Medtech star rising on a wider horizon

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Assuming coverage with OUTPERFORM and a S$2.00 target price (this

moves from S$0.80 as coverage shifts). We are assuming coverage on Biosensors, a leading interventional medtech player in emerging markets, with an OUTPERFORM rating and a target price of S$2.00, implying 47% upside. With the increasing adoption of its proprietary BioMatrix™ family drug-eluting stents (DES), Biosensors is on a rapid growth curve in lucrative emerging markets.

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Right on the secular growth curve. There is significant upside supported by solid near-term growth drivers: (1) strong licensing revenue growth from the Japan market after the May launch, (2) faster market share expansion in emerging markets such as China, and (3) new product launches. We believe recently-raised FY12 revenue growth guidance (up 70–80% YoY) is conservative, and expect revenue and EPS growth to reach 90% YoY.

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Value beyond drug-eluting stent (DES).  We see the value as under recognised this is not only a leading cardiac DES player but has also developed an integrated proprietary interventional medtech platform that can be applied to address many multi-billion-dollar non-cardiac markets. with Weigao having become its largest shareholder, transformation from a ‘DES only product company’ to a ‘diversified platform company’ should accelerate  BioMatrix™ approval in China and new product buys stand as catalysts.

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Valuation seen as attractive:

But, Biosensors is trading below 10.5x FY13E (by 31 March 2013) EPS and at PEG of 0.3, implying over 32% growth. We believe it is under-valued, thus set its target price at S$2.00 based on 15.5x FY13E EPS and a PEG of 0.5, below peers. The risks include loss of key personnel, pipeline failure, delayed product launches and fierce competition.Its China-listed medtech peers are trading at 16.7x 2012E EPS and a PEG of 0.9, implying ~20% 2011-13E EPS CAGR.

We attended Biosensors’ analyst briefing yesterday and were delighted to see the presence ofcBiosensors’ senior management team and Weigao’scmanagement. It was clear to us that both companiescare excited about the future collaboration to liftcBiosensors to the next level.

The presence of Biosensors’ management team – ChieLu Yoh (Chairman), Jack Wang (President and co-CEO), Jiang Qiang (former Weigao CFO, now on the board of Biosensors), Ronnie Ede (CFO, former Mindray CFO) and Phyllis Chan (Weigao’s head of IR and corporate strategy) – showed that management was eager to communicate the new corporate strategy. We were pleased to see Mr. Jiang, who has left the listed arm of Weigao (1066.HK) and become a senior manager at the parent company, Weigao Group, joined the meeting and expressed the strong commitment behind Weigao’s involvement in Biosensors’ future strategy and operation.

“We will find every possible way to work together” was the key message both Biosensors’ Chairman Yoh and Jiang Qiang (from Weigao) emphasized at the meeting. We sensed these two companies are working very closely on their future strategy.

What does “Platform” mean?

  2) Product platform from acquisition: Biosensors and Weigao will identify external opportunities in interventional areas via acquisitions Please read more takeaways inside.)

3) Network platform: Biosensors will expand its global distribution network to sell its and Weigao’s products. Management said repeatedly that the new products are not limited to the vascular/stent area. (

“We want to be Asia’s J& J”: Biosensors intend to grow beyond stents, as they are preparing to become a medical device platform like J& J in Asia. Now, with the help of Weigao, they will enhance the company’s manufacturing capability and China sales network.

Opportunities to come:

1) BA9 and its biodegradable polymer – Biosensors’ proprietary drug BA9 (which dissolves fat faster than drugs that are currently available in the market), and biodegradable polymer (the first in the market) are the core of Biosensors IP in the DES area. Management believes these two products could have more applications in the future. An example management provided was Everolimus, a Novartis drug Biosensors used in its older stents before its own BA9 started to be used in cancer applications by Novartis. For Biosensors, BA9 could be another winner for non-DES business, but it is too early to quantify its potential contribution on other applications besides DES.

2) Peripheral vascular market –

cardiovascular issues, which are much more complicated than peripheral vascular issues (peripheral vessels are much larger and less potentially fatal than those around the heart). Theseinclude below-knee vessels, which help diabetic patients, and potentially brain vessels, which could prevent strokes.

Licensing to Abbott and indirectly to Boston Scientific:

Another item of good news is that Biosensors might receive licensing revenues from Abbott when Abbott’s stents are commercialized, because Abbott is using some of Biosensors’ technology. Boston Scientific also ses the technology via Abbot, and so Biosensors could also benefit from that.

Excel organic volume growth estimated at +20%YoY:

Management told us, however, that the +20%YoY that Excel is recording now is pure organic growth.

JWMS) told us Weigao has been working 4-5 years for the deal with Biosensors. He believes Weigao and Biosensors will prove synergistic in both regional coverage and manufacturing. Weigao is currently the largest medical device/consumables company in China, while its international revenue is only 5% of Weigao’s. In addition to the equity income from Biosensors, Weigao also sees more business opportunities. Weigao can provide low-cost, vertically integrated manufacturing for Biosensors’ products and also leverage Biosensor’s international network with its own products.Excel via JWMS has been growing exponentially in volume growth since it entered China in 2006 but has slowed down to +20%YoY in 2011, based on the company’s estimates.Why Weigao is keen to work with Biosensors: Jiang Qiang (former CFO of Weigao, now on  he board of directors in Biosensors following Biosensor’s acquisition of 100% ofSince J& J decided to exit the market, Biosensors believe they are ranked fourth in the global stent market, behind Boston Scientific, Abbot and Medtronic. Although there are already players in a global vascular market worth US$33bn, Biosensors believe they are a credible potential entrant and market-share gainer because their stent technology tacklesBiosensors indicated that a core strategy is to transition from a stent to a platform company. Here is our interpretation: 1) Product platform from internal build-up: Biosensors will continue to develop its proprietary stent technology, expanding from heart to peripheral use