Biosensors revenue guidance lowered

• 3QFY13 core PATMI slips 9.2% YoY
• Drug-eluting stent business continues to perform well
• Lower FV to S$1.63

3QFY13 results missed our below-consensus estimates
Biosensors International Group (BIG) reported a disappointing set of 3QFY13 results which were below ours and the street’s expectations. Revenue fell 4.0% YoY to US$81.3m, its first YoY topline decline since 1QFY10, given weak licensing and royalties revenue (-37.8% YoY) from Terumo Corp. This was 11.2% below our forecast. Headline PATMI showed a 91.4% YoY plunge to US$24.9m, but investors should note that there was a one-off non-operating and non-cash fair value accounting gain of US$273.2m in 3QFY12 as a result of BIG’s acquisition of JWMS. Excluding this and other exceptional items, we estimate that core PATMI declined 9.2% YoY to US$24.3m, falling short of our forecast by 20.3%. For 9MFY13, revenue and core PATMI grew 21.3% and 13.0% to US$247.4m and US$81.9m, respectively.

Lowers revenue guidance, but still some positives
BIG lowered its revenue growth guidance for FY13 from 20-30% to 15- 20%. This was mainly due to weaker-than-expected licensing and royalties revenue from Japan. However, Terumo mentioned recently that its Nobori® stent sales are gradually
recovering after bottoming out. BIG maintained its initial expectations on robust product revenue growth. It continued to deliver double-digit YoY drug-eluting stent (DES) sales growth in EMEA and APAC.

Maintain BUY
We pare our core PATMI projections for FY13 and FY14 by 9.5% and 13.8%, respectively. However, the latter is partly due to the input of higher interest expenses from its recent S$300m, 4.875% four-year fixed rate notes issuance, of which proceeds are highly likely to be used for acquisition opportunities which we expect to be accretive to its earnings. Management highlighted that it is in various stages of discussions with several potential M&A targets, with some of these discussions nearing completion. We have not incorporated any contribution from possible new acquisitions in our assumptions. As a result of our revised earnings forecast and debt issuance by BIG, our FCFE-based fair value estimate is lowered from S$1.69 to S$1.63. Maintain BUY.

Obtained CE Mark approval for BioFreedom™ drug-coated stent BIG announced recently that it had obtained the CE Mark approval for its next-generation polymer-free BioFreedom™ drug-coated stent (DCS). One of the key advantages of BioFreedom™ is that it would avoid the late adverse effects that might be attributable to the polymer on a stent. This approval was aided by positive clinical trial results which highlighted the safety and efficacy of the product. BIG expects to launch the BioFreedom™ DCS in selected markets during 2013, with a full commercial launch anticipated in 2014.

BIG also recently enrolled the first patient (a total of ~2,500 patients expected to be enrolled eventually by early 2014) in the LEADERS FREE study involving BioFreedom™, as a means of further evaluating the use of BioFreedom™ in a larger patient population and providing support data for its commercial launch of BioFreedom™. We understand that the BioFreedom™ DCS , which requires only a one month course of dual anti-platelet therapy (DAPT), would initially be targeted at patients who are at high risk of bleeding and thus unsuitable for a prolonged course of DAPT, which is typically required for most DES. Hence we believe that there would be minimal cannibalisation risk between BIG’s BioFreedom™ DCS and BioMatrix™ DES. Initial contribution from BioFreedom™ is likely to be small, in our opinion, as BIG is seeking to obtain more clinical data and full commercial launch is expected only in 2014. However we expect BioFreedom™ to be a new growth driver for BIG in the medium term future.

Expanding its product portfolio
Besides its BioFreedom™ DCS, BIG also said that it has signed an OEM agreement for both coronary and peripheral drug-eluting balloons, which will be marketed under its brand name. These products have already obtained several regulatory approvals including the CE Mark and they will be available for worldwide distribution by BIG. It also plans to launch a new version of its flagship BioMatrix Flex™ DES, which is expected to have a better deliverability function. Other product offerings include an intention to launch a product extension of its Axxess™ bifurcated DES.