2H15 Outlook Report June 1, 2015 Overweight (Maintain) Healthcare Expanding into advanced markets Hyun-tae Kim +822-768-3251 [email protected]Seung-min Kim +822-768-4157 [email protected]2 5 9 13 14 16 17 22 25 38 [Summary] I. 1H15 review II. Expansion into advanced markets to increase III. Policy effects IV. Issues: Biosimilar Issues: Samsung Group’s healthcare business V. Mid- to long-term outlook: Pipelines VI. Investment recommendation Top picks Dong-A ST / Osstem Implant / i-SENS [Conclusion] Valuation premium to widen
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<1st generic boom>- Earnings growth- Spread of developed market R&D model
<Global crisis>- New drug development stagnates- Illegal rebate scandal
<Overseas success of new drugs>- New drugs, IMDs- Antibody biosimilars
<Massive price cuts>- Prices of original drugs reduced to generic levels
<Bio plays gain popularity>- H1N1 outbreak
<New drug price-cutting schemes introduced>- Evauation of economic viability of
pre-registered drugs
<Dispensation/prescription practices separated>- Shift to developed market
R&D model
<Earnings nomalization>
<De-rating>- Failure tocommercialize
2H15 Outlook 3
Domestically-developed drugs to succeed commercially
• Sivextro (antibiotic) of Dong-A ST Expanded global coverage following the acquisition of Cubist
(former partner of Merck) US prescriptions are on the upswing
• Remsima (biosimilar for rheumatoid arthritis) of Celltrion Pfizer acquired Celltrion’s partner Hospira Expanding presence in Europe
Domestically-developed drugs expanding into advanced markets
• Multiple Korean pharmaceutical firms pushing to expand into advanced countries
• Commercial success in advanced markets should reinforce corporate fundamentals
• US: Celltrion, Green Cross
• Europe: Celltrion, Dong-A ST
• Other: Komipharm International (Australia), Aprogen (Japan)
Extended national insurance coverage to dental implants
• Starting in 2014, 50% of dental implant expenses were covered by national insurance for patients aged 75 and above
• Starting July 2015, coverage will be extended to those aged 70 and above
• Coverage expansion should boost domestic dental implant market
• Insurance coverage will likely lead to market restructuring; We expect top-tier firms to dominate the dental implant market
Burgeoning biosimilar market
• US market to open full swing with its first-ever approval of a biosimilar
• Numerous Korean firms are making efforts to develop biosimilars
• Korean firms likely to perform strongly in the global biosimilarantibody market Some firms have secured overseas marketing partners, and
completed (or nearing) overseas development Celltrion, Samsung BioEpis, and Aprogen
Samsung entered the healthcare industry
• Samsung Group included biotech in its list of future growth engines
• Samsung to become a strong player in the industry Access to hospitals, medicines, and medial equipment Samsung likely to generate biosimilar revenue full swing in 2016
and expand the healthcare business
Drug pipelines
• Korean firms’ R&D capability is improving
• Expecting commercial progress and partnerships with overseas firms
Our recommendation
• Maintain Overweight. Expectations for overseas expansion to boost shares
• Top picks: Dong-A ST, Osstem Implant, i-SENS
[Summary] Expanding into advanced markets
2H15 Outlook 4
Source: Bloomberg, KDB Daewoo Securities Research
% of population qualified for dental implant coverage to grow US prescriptions for Sivextro are growing
Source: Statistics Korea, KDB Daewoo Securities Research
Domestically-developed drugs to succeed commercially
• Sivextro (antibiotic) of Dong-A ST to become first overseas success
• Expanded global coverage following the acquisition of Cubist (former partner of Merck)
• US prescriptions are on the upswing
• Company is likely to expand target markets and target indications
Policy effects
• Extended national insurance coverage to dental implants
• Starting 2014, 50% of dental implant expenses were covered by national insurance for patients aged 75 and above.
• Coverage will be extended to those aged 70 and above starting in July 2015 and to those aged 60 and above in July 2016
• Insurance coverage will likely lead to market restructuring; We expect top-tier firms to dominate the dental implant market
Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research
I. 1H15 review
MSCI pharmaceutical indexRecent performance of Korean pharmaceutical stocks
Region/Country
1W 1M 3M 1Y YTD
World 1.8 0.6 4.8 14.4 10.9
DM 1.8 0.7 4.8 14.1 10.9
EM 2.6 -1.2 3.0 27.5 11.8
Korea 0.3 -1.5 20.6 68.3 92.4
USA 1.9 1.7 4.7 19.5 8.2
EU 1.0 -1.1 3.6 3.0 10.9
Japan 1.5 -1.8 7.2 44.8 22.7
China 2.0 -2.6 13.2 15.0 12.4
India 1.0 2.9 8.3 68.1 16.870
100
130
160
190
220
1/15 2/15 3/15 4/15 5/15
GlobalDMEMKorea
(1/15=100)
Healthcare
2H15 Outlook 6
Note: As of May 29th
Source: KDB Daewoo Securities Research
Biotech stocks are outperforming KOSDAQPharmaceutical stocks are outperforming KOSPI
Note: As of May 29th
Source: KDB Daewoo Securities Research
• Pharmaceutical stocks have performed strongly in KOSPI Absolute returns since early 2015: +79.4%; relative to KOSPI: +69.6%
• Biotech stocks have fared strongly in KOSDAQ Absolute returns since early 2015: +65.6%; relative to KOSDAQ: +37.2%
• Pharmaceutical stocks are outperforming biotech shares in absolute and relative terms, as they are delivering improvements in both operating value and future value
Both pharmaceutical and biotech stocks outperforming markets
I. 1H15 review
-10
0
10
20
30
40
50
60
70
80
1/15 2/15 3/15 4/15 5/15
(%)
-10
0
10
20
30
40
50
1/15 2/15 3/15 4/15 5/15
(%)
Healthcare
2H15 Outlook 7
Source: Ubcare, KDB Daewoo Securities Research
Drug approval-patent linkage systemNational health insurance balance
Source: Ministry of Food and Drug Industry, KDB Daewoo Securities Research
Prescription drug sales are picking up amid eased regulations; Companies with strong R&D capabilities to rise
• Korea’s national health insurance balance hit a high in 2014 for the first time since 2006; Over-the-counter drug expenses as a percentage of overall medical expenses decreased Possibility of tough drug price restrictions seems low
• While YTD overall outpatient prescriptions declined 0.7% YoY in 2015, average daily outpatient prescription drug sales grew 1.1% YoY domestic sales are picking up from contraction caused by the government’s crackdown on rebate practices
• The government will promote the biotech industry aiming to release ten global bio drugs by 2020
• Drug approval-patent linkage system beneficial to firms with strong R&D capabilities
I. 1H15 review
-3,000
0
3,000
6,000
9,000
12,000
15,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
(Wbn)
Current Cumulative
Healthcare
2H15 Outlook 8
Source: Hanmi Pharmaceutical, KDB Daewoo Securities Research
Details about exports of Evogliptin technology Details about exports of HM71224 technology
Source: Dong-A ST, KDB Daewoo Securities Research
R&D efforts bearing fruit • Expanding into advanced markets: Sales in partnership with local players Remsima of Celltrion (rheumatoid arthritis biosimilar treatment; West Europe) , Sivextro of Dong-A ST
(skin infection; Europe)
• Technological exports: Contract deals increased; the scale of contracts is getting bigger HM71224 of Hanmi Pharmaceutical (autoimmune disease, Eli Lilly), Evogliptin of Dong-A ST (diabetes,
Eurofarma)
• Progress in overseas clinical trials: Not only by top-tier firms but also biotech start-ups
• Increased approval for Korea’s new drugs: Four drugs received approval in 2015
Licensing dealTotal US$690mn (including upfront payment US$50mn)Running royalty: over 10%
ContractLilly: Global rights of clinical studies, production andcommercialization, etc. excluding Korea and China
Phase Completed Phase 1 in EU
Date March 2015
Notes
Code DA-1229 (Evogliptin)
Mechanism DPP-4 inhibitor
Indication Type 2 diabetes
Partners Luye, Alkem, Eurofarma
License-outdeals
• Licensed out to Luye Pharma Group of China for the Chinese market in 2012, and will export APIs
• Under Phase 1 clinical trial
• Licensed out to Alkem Laboratories of India for the Indian and Nepali markets in 2012, and will export APIs
• Preparing for Phase 3 clinical trial
• Licensed out to Eurofarma of Brazil for the Brazilian market in 2014, and will export APIs
• Licensed out to Eurofarma of Brazil for the 17 Latin American countries including Mexico in April 2015, and will export APIs
CompetitivenessDoes not require dose titrations in renal-impaired patients with diabetes because of low renal elimination of Evogliptin
Healthcare
2H15 Outlook 9
Source: Celltrion, KDB Daewoo Securities Research
Dong-A ST’s Sivextro, a super antibioticCelltrion’s Remsima, the world's first biosimilar monoclonal antibody
Source: Cubist, KDB Daewoo Securities Research
Domestically developed drugs to commercially succeed in advanced markets
• Dong-A ST’s Sivextro In end-2014, Merck acquired Cubist which has exclusive rights to sell Dong-A ST’s antibiotic Sivextro in the US and
Europe; The deal is expected to increase the likelihood of Sivextro’s commercial success The need for new treatments for Methicillin-resistant Staphylococcus aureus (MRSA) is increasing due to antibiotic resistance
• Celltrion’s Remsima Pfizer acquired Hospira in early 2015; Likelihood of Remsima’s commercial success to increase Remsima entered W. Europe full swing in early 2015; Remsima seeks US approval in 2H15
II. Expansion into advanced markets to increase
Healthcare
2H15 Outlook 10
Source: Merck, KDB Daewoo Securities Research
US Sivextro prescriptions are on the rise Merck’s global coverage vs. Cubist’s global coverage
Source: Bloomberg, KDB Daewoo Securities Research
Sivextro to become the first domestically developed drug to commercially succeed overseas
• Acquisition of Cubist by Merck to expand Sivextro ’s global coverage
• US prescriptions for Sivextro are on the rise Hospital coverage to increase, leading to continued US prescription growth
• Approved in Europe in March; Released as a non-covered drug in some eurozone countries in 2015 Milestone payments to come in line with approval and launch; Running loyalties also likely in line with sales
• Bayer is currently performing global Phase III clinical trial of Sivextro in China and Japan Global coverage to increase
Remicade’s 1Q European sales fell QoQ and YoYRemsima controls 50% of the Norwegian market
Source: Merck, KDB Daewoo Securities Research
Remsima to advance further into W. Europe and penetrate the US
• Pfizer acquired Hospira in early 2015; Likelihood of Remsima’s commercial success to increase The commercial potential of the biosimilar market to increase. As the biosimilar market is expected to be dominated by
a handful of players, it will be important to take an early lead
• Sandoz’s Zarxio became the first biosimilar drug approved in the US → the US biosimilar market to open up full swing
• Remsima is the second biosimilar drug for which a new drug application (NDA) was submitted to the US FDAApproval expected in 2H15
• Remsima is penetrating the eurozone, aided by its price competitiveness Norwegian market share has reached 50%; Remsima sales have increased full swing in W. Europe since February, hurting sales of the original drug (Remicade)
II. Expansion into advanced markets to increase
0
150
300
450
600
750
1Q14 2Q14 3Q14 4Q14 1Q15
(US$mn)
YoY: -17.1%QoQ: -10.1%
Healthcare
2H15 Outlook 12
Note: Subject to change depending on the companies’ conditions; Aprogen is a non-listed firm Source: Respective companies’ data, KDB Daewoo Securities Research
Korean pharmaceutical companies’ 2H15 NDAs and launches in advanced marketsAdvanced markets to offer significantly larger growth opportunities
Commercialization of domestically developed drugs to make progress in the advanced markets
• In 2H, several domestic pharmaceutical companies will likely make progress in the commercialization of their in-house developed drugs in the advanced markets
• Commercial progress to boost the fundamentals of the pharmaceutical companies
II. Expansion into advanced markets to increase
Company 2H15 events
CelltrionExpect US FDA approval for Remsima in 2H15;Submit application for approval of Herceptin and Rituxan biosimilars
Komipharm Expect approval and release of PAX-1 (treatment for persistent cancer pain) in Australia
Green Cross Submit NDA to US FDA for IVIG SN (infection treatment)
Dong-A ST Expand European coverage for Sivextro
Aprogen Submit NDA for Remicade biosimilar (rheumatoid arthritis treatment)
TIP
Healthcare
2H15 Outlook 13
Source: Statistics Korea, KDB Daewoo Securities Research
Percentage of population subject to dental implant coverage to rise graduallyExtension of dental implant coverage to accelerate market expansion
Dental implant coverage to be expanded
• Dental implant coverage for senior citizens aged 75 and above started in 2014 Patients pay 50% of total costs
• Coverage to be expanded to those aged 70 and above starting in July 2015
• Dental implant coverage to boost domestic implant demand and market growth
• Dental implant coverage to lead to industry consolidation; Top-tier firms with deep pockets, strong sales capabilities, and superior products to emerge as winners
III. Policy effects
0
5
10
15
20
14 15F 16F
(%)
TIP
Healthcare
2H15 Outlook 14
Source: Bloomberg, KDB Daewoo Securities Research
Biosimilar market to expand sharply Major antibody drugs’ sales and patent expirations
Source: Pfizer, KDB Daewoo Securities Research
US biosimilar market opening
• Sandoz’s Zarxio, a neutropenia treatment, was first biosimilar to receive US approval Growth of US biosimilar market to accelerate
• Global biosimilar market to grow to US$20bn by 2020
Note: Celltrion Healthcare is in charge of sales of Celltrion productsSource: Celltrion, KDB Daewoo Securities Research
Samsung Bioepis’ marketing partners: Merck and BiogenCelltrion’s overseas marketing partners
Note: The marketing partnership is only for immunotherapy Source: Samsung Bioepis, KDB Daewoo Securities Research
Domestic firms to fare well in the global antibody biosimilar market
• Many Korean biotech firms are developing biosimilars. Some have already secured overseas marketing partners. Some have completed or are carrying out late stage clinical trials
• Celltrion: Remsima sales expanding in Europe; US FDA approval expected in 2H15Samsung Bioepis : Applied for European approval of Enbrel and Remicade (a rheumatoid arthritis treatment) biosimilars
Aprogen: Completed Phase 3 clinical trials for Remicade biosimilar in Japan
IV. Issues: Biosimilar
Healthcare
2H15 Outlook 16
Source: KDB Daewoo Securities Research
Samsung Bioepis’ pipeline Samsung Group’s healthcare business value chain
Source: Samsung Bioepis, KDB Daewoo Securities Research
Samsung’s healthcare business to pick up
• Samsung Group has invested heavily in the bio business as one of its future growth engines
• IPOs of Samsung SDS and Cheil Industries to provide greater detail on the progress of Samsung’s healthcare business
• Samsung to gain a structural advantage in the healthcare industry over the long term To establish the core value chain for the healthcare business, composed of hospitals (service),
pharmaceutical companies (treatment), and medical equipment producers (diagnosis) Healthcare business to take off from 2016 in line with full-scale growth of biosimilar sales
Source: Ministry of Food and Drug Safety, KDB Daewoo Securities Research
New drug approvals in Korea Including herbal drugs, the number of new drug approvals was over 25
Domestic companies’ R&D capabilities are improving
• Since the separation of drug prescribing and dispensing in 2000, domestic pharmaceutical and biotech companies have steadily shifted their focus to R&D
• Until now, 25 new drugs have been approved in Korea
• New drug approvals have recently risen
V. Mid- to long-term outlook: Pipelines
0
2
4
6
8
10
~00 01~05 06~10 11~15
(#)
TIP
Healthcare
2H15 Outlook 18
Source: KDRA, Press, KDB Daewoo Securities Research
Out-licensing and export contracts with companies in advanced countriesDomestic firms’ out-licensing and export contract trend
Source: KDRA, Press, KDB Daewoo Securities Research
Domestic firms’ overseas expansion through in-house developed drugs
• Domestic pharmaceutical and biotech companies have signed a total of 146 out-licensing or supply contracts for their in-house developed drugs
• Partnerships with overseas firms have also been on the rise since 2000
• Of note, contracts with companies in advanced countries are increasing, indicating improved quality and commercial potential of domestic firms’ products
V. Mid- to long-term outlook: Pipelines
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Healthcare
2H15 Outlook 19
Overseas commercialization and partnerships to progress
• Pharmaceutical companies are building drug pipelines
• Commercialization of in-house-developed drugs are expected to make progress
• Several Korean pharmas are seeking to license-out their in-house-developed drugs overseas
V. Mid- to long-term outlook: Pipelines
Source: KDRA, media reports, KDB Daewoo Securities Research
Drug pipeline (2)Drug pipeline (1)
Source: KDRA, media reports, KDB Daewoo Securities Research
Company DivisionCode/project/brand
Major indication Phase
Celltrion Biosimilar Remsima Rheumatoid arthritisLaunched in Korea, Europe,Canada, Japan, and elsewhereSubmitted NDA in the US
CT-P06 Breast cancer Secured MFDS approval
CT-P10 Non-Hodgkin's lymphoma Global Phase 3
Biologics CT-P27 Influenza Global Phase 2a completed
HanmiPharm.
Biologics HM12470 Diabetes Phase 1
HM11260C Diabetes & obesity Phase 2
HM10460A Neutropenia Phase 2
HM10560A Growth hormone Phase 2
Chemical HM71224 Rheumatoid arthritis Phase 1
HM95573 Solid cancer Phase 1
Poziotinib Lung cancer Phase 2
Oraxol Gastric cancer Phase 2
HM61713 Lung cancer Phase 2
ALG-1001 Retinal disease Phase 2
Yuhan Biologics Degenerative disc disease Phase 2
Chemical YH4808 Reflux esophagitis Phase 2
YH12852 IBS Phase 1
Green Cross Vaccine GC1107 Tetanus, diphtheria Phase 3
MG1109 Avian influenza Phase 3
GC3110A Influenza vaccine Phase 3
GC1109 Anthrax bacterium Phase 2
GC3106A Influenza vaccine Phase 1
MG1111 Chickenpox Phase 1
Company DivisionCode/project/brand
Major indication Phase
Green Cross Biologics IVIG SN PID Phase 3 (US)
GreenGene F Hemophilia type A Phase 3 (US)
Hunterase Hunter syndromeSecured MFDS approval;US clinical trials in progress
Herceptin biosimilar Breast cancer/gastric cancer Pre-clinical phase completed
hGH-NexP Growth hormone deficiency Phase 1
Other Milk booster Cow milk booster Phase 3
Medifron Chemical TRPV1 antagonist Neuropathic pain Pre-clinical
A β aggregation inhibitor Alzheimer's dementia Phase 1 (Korea)
RAGE antagonist Alzheimer's dementia Pre-clinical
Other AD diagnostic kits Submitted MMA to the EMA (EU)
Samsung Bioepis
BiologicsEnbrel Biosimilar Rheumatoid arthritis
Submitted MAA to the EU EMA
Remicade Biosimilar Rheumatoid arthritisSubmitted MAA to the EU EMA
Herceptin Biosimilar Breast cancer Phase 3
Humira Biosimilar Rheumatoid arthritis Phase 3
Lantus Biosimilar Diabetes Phase 3 completed
Aprogen Biologics Remicade Biosimilar Rheumatoid arthritis Phase 3 in Japan
Company Division Code/project/brand Major indication Phase
Genexine Bio better GX-E2 Anemia Phase 2
GX-H9 Growth hormone deficiency Phase 2
GX-G3 Leukopenia Phase 1 completed
Biologics GX-188E Cervical cancer Phase 2
GX-110E HBV chronic infection Preparing Phase 2
CTC Bio Super generic Sildenafil OSF Erectile dysfunction Approved
Tadalafil OSF Erectile dysfunction Approved
Desmopressin OSF Nocturia Phase 1
Sildenafil + Clomipramine complex
Erectile dysfunction + prospermia Phase 2
Mezzion Chemical Udenafil Erectile dysfunctionSubmitted NDA to US FDA
Prostatism Phase 2
Erectile dysfunction + prostatism Phase 2
Pulmonary hypertension Phase 2
CrystalGenomics Chemical Acelex Arthritis Approved
CG400549 Antibiotic for super bacteria Phase 2
CG200745Myelodysplastic syndromes (MDS)
Phase 1
CG026806 Blood cancer Pre-clinical
JW Shinyak Chemical Thrupas ODT Prostatism Phase 1
Biologics CreaVax RCC Kidney cancer Phase 3 completed
CreaVax HCC Liver cancer Phase 3
CreaVax RA Rheumatoid arthritis Phase 2
Actemra SC Rheumatoid arthritis Approval
Healthcare
2H15 Outlook 22
Source: KDB Daewoo Securities Research
Quarterly operating profit of KDB Daewoo Healthcare universe12-month forward P/E band of KDB Daewoo healthcare universe
Source: KDB Daewoo Securities Research
Maintain Overweight on Healthcare
• Healthcare stocks underwent sharp re-rating on increased expectations of overseas expansion Pharmaceuticals: Re-rating to continue on progress in overseas clinical trials of new drugs, and
expectations of technology out-licensing and export growth Medical equipment/supplies: Valuation premium justified, in light of a projected rise in global
market share, driven by overseas expansion and localization
Source: Thomson Reuters, KDB Daewoo Securities Research
Korean pharmaceutical stocks receive valuation premiums due to new drugs
• Emerging market pharmaceuticals are garnering heftier valuation premiums (relative to market) than those in developed markets, due to expectations of stronger mid/long-term earnings and fundamentals
• Korean pharmaceuticals are enjoying even higher premiums than emerging market peers, thanks to: strong earnings growth projections for 2016, and increased likelihood of overseas expansions with in-house developed drugs (which made a greater contribution to NPV)
VI. Investment recommendation
Revenue growth (%) EPS growth (%)
2015F 2016F 2017F 2015F 2016F 2017F
World 3.5 5.7 4.8 6.9 11.8 10.3
DM 3.2 5.5 4.5 6.7 11.6 10.2
EM 15.3 14.4 17.1 21.6 23.2 16.5
Korea 6.7 13.6 7.4 11.0 51.7 15.3
US 1.8 7.9 4.8 4.6 13.0 10.9
EU 7.8 3.6 4.0 5.3 8.6 8.2
Japan - 4.2 0.5 - 95.4 5.9
China 18.6 18.3 16.5 19.1 22.2 20.6
India 14.3 14.8 32.2 20.4 20.7 15.8 0
10
20
30
40
50
World DM USA Europe Japan EM Korea China India
Pharma P/EMarket P/E
(x)
DM EM
Healthcare
2H15 Outlook 24
Note: As of May 29th; Source: Bloomberg, KDB Daewoo Securities Research
Reassessed pipeline value to boost valuation premium
Investment points
• Milestones and royalty income related to Sivextro likely to grow in light of growing US prescriptions and launch in Europe
• Company is anticipated to launch the diabetes treatment Evogliptin in Korea in end-2015. This drug is likely to drive the company’s prescription drug revenue growth in 2016. The future value of Evogliptinseems robust in light of expanding overseas partnerships and progress in overseas clinical trials
• The value of new drugs is growing. The company successfully forged overseas partnerships for DA-9801 (diabetic neuropathy) and is making steady progress in US clinical trials
• The company succeeded in Phase 1 European clinical trials for DA-3880 (anemia) and is likely to succeedin Phase 1 trials in Japan as well, raising the future value of the drug
• Earnings to improve, driven by a turnaround of the prescription unit and robust exports
Risks
• Lawsuits against the government, which excluded Stillen from national insurance coverage; and price cut for Stillen due to the patent expiration.
Note: All figures are based on Separate K-IFRSSource: KDB Daewoo Securities Research
FY (12) 12/12 12/13 12/14 12/15F 12/16F 12/17F
Revenue (Wbn) 931 496 568 586 632 688
OP (Wbn) 88 39 48 57 68 77
OP Margin (%) 9.5 7.9 8.5 9.7 10.8 11.2
NP (Wbn) 68 -65 34 37 43 51
EPS (W) 0 -11,546 4,452 4,839 5,647 6,603
ROE (%) 9.2 -11.0 7.4 7.4 8.1 8.9
P/E (x) - - 20.6 32.5 27.9 23.9
P/B (x) - 1.7 1.4 2.3 2.2 2.0
(Maintain) Buy
Target Price (12M, W) 207,000
Share Price (05/29/15, W) 157,500
Expected Return 31%
OP (15F, Wbn) 57
Consensus OP (15F, Wbn) 54
EPS Growth (15F, %) 8.7
Market EPS Growth (15F, %) 37.0
P/E (15F, x) 32.5
Market P/E (15F, x) 10.6
KOSPI 2,114.80
Market Cap (Wbn) 1,213
Shares Outstanding (mn) 8
Free Float (%) 49.2
Foreign Ownership (%) 24.9
Beta (12M) 0.75
52-Week Low 80,600
52-Week High 161,000
(%) 1M 6M 12M
Absolute 24.0 79.8 60.2Relative 25.6 68.4 52.5
70
80
90
100
110
120
130
140
150
160
170
5.14 9.14 1.15 5.15
Dong-A ST KOSPI
Healthcare
2H15 Outlook 26
Source: Cubist, Bloomberg, Dong-A ST, KDB Daewoo Securities Research
Evogliptin structure
US prescriptions for Sivextro rising Sivextro structure
Exports of Evogliptin technology
Top picks
Notes
Code DA-1229 (evogliptin)
Mechanism DPP-4 inhibitor
Indication Type 2 diabetes
Partners Luye, Alkem, Eurofarma
License-outDeals
• Licensed out to Luye Pharma Group of China for the Chinese market in 2012, and will export APIs
•Under phase 1 clinical trial• Licensed out to Alkem Laboratories of India for the Indian and Nepali markets in 2012, and
will export APIs•Preparing for Phase 3 clinical trial•Licensed out to Eurofarma of Brazil for the Brazilian market in 2014, and will export APIs•Licensed out to Eurofarma of Brazil for the 17 Latin Amercan countries including Mexico in
April 2015, and will export APIs
CompetitivenessNot require dose titrations in renal-impaired patients with diabetes because of low renal elimination of Evogliptin
• Licensed out to Luye Pharma Group of China for the Chinese market in 2012, and will export APIs
• Under phase 1 clinical trial• Licensed out to Alkem Laboratories of India for the Indian and Nepali markets in 2012, and
will export APIs• Preparing for Phase 3 clinical trial• Licensed out to Eurofarma of Brazil for the Brazilian market in 2014, and will export APIs• Licensed out to Eurofarma of Brazil for the 17 Latin Amercian countries including Mexico in
April 2015, and will export APIs
CompetitivenessNot require dose titrations in renal-impaired patients with diabetes because of low renal elimination of Evogliptin
-20
0
20
40
60
0
10
20
30
40
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Sales of dental implants (L)YoY (R)
(Wbn) (%)
0
100
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2
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Sales of dental chairs (L)YoY (R)
(Wbn) (%)
Osstem Implant (048260 KQ)
Healthcare
2H15 Outlook 31
Note: As of May 29th, Source: Bloomberg, KDB Daewoo Securities Research
Valuations and financials of major dental implant companies
Top picks
Company Nobel Biocare Straumann Dentsply ZimmerTicker NOBN SW Equity STMN SW Equity XRAY US Equity ZMH US EquityCurrency EUR CHF US$ US$Price (US$) 18.0 265.2 52.0 114.1Market cap (US$mn) 2,227 4,150 7,275 19,441 Revenue (US$mn) 2014A 753 777 2,923 4,673
• China revenue to increase with creation of a marketing organization in the country; China plant to be completed in 3Q
• The unfavorable market environment facing larger global peers to serve as an opportunity for i-SENS to expand its global market share based on it competitive price, high quality, and established track record
Risks
• Price cuts
• Entry of global IT giants (Apple, Google, SEC, etc.) into the blood glucose monitoring market
Note: All figures are based on Separate K-IFRSSource: KDB Daewoo Securities Research
FY (12) 12/12 12/13 12/14 12/15F 12/16F 12/17F
Revenue (Wbn) 66 83 92 107 124 141
OP (Wbn) 8 19 19 25 31 36
OP Margin (%) 12.1 22.9 20.7 23.4 25.0 25.5
NP (Wbn) 9 18 16 21 26 31
EPS (W) 1,113 2,024 1,714 2,270 2,823 3,362
ROE (%) 13.9 21.0 13.9 15.9 16.8 16.9
P/E (x) - 20.5 36.8 24.0 19.3 16.2
P/B (x) - 3.6 4.8 3.5 3.0 2.5
(Maintain) Buy
Target Price (12M, W) 72,000
Share Price (05/29/15, W) 54,500
Expected Return 32%
OP (15F, Wbn) 25
Consensus OP (15F, Wbn) 24
EPS Growth (15F, %) 32.4
Market EPS Growth (15F, %) 37.0
P/E (15F, x) 24.0
Market P/E (15F, x) 10.6
KOSDAQ 711.39
Market Cap (Wbn) 496
Shares Outstanding (mn) 9
Free Float (%) 74.4
Foreign Ownership (%) 39.0
Beta (12M) 1.16
52-Week Low 42,550
52-Week High 69,500
(%) 1M 6M 12M
Absolute 9.4 -13.5 12.4Relative 7.0 -33.7 -13.2
70
80
90
100
110
120
130
140
150
5.14 9.14 1.15 5.15
i-SENS KOSDAQ
Healthcare
2H15 Outlook 34
Source: Company data, KDB Daewoo Securities Research
Exports to AgaMatrix
Exports to ArkrayDomestic blood glucose monitor sales
Exports to China
Top picks
0
8
16
24
0
8
16
24
2012 2013 2014 2015F 2016F
Domestic BGMS sales (L)YoY (R)
(Wbn) (%)
0
80
160
240
0
8
16
24
32
2013 2014 2015F 2016F 2017F
Exports to Arkray (L)
YoY R)(Wbn) (%)
-10
0
10
20
0
7
14
21
28
2013 2014 2015F 2016F 2017F
Exports to Agamatrix (L)YoY (R)
(Wbn) (%)
0
10
20
30
40
0
3
6
9
2013 2014 2015F 2016F
Exports to China (L)YoY (R)
(Wbn) (%)
i-SENS (099190 KQ)
Healthcare
2H15 Outlook 35
Source: Roche, Johnson & Johnson, Bayer, Abbott, KDB Daewoo Securities Research
Celltrion (068270 KQ) Cheil Industries (028260 KS) Schnell Biopharmaceuticals (003060 KS)Rating Not Rated Rating Not Rated Rating Not RatedCurrent price (05/29/15, W) 69,000 Current price (05/29/15, W) 192,000 Current price (05/29/15, W) 584
Investment points
• Remsima sales in Europe likely to expand (rheumatoid arthritis)
• Remsima expected to obtain US FDA approval
• Approval for Herceptin (breast cancer) and Rituxanbiosimilars to be submitted in Europe (rheumatoid arthritis)
Investment points
• Progress in commercialization of several biosimilar drugs of Samsung Bioepis (second-tier subsidiary) in Europe Investment points
• Subsidiary Aprogen completed Phase 3 trials for Remicade biosimilar in Japan (rheumatoid arthritis); Schnell has secured a license to exclusively market the drug in Korea
• Based on Japanese clinical trial results, Schnell is expected to request approval in Korea commercialization to begin in Korea
Risks
• Failure to successfullycommercialize Remsima
• Delay to Remsimacommercialization in the US
• Delay to commercialization of pipeline drugs
Risks • Delay to commercialization in Europe Risks • Delay to Remicade biosimilar
commercialization in Korea
Komipharm (041960 KQ) GemVax & KAEL (082270 KQ) Medifron DBT (065650 KQ)Rating Not Rated Rating Not Rated Rating Not RatedCurrent price (05/29/15, W) 28,900 Current price (05/29/15, W) 41,500 Current price (05/29/15, W) 4,485
Investment points
• Robust exports of veterinary drugs
• Porcine epidemic diarrhea vaccine approved in China (vaccine exports to increase)
• PANAPHIX (cancer pain drug)approved and launched in Australia
Investment points
• Riavax (pancreatic cancer) launched in Korea
• Technology license-out to China (Riavax)
• Exports to China to begin with establishment of Hualian-GemVax mid/long-term earnings to
improve
Investment points
• Dementia diagnostic kits receive CE mark in Europe
• Progress in development of RAGE antagonists (anti-Alzheimer agent)
• Technology license-out of TRPV1 antagonist (diabetic pain drug)
Risks • Delay to commercialization of PANAPHIX Risks
• Lackluster sales of Riavax• Delay to technology license-out• Delay to establishment of Hualian-
GemVaxRisks
• Delay to approval of dementia diagnostic kits in Europe
• Delay to RAGE antagonistdevelopment
• Delay to technology license-out of TRPV1 antagonist
Healthcare
2H15 Outlook 38
Overseas commercialization of in-house developed drugs to lead to valuation re-rating
Source: KDB Daewoo Securities Research
[Conclusion] Valuation premium to widen
0
100
200
300
1/13 7/13 1/14 7/14 1/15 7/15 1/16 7/16 1/17
KOSPI Pharmaceuticals(1/13 = 100)
Samsung BioepisForms biosimilarpartnership with US-based Merck
HanmiLaunches Esomezol in US
HanmiCompletes Phase 2b for LAPS-Exd4 in US
LGLSGains approval of DPP-4 inhibitor in emerging countries
Green CrossFDA approves IVIG-SN in US
Dong-A STGains approval and launches tedizolid phosphate
<Government announced plans to nurture pharmaceutical industry>
- Investor sentiment improves
<De-rating>- Failure to commercialize
Green CrossNDA for IVIG-SN in US
DaewoongReceives approval for clinical trials of Nabota in US
Chong Kun Dang Phase 2b for beloranib in US
CelltrionLaunches Remsimain Japan
DaewoongFDA approves Nabota in US
Chong Kun Dang FDA approves beloranib in US
CelltrionEMA approves Herzuma in Europe
CelltrionLaunches Remsima in Western Europe
Samsung BioepisEMA approves Enbrel biosimilar in Europe
<Re-rating>- Overseas launches of in-house developed products- Large companies' advances into healthcare market to
accelerate
Important Disclosures & Disclaimers 2-Year Rating and Target Price History
Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price
Osstem Implant(048260) 05/17/2015 Buy 69,000 No Coverage
02/01/2015 Buy 61,000
Stock Ratings Industry Ratings
Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving
Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes
Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening
Sell : Relative performance of -10%
Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
0
50,000
100,000
150,000
200,000
250,000
Jun 13 Jun 14 Jun 15
(W) Dong-A ST
0
20,000
40,000
60,000
80,000
Jun 13 Jun 14 Jun 15
(W) Osstem Implant
0
20,000
40,000
60,000
80,000
100,000
Jun 13 Jun 14 Jun 15
(W) i-SENS
Equity Ratings Distribution
Buy Trading Buy Hold Sell
71.9% 13.8% 14.3% 0%
* Based on recommendations in the last 12-months (as of March 31, 2015)
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Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. 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Disclosures We managed the IPO of Cheil Industries Inc., which listed on December 18, 2014.
under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
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