Maintain BUY
Previous Rating: BUY
Current Price: S$1.345
Fair Value: S$1.60
From big four to big three in DES market. We believe that Biosensors International Group (BIG) could potentially benefit from recent news that Johnson & Johnson (J&J) is exiting the drug-eluting stent (DES) market by end 2011. While J&J's market share is up for grabs, we believe that competition will be intense as other big players such as Boston Scientific and Abbott Laboratories will be aggressively seeking to increase their sales. Moreover, J&J's market share had been steadily declining over the years (Exhibit 1). One disadvantage for BIG is that it has not penetrated the U.S. DES market yet, which is currently the largest market in the world. J&J's DES sales in the U.S. formed 33.8% of its overall DES revenue in FY10. Nevertheless, we expect BIG to further increase its penetration rates in other regions as a result of J&J's withdrawal. BIG had highlighted during its FY11 teleconference call that it is growing at six times of what the overall market is growing, which implies that BIG was already capturing market share from its competitors prior to J&J's announcement. Future growth would be supported by additional positive clinical trial data, coupled with the introduction of new DES products such as the Axxess bifurcated DES and BioFreedom.
All the right moves. In our opinion, recent corporate developments ongoing at BIG have been positive, notwithstanding the dilutive impact from the new placement of shares to fund future growth. These stem from (i) Terumo Corp obtaining approval for the Nobori DES to be sold in Japan, which would increase BIG's licensing revenues; (ii) strategic investments by boutique funds, which is in-line with BIG's strategy to increase its focus in China; and (iii) acquisition of the remaining 50% stake in JW Medical Systems (JWMS), one of the three largest local players in the Chinese DES market.
Maintain BUY. We view J&J's exit from the coronary stent market as an opportunity for BIG to enhance its reputation as a DES player. However, we have already accounted for strong market share gains in our assumptions and hence are retaining our estimates. We believe that continued penetration in new geographical markets and existing ones would underpin BIG's earnings trajectory ahead. BIG's next re-rating catalyst could come from obtaining approval from China's State Food and Drug Administration for its BioMatrix family of DES. We understand that progress is being made and approval could be imminent, given positive clinical trial results and China's rising demand for stent treatments. Our DCF-based fair value estimate of S$1.60 implies a potential upside of 19.0%. Reiterate BUY.
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