Global Healthcare Analyst

Tina Banerjee

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/alteogen-inc" target="_blank" data-smartkarma-citation="entities:15886:1" rel="noopener">Alteogen Inc (196170 KS)</a> signed its fourth licensing deal for ALT-B4, a proprietary human recombinant hyaluronidase enzyme, with Sandoz. Given the strong demand more such deals are expected to follow.</li>
<li>Alteogen is reportedly in talks with global pharmaceutical companies for a technology transfer deal for Herceptin SC biosimilar. If successful, Alteogen will be a re-rating candidate.</li>
<li>Alteogen has established Altos Biologics to facilitate global phase 3 clinical trials and commercial development of Eylea biosimilar. Altos Biologics aims to be listed on the KOSDAQ in 2024.</li>
</ul>



Alteogen Inc (196170 KS) signed its fourth licensing deal for ALT-B4, a proprietary human recombinant hyaluronidase enzyme, with Sandoz. Given the strong demand more such deals are expected to follow.
Alteogen is reportedly in talks with global pharmaceutical companies for a technology transfer deal for Herceptin SC biosimilar. If successful, Alteogen will be a re-rating candidate.
Alteogen has established Altos Biologics to facilitate global phase 3 clinical trials and commercial development of Eylea biosimilar. Altos Biologics aims to be listed on the KOSDAQ in 2024.


Alteogen (196170 KS): Distinct Platform Technology; Biosimilar Pipeline; Potential Value Unlocking

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/689/original/2020-08-20_08-32-43.png?1597879991" class="editor-image img-responsive" data-smartkarma-image-id="153689"></figure><div class="content-caption">All charts sourced from Japan Analytics.</div><p><strong>BRUTAL</strong> - The summer earnings 'season' reflected the broadening impact of COVID-19 on the Japanese and world economies, however, in terms of profit decline, the pace is more moderate than in the previous quarter. Japanese corporates are starting to engage in aggressive cost controls. As a result, an with no signs of virus abating or a vaccine being readily available, earnings will continue to decline in the current quarter. We have yet to reach a low point in this earnings cycle. Many companies delayed making initial forecasts for the current year. As that deficiency is gradually remedied, earnings forecasts are leading trailing results to the downside. The 'gap' for operating profits is ¥5.7 trillion, or 13%. A similar percentage fall applies to net income. Operating income is forecast to be 41% below the peak level of 2019; for net income, the decline is 57%. The aggregate forecast operating margin of 4.8%% is 294 bps lower than the peak, while the forecast net margin is 318 bps lower at 2.67%. If achieved, this outcome will exceed that of the 2008/9 financial crisis when the aggregate was negative. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/694/original/2020-08-20_09-02-34.png?1597881766" class="editor-image img-responsive" data-smartkarma-image-id="153694"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/695/original/2020-08-20_09-03-07.png?1597881801" class="editor-image img-responsive" data-smartkarma-image-id="153695"></figure><p><strong>TTM RESULTS &amp; FORECASTS</strong> - Using trailing-twelve-month data to smooth out the seasonality in earnings, TTM operating income is 29% lower year-on-year on a 6% decline in sales. Running the same comparison using published forecasts, operating profit expectations are 40% lower than a year ago and revenues 10% lower.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/727/original/2020-08-20_10-57-21.png?1597888653" class="editor-image img-responsive" data-smartkarma-image-id="153727"></figure><p><strong>DAMN THE TORPEDOES</strong> - Our scoring methodology tracks all quarterly results since 2003 and every annual and interim forecast made since 2013. The lines above represent the cap-weighted aggregates of those scores overlayed with the daily series for TOPIX. Other than the three years before the advent of 'Abenomics' and the last six months, the directional correlation is clear.  Mr Market, supported by the BoJ and Federal Reserve, is 'banking' on a sharp and sustained recovery over the next two quarters. </p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. We shall also review our Results and Revision Scoring for the market, Sectors and Companies.</p></div>

All charts sourced from Japan Analytics.BRUTAL - The summer earnings 'season' reflected the broadening impact of COVID-19 on the Japanese and world economies, however, in terms of profit decline, the pace is more moderate than in the previous quarter. Japanese corporates are starting to engage in aggressive cost controls. As a result, an with no signs of virus abating or a vaccine being readily available, earnings will continue to decline in the current quarter. We have yet to reach a low point in this earnings cycle. Many companies delayed making initial forecasts for the current year. As that deficiency is gradually remedied, earnings forecasts are leading trailing results to the downside. The 'gap' for operating profits is ¥5.7 trillion, or 13%. A similar percentage fall applies to net income. Operating income is forecast to be 41% below the peak level of 2019; for net income, the decline is 57%. The aggregate forecast operating margin of 4.8%% is 294 bps lower than the peak, while the forecast net margin is 318 bps lower at 2.67%. If achieved, this outcome will exceed that of the 2008/9 financial crisis when the aggregate was negative. TTM RESULTS &amp; FORECASTS - Using trailing-twelve-month data to smooth out the seasonality in earnings, TTM operating income is 29% lower year-on-year on a 6% decline in sales. Running the same comparison using published forecasts, operating profit expectations are 40% lower than a year ago and revenues 10% lower.DAMN THE TORPEDOES - Our scoring methodology tracks all quarterly results since 2003 and every annual and interim forecast made since 2013. The lines above represent the cap-weighted aggregates of those scores overlayed with the daily series for TOPIX. Other than the three years before the advent of 'Abenomics' and the last six months, the directional correlation is clear.  Mr Market, supported by the BoJ and Federal Reserve, is 'banking' on a sharp and sustained recovery over the next two quarters. In the DETAIL section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. We shall also review our Results and Revision Scoring for the market, Sectors and Companies.

🇯🇵 JAPAN • IT’S A WRAP - Summer 2020 Results & Revisions Review

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Global equities remain in a short-term consolidation phase, however we continue to believe the longer-term trend is up and to the right for the MSCI ACWI following the late-October breakout.  In this report we recap important technical levels across all major indexes and highlight actionable opportunities within Global Health Care stocks, which are hitting on all cylinders, with plenty of opportunities across various industries (services, devices/equipment, pharmaceuticals, biotech, etc.) and geographies (Europe, Japan, China, EM, etc.).</p>

Global equities remain in a short-term consolidation phase, however we continue to believe the longer-term trend is up and to the right for the MSCI ACWI following the late-October breakout.  In this report we recap important technical levels across all major indexes and highlight actionable opportunities within Global Health Care stocks, which are hitting on all cylinders, with plenty of opportunities across various industries (services, devices/equipment, pharmaceuticals, biotech, etc.) and geographies (Europe, Japan, China, EM, etc.).

Global Equity Strategy: Health Care Hitting On All Cylinders - Overweight

Asia Healthcare Analyst, Pathology Associates Limited

Dion Stéfan Büchner M.D., FCAP

Asia Healthcare Analyst

Pathology Associates Limited

<ul>
<li>The Japanese government recently announced its decision to initiate an ad-hoc price reduction of ~4.35%, to be levied in October 2019, this will be in addition to the scheduled biennial price revisions (<a href="https://pj.jiho.jp/article/239057" target="_blank"><em>source</em></a>).</li>
<li>The October 2019 scheduled price cuts will have nominal overall impact; however, we highlight a few companies that are relatively more vulnerable to ongoing price reforms.</li>
<li>
<strong>Mitsubishi Tanabe</strong>, <strong>Taisho</strong>, <strong>Santen</strong>, <strong>Kaken</strong>, <strong>Kyorin</strong> and <strong>Kissei</strong> generate &gt;50% of revenue from the domestic market and are projected to continue to do so over next 3-5 years.</li>
<li>Furthermore, the contribution from long listed (LL) drugs is much higher for the above-mentioned companies, which makes them relatively vulnerable to ongoing price reforms (price cuts for LL drugs are much higher than the average).</li>
<li>On the other hand, <strong>Ono</strong>, <strong>KHK</strong> and <strong>Nippon Shinyaku, </strong>despite a high proportion of domestic revenue (as a % of total revenue), have only limited contribution from LL drugs.</li>
<li>Ono’s Opdivo, however, will continue to face market expansion led special price cuts going forward.</li>
</ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/073/794/original/Domestic%20sales%20as%20a%20%25%20of%20total%20sales.PNG?1545456784" class="editor-image img-responsive" data-smartkarma-image-id="73794"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/073/796/original/LL%20as%20a%20%25%20of%20Domestic.PNG?1545456892" class="editor-image img-responsive" data-smartkarma-image-id="73796"></figure><div class="content-caption">Source: Company data, Pathology Associates research</div><div style="text-align: left;" class="content-caption">* Companies with financial year ending December, Taisho domestic pharma includes OTC sales, N Kayaku domestic pharma sales includes Generics and Biosimilar sales</div>


The Japanese government recently announced its decision to initiate an ad-hoc price reduction of ~4.35%, to be levied in October 2019, this will be in addition to the scheduled biennial price revisions (source).
The October 2019 scheduled price cuts will have nominal overall impact; however, we highlight a few companies that are relatively more vulnerable to ongoing price reforms.

Mitsubishi Tanabe, Taisho, Santen, Kaken, Kyorin and Kissei generate &gt;50% of revenue from the domestic market and are projected to continue to do so over next 3-5 years.
Furthermore, the contribution from long listed (LL) drugs is much higher for the above-mentioned companies, which makes them relatively vulnerable to ongoing price reforms (price cuts for LL drugs are much higher than the average).
On the other hand, Ono, KHK and Nippon Shinyaku, despite a high proportion of domestic revenue (as a % of total revenue), have only limited contribution from LL drugs.
Ono’s Opdivo, however, will continue to face market expansion led special price cuts going forward.
Source: Company data, Pathology Associates research* Companies with financial year ending December, Taisho domestic pharma includes OTC sales, N Kayaku domestic pharma sales includes Generics and Biosimilar sales

Japan Pharma - Domestic Market and Long Listed Drug Exposure

<ul>
<li>While <a href="https://www.smartkarma.com/entities/13076" target="_blank" data-smartkarma-citation="entities:13076:1">Gni Group Ltd (2160 JP)</a> is our high risk-high return pick, <a href="https://www.smartkarma.com/entities/6311" target="_blank" data-smartkarma-citation="entities:6311:1">Mitsubishi Tanabe Pharma (4508 JP)</a>  is a contrarian call in anticipation of value accretive utilization of cash and Eq. (~40% of market cap.)</li>
<li>
<a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a> continues to remain our favourite pick from a medium to long term investment perspective</li>
<li>Rest are event / catalyst driven trading ideas... (see attachment)</li>
</ul>


While Gni Group Ltd (2160 JP) is our high risk-high return pick, Mitsubishi Tanabe Pharma (4508 JP)  is a contrarian call in anticipation of value accretive utilization of cash and Eq. (~40% of market cap.)

Takeda Pharmaceutical (4502 JP) continues to remain our favourite pick from a medium to long term investment perspective
Rest are event / catalyst driven trading ideas... (see attachment)


Japan

KISSEI PHARMACEUTICAL CO., LTD. manufactures and sells a variety of prescription drugs.  The Company's main products are for cholesterol, high blood pressure, digestion, allergy, circulatory and respiratory diseases, and Parkinson's disease.

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Kissei Pharmaceutical (4547 JP)

Alteogen (196170 KS): Distinct Platform Technology; Biosimilar Pipeline; Potential Value Unlocking

Alteogen’s formulation platform change technology is in constant demand. The company can be potential first-mover in Eylea biosimilar. Its...

Tina Banerjee

🇯🇵 JAPAN • IT’S A WRAP - Summer 2020 Results & Revisions Review

BRUTAL - The summer earnings 'season' reflected the broadening impact of COVID-19 on the Japanese and world economies, however, in terms of profit...

Campbell Gunn

Global Equity Strategy: Health Care Hitting On All Cylinders - Overweight

Global equities remain in a short-term consolidation phase, however we continue to believe the longer-term trend is up and to the right for the...

Vermilion Research

Japan Pharma - Domestic Market and Long Listed Drug Exposure

The Japanese government recently announced its decision to initiate an ad-hoc price reduction of ~4.35%, to be levied in October 2019, this will...

Dion Stéfan Büchner M.D., FCAP

Japan Pharma - Top Picks

While Gni Group Ltd (2160 JP) is our high risk-high return pick, Mitsubishi Tanabe Pharma (4508 JP) is a contrarian call in anticipation of value...

Dion Stéfan Büchner M.D., FCAP

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