve repair (TTVR).
Comments Acquiring Cardiovalve to expand product portfolio of mitral and tricuspid valves. According to the announcement, Cardiovalve’s pre-deal value is US$250mn and the aggregate consideration for the transaction is nearly US$300mn. Approximately US$150mn of the aggregate closing consideration will be paid as of the date of the closing in 2022, with a future milestone payment of US$116mn. Specifically, 1) the firm plans to spend US$50mn to reward Cardiovalve for getting approvals from the Conformitè Europ-enne (CE), the US FDA or the National Medical Products Administration of China (NMPA) of its mitral valve products; 2) the firm plans to spend US$50mn to reward Cardiovalve’s tricuspid valve products with the CE, US FDA or NMPA approvals; and 3) the firm plans to spend US$16mn to reward the aforementioned products for their clinical progress in China (at least 10 implantations with safe hospital discharge and 90-day survival). In addition, the firm will provide a US$23mn convertible loan to Cardiovalve in early-2022.
Cardiovalve System applicable in both TMVR and TTVR; clinical trials in Europe, the US and China to start. Cardiovalve System uses a transfemoral approach with a four-way steerable 28F delivery catheter. Its treatment of mitral or tricuspid regurgitation has entered early clinical trials in Europe and is currently in the feasibility study phase in the US. Its device for the treatment of tricuspid regurgitation received “Breakthrough Device Designation” by the US FDA in 2020. Venus Medtech said it would fully support Cardiovalve for its clinical trials in China. The firm expects Cardiovalve’s devices for the treatment of mitral and tricuspid regurgitation to enter human clinical trials in 2022 and 2023, and get approved by the NMPA in 1Q28 and 2Q26. The firm plans to set up production lines for the products in China in 2022. We believe that patients suffering from mitral or tricuspid regurgitation are more than three times those with aortic valve diseases. However, there are no mature interventional replacement products yet. We expect domestic companies to compete head-to-head against multinationals in this field.
COVID-19 conditions weigh on TAVR implantation in the short term; R&D pipeline advances. Despite the COVID-19 resurgence in 2H21, the firm expects the full-year number of implantations of TAVR products (VenusA-Valve and VenusA-Plus) in hospitals to reach 3,500-4,000 in 2021, up over 60% YoY from around 2,200 in 2020. As the procedure matures, we remain upbeat on the ramp up of the volume of TAVR. In the R&D pipeline, the application for registration of the TriGUARD 3- Cerebral Embolic Protection (CEP) device was accepted by the NMPA. The firm expects to carry out the Functional Independence Measure (FIM) for the Vitae (balloon-expandable TAVR) overseas, and for the PowerX (self-expanding TAVR) at West China Hospital, Sichuan University in December. The firm has submitted its registration application for the product Venus-P in China and is in the final stage of CE certification. The firm has also submitted its registration application for Venus A-Pro in China. DeJin Medtech, a company in which Venus Medtech holds a stake, has completed patient enrollment for its mitral valve repair products. The firm expects to finish the follow-up study by end-2022, and submit its registration application in 1H23.
Valuation and recommendation
Given the impact of COVID-19 conditions on TAVR procedures, we lower our 2021 EPS forecast from -Rmb0.30 to -Rmb0.34, and lower our 2022 EPS forecast from Rmb0.32 to -Rmb0.12. We introduce a 2023 EPS forecast of Rmb0.39. We maintain an OUTPERFORM rating but cut our DCF-based TP 35.7% to HK$45, offering 58.2% upside, given intensifying competition in the market.
Risks
Disappointing progress in R&D; slower-than-expected commercialization; deteriorating competitive landscape.