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

iShares MSCI Emerging Markets / Technical Analysis

<ul>
<li>Indexes have plunged since violating our "lines-in-the-sand" of 3875 on EURO STOXX 50, 14,815 on the DAX, $54 on ACWI ex-US (ACWX-US), $75.25 on EAFE (EFA-US), and $99 on ACWI(ACWI-US).</li>
<li>More recently, Japan’s TOPIX broke below the key 1840 level, as the number of countries breaking down increases.</li>
<li>We remain bearish at the index level as long as these indexes continue to make lower highs, and we expect that any bottoming process would take weeks/months to develop.</li>
</ul>


Indexes have plunged since violating our "lines-in-the-sand" of 3875 on EURO STOXX 50, 14,815 on the DAX, $54 on ACWI ex-US (ACWX-US), $75.25 on EAFE (EFA-US), and $99 on ACWI(ACWI-US).
More recently, Japan’s TOPIX broke below the key 1840 level, as the number of countries breaking down increases.
We remain bearish at the index level as long as these indexes continue to make lower highs, and we expect that any bottoming process would take weeks/months to develop.


Monitoring For A Bottom; Focus On Defensives

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/403/original/2020-02-18_08-44-22.png?1581983074" class="editor-image img-responsive" data-smartkarma-image-id="118403"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/404/original/2020-02-18_08-42-56.png?1581983098" class="editor-image img-responsive" data-smartkarma-image-id="118404"></figure><div class="content-caption">Source • Japan Analytics</div>THREE-YEAR LOW - With <a href="https://www.smartkarma.com/entities/bridgestone-corp" target="_blank" data-smartkarma-citation="entities:8914:1" rel="noopener">Bridgestone (5108 JP)</a>'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/405/original/2020-02-18_09-29-28.png?1581985792" class="editor-image img-responsive" data-smartkarma-image-id="118405"></figure><div class="content-caption">Source • Japan Analytics</div>LEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-<ul>
<li>Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.</li>
<li>The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.</li>
<li>The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.</li>
<li>
All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.
<hr>
• SECTOR SCORES •
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/410/original/2020-02-18_09-55-29.png?1581987489" class="editor-image img-responsive" data-smartkarma-image-id="118410"></figure><div class="content-caption">Source • Japan Analytics</div>
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 
</li>
</ul>

Source • Japan AnalyticsTHREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our Results Sore - the lowest since March 2017.  In contrast, the Forecast/Revision Score reached a three-month high as the 470 companies with December year-ends put an optimistic gloss on their medium-term outlook. As we have noted in our recent daily roundups, a normal precondition for a cycle low is for the Forecast/Revision Score to rise above the Results Score. Forecast/Revision Score peaks and troughs usually occur one to two quarters ahead of those for the Results Score.  Covid-19's impact will likely see the 2016 'playbook' repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. The Results Score cycle low point will be reached with the mostly-interim results to be released in six months. Source • Japan AnalyticsLEADING INDICATOR - By including several momentum factors into our Scoring (see below), we can provide a better indication of future business conditions. Indeed there is a 0.83 correlation between the Cabinet Office's Business Condition Leading Indicator and the Forecast/Revision Score. Reported earnings, as well as company forecasts, are lagging indicators and, as shown in Part 1 of this Insight. Both data series peaked one year after our Scores and the market peaked in early 2018. SCORING METHODOLOGY - For those new to these Insights, we briefly recap our scoring methodology below:-
Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The Results Score has a maximum of +30 and a minimum of -30 for each period. Our data series commences from the time a particular company issues quarterly results. The sample size becomes significant from March 2005.
The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This Score also has a maximum of +30 and a minimum of -30 for each period.  For this series, our data samples start from August 2008.
The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score.

All company Scores are then cap-weight-aggregated into Sector, Peer Group and Market Composite Scores for which the seventeen-year monthly and two-year daily track records are shown above. Only currently listed-companies are covered in the aggregate Scores, and the Total Market Capitalisation excludes delisted entities. REITs are not included.

• SECTOR SCORES •
Source • Japan Analytics
In the DETAIL Section below, we provide a detailed breakdown of our RRS Scoring for Sectors, Peer Groups and individual companies, highlighting this quarter's 'winners' and 'losers'. The chart above shows a  seventeen-year 'timeline' of the cap-weight-aggregated Sector RRS Scores and the ebbs and flows around the business cycles. The Metals Sector is the most volatile on the downside and has yet to 'bottom' this cycle. Technology Hardware appears to have already rebounded; however, Covid-19 suggests this Sector may relapse. On the upside, the Information Technology Sector has replaced the Internet and Telecoms Sectors as the contra-cyclical 'champion'. 



🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

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">source</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>
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.</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, Ono, KHK and Nippon Shinyaku, 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 CAR-T therapy - Competitive landscape<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/065/356/original/Japan%20CAR-T%20landscape.JPG?1538128874" class="editor-image img-responsive" data-smartkarma-image-id="65356"></figure>Japan pharma catching-up with global players… but a large gap remains<ul>
<li>
<a href="https://www.smartkarma.com/entities/26851" target="_blank" data-smartkarma-citation="entities:26851:1">Novartis AG (NOVN SE)</a>’ Kymriah and <a href="https://www.smartkarma.com/entities/973" target="_blank" data-smartkarma-citation="entities:973:1">Gilead Sciences (GILD US)</a>/ <a href="https://www.smartkarma.com/entities/20664" target="_blank" data-smartkarma-citation="entities:20664:1">Kite Pharma Inc (KITE US)</a>’s Yescarta are the two approved CAR-T cell therapies in the US and EU.</li>
<li>Furthermore, Novartis’s Kymriah is expected to secure Japan approval in 1Q FY19e (filed in April 2018).</li>
<li>Despite being the frontrunners amongst Japan pharma majors developing CAR-T therapy for the domestic market, <a href="https://www.smartkarma.com/entities/3014" target="_blank" data-smartkarma-citation="entities:3014:1">Daiichi Sankyo (4568 JP)</a>, <a href="https://www.smartkarma.com/entities/12292" target="_blank" data-smartkarma-citation="entities:12292:1">Otsuka Holdings (4578 JP)</a>/ <a href="https://www.smartkarma.com/entities/10766" target="_blank" data-smartkarma-citation="entities:10766:1">Takara Bio Inc (4974 JP)</a> and <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono Pharmaceutical (4528 JP)</a> still have a long way to commercialization.</li>
</ul>Japan CAR-T market opportunity and key beneficiaries<ul>
<li>Globally CAR-T is a $10b+ opportunity in hematologic malignancies, however, since most of the Japanese pharma companies have in-licensed Asia/Japan rights, we estimate the domestic CAR-T opportunity to be between $3-$5b (depending on pricing).</li>
<li>As far as the Japan market is concerned, the focus is on patients who fail to respond to 2L or 3L treatment for leukemia-like acute lymphocytic leukemia/lymphoma (ALL, Japan population 5000, R/R population 20%) and diffuse large B-cell lymphoma (DLBCL, Japan population 18000-22000, R/R population 33%).  </li>
<li>Having said that, multiple myeloma (significantly larger opportunity) targeted clinical trials are progressing well</li>
<li>Furthermore, preliminary data from Ph I clinical trials studying CAR-T therapy for solid tumors is expected to report over the next 2-3 years</li>
<li>
Daiichi Sankyo and Otsuka in-licensed CAR-T therapy assets from Kite Therapeutics (now part of Gilead) and Takara Bio respectively and are well positioned to capitalize on the opportunity.</li>
<li>However, US approval of Kite’s Yescarta for DLBCL can help accelerate enrollment/review of the Japanese clinical trial (based on US data), thereby significantly increasing its probability of success.</li>
<li>Consequently, Daiichi Sankyo could be the second company (after Novartis) to launch CAR-T therapy in Japan, securing it a strong position in the Japanese CAR-T therapy market.</li>
</ul>

Japan CAR-T therapy - Competitive landscapeJapan pharma catching-up with global players… but a large gap remains

Novartis AG (NOVN SE)’ Kymriah and Gilead Sciences (GILD US)/ Kite Pharma Inc (KITE US)’s Yescarta are the two approved CAR-T cell therapies in the US and EU.
Furthermore, Novartis’s Kymriah is expected to secure Japan approval in 1Q FY19e (filed in April 2018).
Despite being the frontrunners amongst Japan pharma majors developing CAR-T therapy for the domestic market, Daiichi Sankyo (4568 JP), Otsuka Holdings (4578 JP)/ Takara Bio Inc (4974 JP) and Ono Pharmaceutical (4528 JP) still have a long way to commercialization.
Japan CAR-T market opportunity and key beneficiaries
Globally CAR-T is a $10b+ opportunity in hematologic malignancies, however, since most of the Japanese pharma companies have in-licensed Asia/Japan rights, we estimate the domestic CAR-T opportunity to be between $3-$5b (depending on pricing).
As far as the Japan market is concerned, the focus is on patients who fail to respond to 2L or 3L treatment for leukemia-like acute lymphocytic leukemia/lymphoma (ALL, Japan population 5000, R/R population 20%) and diffuse large B-cell lymphoma (DLBCL, Japan population 18000-22000, R/R population 33%).  
Having said that, multiple myeloma (significantly larger opportunity) targeted clinical trials are progressing well
Furthermore, preliminary data from Ph I clinical trials studying CAR-T therapy for solid tumors is expected to report over the next 2-3 years

Daiichi Sankyo and Otsuka in-licensed CAR-T therapy assets from Kite Therapeutics (now part of Gilead) and Takara Bio respectively and are well positioned to capitalize on the opportunity.
However, US approval of Kite’s Yescarta for DLBCL can help accelerate enrollment/review of the Japanese clinical trial (based on US data), thereby significantly increasing its probability of success.
Consequently, Daiichi Sankyo could be the second company (after Novartis) to launch CAR-T therapy in Japan, securing it a strong position in the Japanese CAR-T therapy market.


Japan

ONO PHARMACEUTICAL CO., LTD. manufactures and sells pharmaceuticals.  The Company mainly researches and develops prescription drugs.

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Ono Pharmaceutical (4528 JP)

Monitoring For A Bottom; Focus On Defensives

Defensive Sectors including Consumer Staples, Health Care, and Utilities are emerging as leadership -- add exposure. Today we are focusing on...

Vermilion Research

🇯🇵 JAPAN • IT’S A WRAP! Part 2: 2020-Q1 Results & Revision Scores

THREE-YEAR LOW - With Bridgestone (5108 JP)'s results and revision now added, our final tally for this season is a 196 basis point decline in our...

Campbell Gunn

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

Japan CAR-T Therapy Landscape

Japan CAR-T therapy - Competitive landscapeJapan pharma catching-up with global players… but a large gap remains Novartis AG (NOVN SE)’ Kymriah...

Dion Stéfan Büchner M.D., FCAP

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