Company says its UU Tube used to self-screen for stomach cancer has been approved by China’s health regulator

Key takeaways:

  • New Horizon Health says its first-of-its-kind UU Tube self-screening product for stomach cancer has been approved for sale in China
  • Company is already frothily valued compared with peers, though sales from new device could bring that down to healthier levels

By Tina Yip

Think back to last February when a hot Hong Kong biotech IPO wowed investors with a story of big riches from its early colorectal cancer screening kits. The company wasn’t even profitable, but still attracted more than 1 million investors in an offering that was 4,132 times oversubscribed – meaning potential buyers only had a 2% chance of securing shares.

The stock didn’t disappoint, soaring by 2.15 times from its IPO price of HK$26.66 ($3.33) in its trading debut. Retail investors made huge profits, and everyone was generally amazed at the strong performance.

That company, New Horizon Health Ltd. (6606.HK) would go on to see its stock rise to as much as HK$90. But then things went south, and the price tumbled to as little as HK$22 recently, falling below the IPO price.

The latest turning point may have come last week, on Jan. 6 to be precise. That evening, the company announced that its UU Tube self-screening product had been approved by the Chinese National Medical Product Administration. The product allows users to screen themselves for stomach cancer based on testing for Helicobacter pylori (Hp) bacteria using fecal samples, and is the first such self-screening medical product approved by the Chinese authority.

Meantime, the U.S. Department of Health and Human Services listed Hp as a carcinogenic substance in its 15th report on carcinogens published in late December last year. Hp-related topics started to trend on Weibo, China’s equivalent of Twitter, igniting share prices for several medical stocks, including Hubei Junyao (605388.SH), Beijing Scitop Bio-tech (300858.SH) and Zhejiang Yatai Pharmaceutical (002370.SZ).

News of New Horizon Health’s approval gave a similar boost to the company’s shares. They opened up by a whopping 46% on Friday after announcement of the latest approval, before falling back to end the day up 10% at HK$21.20. That was followed by milder fluctuations in the next two days.

First in the market

Many companies are trying to cash in on the recent Hp interest, including toothpaste products that say they can fight the bacteria. Not surprisingly, government authorities are already expressing concerns and cracking down on such claims. Details on UU Tube are still relatively slim in the market, raising concerns the new announcement might be an opportunistic move, perhaps partly explaining why the stock fell after the initial surge.

But the concerns seem unwarranted. All current Hp tests must now be administered by professionals in medical facilities, making the new product the first to allow for self-screening. The company says its tests are as easy as using the stick to a pregnancy test: there’s no need to empty your stomach beforehand, and no other special requirements. After collecting the sample, the user simply puts the stick back in the tube, shakes it for 10 seconds and gets a result in just 10 minutes.

Hp is a major cause of stomach cancer. China accounted for 43.9% of total new stomach cancer cases worldwide and 48.6% of deaths caused by stomach cancer, according to the World Health Organization data from 2020. Nearly 90% of those patients suffered from Hp infections.

New Horizon Health’s new self-screening tubes might not be able to detect cancer outright, but can provide clues and address some of users’ concerns about getting the disease. So, the product could have big commercial potential, especially when one considers there are no competitors in the market.

What’s more, high recurrence rates for Hp infections mean vulnerable people may need to purchase the product repeatedly. Early arrival to the market can help a product gain customer trust and drive long-term growth for a company like New Horizon Health.

The company has been developing cancer screening tests since its founding in 2015, including its lucrative ColoClear and Pupu Tube for detection of colorectal cancer. In the first half of last year, ColoClear raked in 14.2 million yuan ($2.2 million) in revenue, representing a year-on-year increase of 1.5 times. Pupu Tube made 29.6 million yuan, up by an even larger 6.2 times year-on-year.

An important factor for biotech companies like New Horizon Health is their ability to develop new products to keep the revenue flowing. In the first half of last year, the company doubled its R&D spending to 21.23 million yuan, mainly to hire more researchers and increase investment in product development. Its coffers for more R&D spending are well-stocked after it raised nearly HK$1.9 billion ($244 million) in its IPO last year. It is now actively developing screening tests for cervical cancer, liver cancer and nasopharynx cancer.

Expanding test scope

According to the company’s interim financials, its non-invasive household-use cervical cancer screening test is about to start clinical trials late this year. It has also applied for patents for its self-developed liver cancer early-screening product, and late last year said it would soon partner with the oncology hospital of Zhongshan University to develop a nasopharynx cancer test. So, the company is clearly putting its eggs in a number of different baskets.

Despite that, it still has a long way to go to the important goal of becoming profitable. It lost a hefty 2.9 billion yuan in the first half of last year. Even after excluding losses related to its preferred shares, it still sustained an adjusted loss of 130 million yuan. But its revenue tripled year-on-year to 43.93 million yuan during the same period.

If the growth continues into the latter half of the year, the company would have a price-to-sales (P/S) ratio of 85 times, based on its closing price last Friday. By comparison, peers Shanghai Hile Bio-Tech (603718.SH) and Beijing Wantai BioPharm (603392.SH) have P/S ratios of 29 times and 28 times. BGI Genomics (300676.SZ) is higher at 47 times, but still well below New Horizon Health.

That said, continued approvals for its new products could help it maintain strong revenue growth. The fact that the Chinese Ministry of Industry and Information Technology listed real-time screening products in its “Development Program for the Medical Equipment Industry during the 14th Five-year Period” also bodes well for New Horizon Health. Once its new products start to hit the market, its valuation could come down to more sustainable levels if its strong growth continues.

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