1st April 2008

Company Analysis

Prepared for

Professor Fu Fang Jian

FNCE 201 G2 Corporate Finance

Prepared by: Liu Anyuan Tan Wei Yi Her Wei Li

G3509831W S8440417I S8504283A

Biosensors International Group is a pure play medical devices company listed on the SGX which specializes in the design, research, development and marketing of specialized products used in critical care and interventional cardiology medical procedures. It is an emerging player in drug-eluting stents (DES), an evolving therapy that is rapidly gaining acceptance and market share from traditional therapies such as bare-metal stenting and open heart surgery. Biosensors has developed its proprietary BioMatrix Drug Eluting Stent (DES) which is its flagship product for commercialization. The BioMatrix DES has technology superiority over the current DES available in the industry in terms of having the highest success rates of implantation and lowest re-closure of artery rates. These 2 key features will allow Biosensors to dominate the lucrative USD6bn DES industry. This paper offers a description snapshot towards Biosensors overall financial health and operating performance, with particular emphasis on the corporate financing measures throughout the various phases as it prepares to push its flagship product into the market. We will discuss at length three major transactions in the history of Biosensors and analyze their underlying motivations, and how the transactions will impact the company’s future. The three transactions of focus will be Biosensors’ Initial Public Offering in 2005, its issuing of USD 45 mn unsubordinated debt in late 2006 and finally the successful acquisition of a Chinese pharmaceutical company, JW Medical Systems. Finally we would conclude with a favorable assessment of Biosensors’ past business strategies and offer our prediction on Biosensors’ short to long term future.

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Biosensors International

CONTENTS PAGE Executive Summary Report Company Profile Industrial Overview Business Strategy Analysis of Key Transactions Conclusion Appendices 2|P a g e Biosensors International .

does not cause injury the vessel unlike other DES systems which uses cytotoxic drugs which prevents restenosis by cell destruction. the Netherlands and China. Its unique differentiated safety design technology is set to be the next generation of DES technology once CE Mark and FDA approval is obtained. Due to the life sensitive nature of the industry. Mr. the company has offices in Singapore. The company has manufacturing operations in Singapore. which will be coated on its S-Stent and in-house catheter delivery system. This is a result of its proprietary Biolimus-A9 drug that belongs in the cytostatic family that prevents restenosis by blocking receptors on the surface of the cells to inhibit cell reproduction. the company has subsequently developed a unique Drug-Eluting Stent1 (DES) incorporating its own proprietary bio-reabsorbable polymer and proprietary drug Biolimus-A9. Europe. Biosensors International designs. This is due to the fact that BioMatrix is the only DES utilizing cytostatic drug combined 1 Refer to Appendix A for description of Drug Eluting Stents Biosensors International 3|P a g e . Key to Biosensors’ growth is the successful commercialization of the DES system. So far clinical trials have presented the BioMatrix as the lowest restenosis rates in the entire industry which is a key differentiating point from its competitors The combination of the bio-reabsorbable coating with the Biolimus-A9 drug makes the BioMatrix a novel DES system. Japan. the BioMatrix offers an additional advantage as its polymer coating is bio-reabsorbable. the proprietary BioMatrix prevents the re-closure of the artery (restenosis) and at the same time. Biosensors has two main lines of business . Malaysia as well as China.COMPANY PROFILE Introduction Established in 1990. Yoh-Chie Lu. Flagship Product – BioMatrix Drug-Eluting Stent (DES) Unlike the other DES systems.the stable and mature critical care business. Biosensors launched its Initial Public Offering in 22 Apr 2005. and the more recent interventional cardiology business including the Bare Metal Stents (BMS) and the Drug-Eluting Stents (DES). Under its founder. Incorporated in Bermuda with total staff strength of 267 as of 30 September 2004. regulatory approval which takes roughly from 1-3 years is a requirement for the commercialization of the products. USA. develops and markets medical equipment including special diagnostic and therapeutic cardiovascular catheters and interventional cardiology products. While competing DES platforms have combined BMS with drug and polymer coating successfully.

manufacturers gain experience and expertise leading to a high efficiency and less errors which can lead to high cost. Conor Medical Systems (currently acquired by J&J) as well as Biosensors are looking for a piece of the pie. the possibility of product functionality does. All the consumers look for the best product in terms of safety of use and they evaluate primarily on their ability to prevent restenosis over the longest period of time. we must first consider the principal drivers of industry structure. and are in various stages of regulatory approval for the DES systems. the high product margins make this an extremely lucrative industry. However. Currently Biosensors has obtained the CE Mark approval for the commercialization of the BioMatrix DES system on the 18th January 2008. In order to analyse the dynamics of the coronary stent industry. CAD2 caused about 452. In this industry. Since the introduction of drug eluting stents (DES) in 2002. The coronary stent market is the largest market within interventional cardiology with a market size of over USD6bn. INDUSTRIAL OVERVIEW Cardiovascular diseases are the leading causes of death in the world and this is largely due to coronary artery disease (CAD). It is extremely easy to reverse-engineer a drug-eluting stent and analyzed by another hence a unique product is yet to be seen. In 2005. Abbott. heterogeneity of demand does not exist. The market size has also expanded significantly as a result of unit growth increases. it is not a huge factor.with the bio-reabsorbable polymer stent coating in the industry. Branding is 2 Refer to Appendix B for background of CAD 4|P a g e Biosensors International . Switching cost is not present in this industry. Johnson & Johnson and Boston Scientific both dominate the global coronary stent market with a combined market share of about 90%. However. There is a high learning curve. product margins are approximately 60% of net margins. relationships with physicians. large sales force and brand) serves as an effective barrier to entry. However. BMS (the DES costs more than twice as much as the BMS). The industry has continued to deliver abnormal returns because the large complementary asset base (manufacturing capability. Though economies of scale exist. newer companies such as Medtronic. demand has shifted towards DES due to lower restenosis rate among patients treated with DES. Cost per unit will decline with increasing number of units produced. as well as the higher average selling price of the DES as compared to the Bare Metal Stents. Market Drivers Overall.300 deaths in 2004 and is the leading cause of death in America today.

3) Deliverability. BUSINESS STRATEGY Leadership in Interventional Cardiology Biosensors has been able to distinguish itself from its other rivals and is regarded as one of the leaders in the drugeluting stent (DES) market. 4) Availability. the regulatory authorities need to know if new medical products to be introduced in the market are just as effective. Unlike most healthcare consumer goods which are primarily dictated by price. 3 Refer to Appendix C http://www. They have set out certain plans to accomplish their goal. stent delivery catheters. Their vertically integrated capabilities which includes research and development.biosensorsintl.very important in this industry and once a relationship with surgeons and physicians is established. 2) Efficacy. The company has the goal of becoming the leading interventional cardiology device company with an initial focus on Asia and Europe4. a polymer and a proprietary drug. Biosensor's DES stent has received good reviews as it was specifically designed with wider struts and more uniform geometry to optimize the release of anti-restenosis drugs by using its proprietary asymmetrical coating process. this will drive sales. hospitals need to stock up on a number of varying sized stents. After safety. Develop Vertically Integrated Capabilities They are continuously internally developing their capabilities and technology to address each component of the DES system. if not more. production and marketing gives them a competitive advantage in pursuing product improvements independent of third party sources and ensuring a high product quality. than present products. Stents must be available at the point of decision by the cardiologist performing the operation. This consists of stents. As such. the DES market is determined primarily by 4 main factors3: 1) Safety.com/sub.htm Biosensors International 4 5|P a g e . This is the top most concern for clinicians and patients alike.

The success of the company is hinged upon the successful commercialization of their flagship product the BioMatrix DES system.300.Rationale 1.434. INITIAL PUBLIC OFFRING Biosensors international became a public company on 20th May of 2005 when it became listed on the SGX. The industry leaders comprises of regulatory bodies and advisory boards made up of physicians and interventional cardiologist.000 shares was six times oversubscribed. This is also seen to be able to meet the market demands and bringing them closer to the people at then end of the value chain. The initial public offering of 9. Entering licensing agreement with key industry players such as Guidant Corp has allowed them to leverage their existing market positions in interventional cardiology.000 shares.000. facilities and opportunities to expand the application of their proprietary technologies. in 2003. Ltd. The Offering consisted of an international placement to institutional investors. Acquiring and licensing complementary technologies will broaden their product line.000 shares at 70cents per share. Maintaining Strong Relationships with Industry Leaders They continuous maintain and strengthen relationships with industry leaders to have a better understanding of the changing market and clinical dynamics to enable to be more reactive to respond to the needs of their patients and physicians. Analysis of IPO .Exploring New Strategic Relationships The company has continuously made a number of strategic relationships that has enable them to remain sustainable and competitive in the market. Raising Liquidity Despite its 18 years history. Biosensors is to be considered as an infant company ever since its decision to channel its resources into drug-eluting stent development. Establishing a relationship with companies specializing in stents and complementary medical technologies has provided them with access to their products. address to a bigger market and solve unmet medical needs. doubling the public offer to 19. However the commercialization of DES is very much dependent on regulatory approvals by health authorities and the company projected the waiting period to be 6|P a g e Biosensors International . which prompted a reallocation from private placement. as well as an offering to the public in Singapore at a total of 185. One such example was their joint venture agreement with Shangdong Weigao Group Co.

8 days. and has been incurring losses consistently. The biotechnological industry in Singapore was red-hot as it grew by 40%8 the previous year.3 days to 429. due to its selling of license for its proprietary technologies. Defensive Interval With SGD68. we observed a vast improvement of the defensive interval from 176.one-north. 2. Given the risky nature of the industry. In addition. it’s the management’s imperative that the company have enough cash to enable them to survive long enough until it becomes profitable with the eventual commercialization of DES. As such.7 In the light of pending launch of DES. Income Statements See appendix E for calculations http://www. Biosensors has not been able to garner significant revenue6 without the commercialization of its DES. The management has shown prudence in giving up some of the controlling stake in exchange for additional capital to tide over the incubation period of their flagship product. Biosensors also pocketed a handsome profit of SGD14mn.aspx Biosensors International 6 7 8 7|P a g e . Hence 2005 can be deemed to be an opportune time for Biosensors to cash in on positive investors sentiments to raise the much needed funds to tide them over the next few years before the successful launch and commercialization of their flagship products. Timing of IPO Biosensors had displayed astuteness in the choice of timing for IPO. This is a stark contrast to the previous two years when it recorded losses.sg/hubs_biopolis. issuance of debt securities will be prohibitively expensive and a very short sighted measure. 5 BioMatrix was granted the CE Mark regulatory approval only early 2008.4mn net proceeds raised from IPO. the cash raised from IPO will come in handy to fund the expected increase in R&D and operational activities.two years from then5. See appendix DI.

681. a more significant observation will be the stock options exercised just prior to IPO.000. exercised. Low percentage of new shares offered Market Value at Shares Breakdown No.100 28. and reported an opening day loss of 12%.000 $32.6%.20 $0.30 $0.10 $Opening 20/05/2005 24/05/2005 25/05/2005 26/05/2005 27/05/2005 2180 2175 2170 2165 2160 2155 2150 2145 2140 BioSensors STI 8|P a g e Biosensors International . The rest were merely transferal of old shares to new investors. and was heavily hyped in the finance circles in its build up.000 185.803.80 $0. We can observe from the above table that SGD20mn worth of employee stock options were issued.700 $192. Hence its poor showing on the main board came as a surprise for some.000 $20.027. and first week loss of 13. The executives of Biosensors pocketed a handsome profit from the public listing of company.076. and sold before the IPO. While the high percentage sale of existing shares may imply a sell-out by insiders.000 45.40 $0.753.50 $0.70 $0.60 $0.9 times oversubscribed.000 A simple breakdown by the type of shares reveals that merely 60% of the total fund raised will eventually be used to fund Biosensors operations. Analysis of IPO Performance The eventual public offering was 2.000 $77. of Shares time of IPO New Shares Existing Vendor Shares Exercised Employee Stock Options Total 111.434.3. Biosensors’ IPO was one of the largest in size for the year 2005. Bio Sensor's First Week Performance $0.700.

However it is of the group’s opinion that the IPO should be most noted for the relatively low percentage of new shares issued. This led to the prevalent view that Biosensors will lack the financial muscle to take on the big boys in the industry such as the likes of J&J. a US based medical device manufacturer. Conclusion The management has shown astuteness in its IPO timing. causing public investors to cash out. The poor first-week showing by Biosensors is consistent with the general performance on the STI index in the same time period. SGX ruled that LongCheer must issue extra shares in the following four mths. Hence it is indeed unfortunate that its share price decreased since its opening due to negative market momentum. with over a third of them “sinking below water” in 20059. 9|P a g e Biosensors International . Prior to Biosensors were a string of high profile listings on SGX which sank on debut. Negative Market Momentum The timing of Biosensors’ entry into the equity markets is an unfortunate at a time when investors were averse with negative perception of new listings. Its shares dipped by 11% on opening day 10 LongCheer’s listing on SGX mainboard occurred in May 2005. was Biosensors’ best customer accounting for 59% of its revenue the previous year. Concerns over Possible Loss of Major Customers Biosensors problems were further compounded with the increased market concerns over its business risks. and its opening week performance was dogged by controversies of seed investors cashing out through IPO. cashing in upon positive market sentiments to raise much needed liquidity for its short term future. and was then facing a takeover bid by pharmaceutical giants Johnson and Johnson. causing the dismal performance which reflects weak sentiment towards new listings as market remains bearish about corporate earnings and institutional investors shun the IPO market. there were total of 17 new listings. as seed investors cash out and employee pocket a substantial amount of exercised options. 9 Up to the listing of Biosensors on SGX mainboard. 2. resulting in dumping of shares for the fear of stocks overhang. marred by controversies and technical bloopers10. 6 of which ended the opening day with a closing price below its offer price. and the stocks were almost recalled due to a technical breach. The market views the eventual merger as detriment to Biosensors business operations as it would represent a loss of revenue in the future. FerrorChina was listed on SGX mainboard in May 2005. Guidant Corporation.1.

On the bright side.95% convertible notes with principal amount of were issued in three series of SGD15mn each. they have done little to impact Biosensors’ operating performance.094 detachable warrants.DEBT FINANCING In 2007. Analysis of Convertible Notes – Rationale 1. Biosensors international decided to issue an aggregate principal amount of SGD45mn of convertible notes with 13. negotiation with the EU authorities has been going well and the long awaited CE-mark approval seemed imminent12. In order to save the issuing cost. continued to lose money as it was weighed down by high administrative and R&D costs. Income Statements CE mark approval was eventually granted in Jan08.394. The 3. Biosensors being a featherweight player in a market dominated by pharmaceutical giants would need to quickly set up its virtually non-existent marketing and distribution networks as it enters the preparation 11 See Appendix DI. with the exception of years 2004 and 200511. which. the first two series issued on November 23rd 2006. The company reserves the options to redeem the notes between May 29th 2008 and November 29th 2009. Biosensors International 12 10 | P a g e . and previously projected revenue was unable to materialize while its cash reserves were quickly drying up. This is a three-year maturity period note. The maturity date for all three series is 29 November 2009. Delays in CE mark Approval Despite the injection of fresh public funds after the IPO. the three series were sold separately to three ventures through over the counter process. This is largely due to the longer-than-expected delay in the CE-mark approval for BioMatrix by the EU authorities. while the last series issued on 5 January 2007.

13 See Appendix F 11 | P a g e Biosensors International . Biosensors would not be able to raise the target amount of USD45mn by issuing more shares without substantially diluting its existing equity interests. Lastly. Benefits of Convertibility Option The risk profile of Biosensors would render its cost of debt prohibitively high. The conversion price at SGD1. One such transaction would be an acquisition of JWMS. a crunch period when it would need to focus all its resources to make sure that BioMatrix is commercialized successfully.62% and 6. The other benefit of issuing the notes convertible will be deferring the equity dilution. a Chinese pharmaceutical company. failing which firms would go into bankruptcy. Ever since IPO. 7. given the low price levels of SGD0. companies would avoid incurring high debt levels as funds that were channeled towards R&D would not necessarily translate into expected profits. 2. and the principle and interest would only be due upon maturity. 3.70513 In addition. Hence it would be unlikely that the market would respond to additional equity issuance with warm reception.9% in their annual report (nominal rate is 3. The company defined the effective interest for the three series as 7%.95%). the price performance of Biosensors’ stock has been less-thanfavorable and investors were still reeling from the unexpected poor opening performance. which ensures that the company can avoid an immediate negative impact on their share price due to dilution. with the total interest savings to USD6. these debts are zero coupon bonds. Low Share Price Given the high-risk nature of the pharmaceutical industry. and the transaction would be discussed at length in the later part of the report.0393 is at a considerable premium over market price of SGD0.70. Biosensors enjoyed as much as a three percent discount off its cost of debt. As such Biosensors could avoid cash outflow due to interest in the following 3 years.phase to take on the giants. Hence Biosensor’s unusual maneuver is a signal of confidence towards the success of the impending commercialization of Biomatrix in the near future.70 a share (23rd Nov 2007). saying that. By issuing convertible notes instead than normal notes. In addition. However. it would be imperative for the instrument to be converted upon expiry as a non conversion would signal to investors the poor performance of the company stock and also the repayment of the principal payment upon maturity would place a large burden on the company’s financials. the alternative of a follow up equity issuance would have an unfavorable effect to the equity structure given the current low share price.396.

the increase in debt usage can potentially put the firm in financial distress if not managed properly. which represents a 9. Equity Structure The USD45mn convertible notes with detachable warrants can convert to 88. it is unlikely that Biosensors would have much remaining room for financing maneuvers in the future.Implications of Debt Financing 1.0365 to 0. The Founder and the Chairman of the company.3887. and debt ratio. A more practical concern would probably the hidden debt covenants that will restrict Biosensors’ future financing activities.275 new ordinary shares in total. 12 | P a g e Biosensors International .68% dilutive effect for the existing equity interests.6358. The convertible notes would not have significant impact on company’s equity structure. Capital Structure Biosensors’ insurance of debt has some implications for its capital structure. The Debt-equity ratio increased from 0.421. 0. and the other key shareholders would still maintain their influence in the board of directors. Lu will still be the largest single shareholder in the company.0352 to 0. Given the already very high levels of debt. 2. For a growing company with negative net income in a high risk industry. Mr.

Hence. it is also a move of desperation as it prepares for its final push for BioMatrix to hit the market. as much as the issuing of debt is a signal of confidence of its future success from management. a company incorporated in the British Virgin Islands. The acquisition of the further stake in JWMS will enable Biosensors to establish a stronger presence in China following its acquisition of the first 50 percent interest in JWMS in September 2007. This transaction will bring Biosensors holdings in JWMS to 100%. the BioMatrix DES system and have a right to receive royalty payments. ACQUISITION OF JW MEDICAL SYSTEMS On 9th January 2008 Biosensors and Shangdong Weigao Group Medical Polymer Company Limited (Hong Kong Stock Exchange: 8199. Time-line of Acquisition Phase I: On 1st November 2006. launched its drug-eluting stent program after receiving the approval of its Excel drug-eluting stent by the State Food & Drug Administration (“SFDA”) Chinese regulatory body in January 2006. JW Medical Systems JWMS is a privately owned drug-eluting stent company which is 50% owned by Shangdong Weigao Group Medical Polymer Company Limited and 50% owned by JW Medical Limited.Conclusion Since IPO. The collaboration involved Biosensors acquiring 10% equity interest in JWMS and as consideration. JWMS has captured about 18-20% of the Chinese coronary stent market since the launch of its drug-eluting stent. Biosensors will have the option to acquire an additional 10% equity interest from JWMS existing shareholders based on a valuation of 4x sales of 2007. Biosensors will license to JWMS on a non-exclusive basis its proprietary technology. and cash reserves continued to dwindle as its expenses soar. China. Biosensors and Weigao signed a letter of intent on combined business collaboration between Biosensors and JWMS. the potential restriction on its future financing activities would be something investors have to be careful of. (JWMS) and to grant Weigao an option to sell to Biosensors the remaining 20 percent interest in JWMS by 30 July 2009. JWMS. 13 | P a g e Biosensors International . Although Biosensors was able to mitigate the immediate negative effects of the debt by wisely attaching a convertibility option. Biosensors has gone on to post record losses in 2006 and 2007. In addition to the 10% equity interest. based in Weihai. “Weigao”) announced that they have entered into agreements for Biosensors to acquire an additional 30 percent interest in JW Medical Systems Ltd. provided the amount does not exceed USD100mn.

Including an earlier 129mn new ordinary Biosensors shares + USD10mn in cash for the first 50% equity interest in JW Medical.Phase II: Subsequently on the 10th August 2007. give Biosensors immediate access to its sales network. We also believe that the 10% interest is a 14 Factiva. biodegradable polymer and coating technology. In exchange. Cerebrovascular and cardiovascular diseases are the main causes of fatalities in China and are especially prevalent among its 450mn urban residents. Biosensors will give JWMS a non-exclusive license to its proprietary anti-restenosis drug. there were about 1. About 10% of the China’s 1. Biosensors announced that it entered into a conditional sale and purchase agreement to acquire 50% of JWMS from JW Medical Ltd for cash consideration of US10mn and 129mn new shares of Biosensors ordinary stock at SGD0. the total consideration for 100% acquisition of JW Medical involves 289mn new ordinary Biosensors shares and USD10mn in cash.Business Times 11 Aug 2007 Factiva.3bn population are aged 60 years and above and this is expected to rise to 15% by 2010.75mn patients suffering from coronary heart diseases and stent market demand is expected to grow by 25%17 year on year from 2008-2012. Analysis of Research – Rationale From our research on the Chinese stent market16 we have found that a key reason for the collaboration with JWMS is the growth opportunities in the Chinese Market.0815 a piece to Weigao in exchange for 30% interest in JWMS and another 40mn shares if Weigao exercises the 20% put option. Biosensors will issue 120mn of its ordinary shares at SGD1. low-cost manufacturing facilities and an equity stake totaling up to 20%.6314 a piece. Under this arrangement. Phase III: Finally on the 9th January 2008. Biosensors announced an agreement to acquire the remaining 50% stake from Weigao via an acquisition of 30% interest in JWMS for 120mn new Biosensors ordinary shares and an option for Weigao to sell the remaining 20% interest in JWMS by 30th July 2009. JWMS will share royalties. We see this as an excellent pre-emptive move by Biosensors to establish itself in the growing USD800m/yr DES market in China by partnering with JWMS which commands 20% of the Chinese DES market. hence increasing the prevalence of coronary heart diseases.Business Times 10 Jan 2008 Refer to Appendix GI for Market Forecast for the Chinese Market Refer to Appendix GII for Revenue Forecast for the Chinese Market 15 16 17 14 | P a g e Biosensors International . As of 2005.

08 1. yet low cost manufacturing facilities.700 hospitals and also bank on JWMS strong brand equity in China to introduce unique Drug Eluting Stent products to the Chinese healthcare market in the future.43 $66.84 1. China's infant stent market is currently estimated to be worth USD100m/yr and is expected to grow with increasing speed. Phase II Acquisition of 50% stake from JW Medical Ltd Shares (mn) Per Share Price Cash (USDmn) Conversion rate Total (USDmn) 129 $0.052 1.5mn after 1 year of collaboration with Biosensors. Biosensors approaches JW Medical Ltd to re-negotiate the Phase I deal and proposes to purchase all of JW Medical Ltd’s 50% holdings of JWMS. Inheriting onto JWMS’s high-tech.risk measure for Biosensors to assess the compatibility of the combined operations before proceeding to further its stake in JWMS.341 $187. We believe that this confirmed the potential of JWMS as a valuable asset to Biosensors as this would result in an accretive impact on the financial statements. In 2007 JWMS recorded a 70% increase in DES sales revenue from USD25mn to USD42.43 $120.83 Phase III Acquisition of 50% stake from Shangdong Weigao Shares (mn) Per Share Price Shares (mn) Per Share Price Conversion rate Total (USDmn) Shares outstanding before Shares outstanding after Total Acquisition value (USDmn) 120 $1. As a continued effort from Phase I. Analysis of Acquisition – A Fundamental Valuation We begin our analysis by a calculation of the transaction value of the acquisition. The effort to buy out 1 of the 2 existing shareholders of JWMS indicates a strong interest in acquiring the target.67 15 | P a g e Biosensors International .63 10 1. huge existing market share and excellent distribution is expected to be synergistic with Biosensors' plans for growth into the lucrative Chinese market.400 healthcare organizations and 2.08 40 $1. Biosensors will get access to JWMS extensive national sales network of 5.

425 70% 50% 8. Biosensors announced that it will be acquiring the remaining 50% of leading China based stent maker. JWMS projections (US$'000) Revenue of DES only Gross Profit of DES only Gross Margins Net profit of DES only Net Margin Net Profit after tax Growth in China DES % owned by Biosensors Share for Biosensors Tax Rate PV factor Discount rate LT growth rate Terminal Value PV Terminal Value PV of JWMS (US$000) Source: OIR Estimates 2006 25.250 41% 2007 42. JWMS.025 84.813 30% 100% 42.58 2010 116.377 Analyst projections for the revenue forecast of 2009-2011 to be 40% year on year growth.939 10% 0.524 50% 80% 18. Biosensors is now one of the select few.138 41% 23.000 18.538 73% 26.581 10% 0. polymer and stent with a strong and profitable presence in a rapidly growing China market.570 41% 42.939 30% 100% 59. in 2 phases.025 73% 17.616 251.425 41% 17.500 31.581 30% 100% 30. Conclusion JWMS acquisition makes good sense.698 73% 47. However.875 60. 16 | P a g e Biosensors International . listed interventional cardiology company worldwide with strong IP covering delivery system.250 73% 10.813 10% 0.48 2011 162.598 41% 59.40 20% 5% 419.435 118. if not the only.750 46.578 73% 66. From the perspective of an NPV approach. With the conservative estimated value of USD251mn it seems that the transaction is of a positive NPV investment in excess of USD63mn from the transaction value of USD188millon. drug.499 73% 33. We believe that Biosensors foresight will be rewarded.570 168. The total value paid for 100% acquisition of JWMS is valued at USD187mn.979 41% 30. We like this acquisition as it shows that Biosensors is not myopic on selling its BioMatrix in the uncertain EU market where recent DES concerns have 18 For sensitivity analysis. Assuming a discount rate of 20% and a conservative 5% long term growth rate provides us a value of USD251mn for JWMS18.83 2008 63. the transaction will have an accretive impact on Biosensors.819 10% 0. Next we will compare the acquisition amount to the DCF valuation of JWMS.69 2009 82.The isolated dilutive effect of the new issue of shares is calculated as 1-(1052/1341) = 33%. The total acquisition values JWMS at about USD188m and Biosensors shareholders will experience approx 33% dilution when compared to FY07 fully diluted shares outstanding.713 0% 0. refer to appendix H.

China remains the largest market within Asia (ex-JP). The 100% acquisition of JWMS was to increase its manufacturing capabilities in anticipation of the surge in demand for the BioMatrix DES upon CE Mark approval in 2008.reduced its usage. 17 | P a g e Biosensors International . the sustainability of the company will be greatly reduced in the long run. Our group feels that in the short term horizon. accounting for half of the growing USD800m market and we believe that Biosensors has made the right initiative to enter this market through JWMS. Unless the company is able to continuously develop the next generation of DES products to be at the forefront of the industry in terms of technology. we foresee that it would be in the best interest of the shareholders for the company to be acquired by one of the major players in the industry. However the delay of the CE Mark approval prompted a second round of capital raising in 2007 which was carried out in the issue of the USD45mn convertible debt. This is due to the fact that Biosensors has only 1 key product offering to the market and this greatly increases the risk for the company. CONCLUSION – TOWARDS A BETTER TOMMORROW The 3 transactions discussed above were executed in support of the successful commercialization of its flagship product the BioMatrix DES system. The key driver for the IPO was to raise capital to sustain the company during the wait for CE Mark approval initially expected to be approved in 1Q2007. Biosensors may be able to dominate the DES industry with its technological superiority over the current product offering and this would allow the company to create positive earnings for its shareholders. But in the long term perspective. we believe that the JWMS acquisition is in the best interests of the company. With the above NPV analysis as the foundation.

These typically have been drugs already in use as anti-cancer drugs or drugs that suppress the immune system. though drug-eluting stents may be successful in lesions for which bare-metal stents were insufficient. N Engl J Med 20 21 18 | P a g e Biosensors International . Drug-eluting stents are used to reopen grafts from prior CABG surgery that have themselves become blocked. usually metal. The stent itself is an expandable framework. This prevents scar-tissue–like growth that. Since platelets are involved in the clotting process. Parker "Coronary-Artery Stents". In addition. In the aorta just prior to entering the heart. as the stent is a foreign object (not native to the body). Data specifically on drug-eluting stents are less abundant. Drug-eluting stents were designed to lessen this problem. N Engl J Med "Coronary-Artery Stents". John S. although new drugs are being developed specifically for drug-eluting stents. Only certain types of blockages are amenable to stent placement. The carrier is typically a polymer. there is a strong tendency for clots to form at the site where the stent damages the arterial wall. Coronary artery stents. and also can be used in cases of in-stent restenosis in prior stents. it incites an immune response. Lazo. usually at the groin through one of the femoral arteries. or blocked. leaving the stent. Added to this is a drug to prevent the artery from being re-occluded. although phosphorylcholine or ceramics are also being researched20. It is threaded back towards the heart. Finally. they can help avoid this instent restenosis (re-narrowing). The balloon is then inflated. Different carriers release the loaded drug at different rates. may be used for lesions for which surgery was previously the only option. diseased coronary arteries that slowly release a drug to block cell proliferation. by releasing an antiproliferative drug (drugs typically used against cancer or as immunosuppressants).Appendix A: Drug Eluting Stents In cardiology. The device is then introduced through a peripheral artery. usually clopidogrel for six months and aspirin indefinitely. This may cause scar tissue (cell proliferation) to rapidly grow over the stent. a drug-eluting stent is a stent (a scaffold) placed into narrowed. and in some cases. together with clots (thrombus). Brunton. though where studied. The balloon may be inflated and deflated several times. The balloon and catheter are then withdrawn. cracking and compressing the plaque and expanding the stent. However. typically a metal framework. 19However. they have usually been shown to be superior to bare-metal stents. Drug-eluting stents consist of three parts. the appropriate coronary artery is entered. The stent is loaded in its collapsed form onto a balloon at the end of a catheter which has a guide wire. in Laurence L. Drug-eluting stents are used both for restoring blood flow immediately after a heart attack and also electively for improving blood flow in a compromised vessel. & Keith L. patients must take antiplatelet therapy afterwards. which will release its drug over the next several months. There has been considerable research showing the benefits of coronary stents. could otherwise block the stented artery. can be placed inside the artery to help keep it open. these and the cell proliferation may cause the standard (“bare-metal”) stents to become blocked.21 19 "Treatment of Myocardial Ischemia". there must be a carrier which slowly releases the drug over months. the antiplatelet therapy may be insufficient to fully prevent clots.

Eventually. because blood carries much needed oxygen. The American Heart Association reports 452.500. The arteries harden and narrow due to a build-up of a material called plaque on the inner walls. Arthrosclerosis . Cells in the heart muscle begin to die if they do not receive enough oxygen-rich blood.300 deaths in the US in 2004 (one for every 5 deaths) and an Incidence of 1. 2) A heart attack when a blood clot develops at the site of plaque in a coronary artery and suddenly cuts off most or all blood supply to that part of the heart muscle. blood flow to the heart muscle is reduced. the insides of the coronary arteries get narrower and less blood can flow through them. This is primarily caused by the consumption of more fatty foods.000 people in the United States suffer from angina.com Deaths for people 15-59 years (in thousands) Source: WHO 19 | P a g e Biosensors International .Appendix B: Coronary Artery Disease Around the world. and.2m new and recurrent coronary attacks per year and about 40% of people who experience a coronary attack in a given year die from it. Reduced or cut-off of blood flow and oxygen supply to the heart muscle can result in: 1) Chest pain or discomfort (Angina) that occurs when the heart does not get enough blood. As the plaque increases in size. The American Heart Association estimates are that 6.build up of plague Source: soylabs. The build-up of plaque is known as atherosclerosis. the heart muscle is not able to receive the amount of oxygen it needs. coronary artery disease (CAD) occurs when the arteries that supply blood to the heart muscle (the coronary arteries) become hardened and narrowed.

the regulatory authorities need to know if new medical products to be introduced in the market are just as effective. than present products. As such. if not more. Stents must be available at the point of decision by the cardiologist performing the operation. Biosensors plans to release an improved version of the S-Stent. BIG has a current capacity to produce 350k stents per year from the Singapore and Netherlands plants. 70 sites. Johnson and Johnson and Medtronic have led the way with comprehensive clinical trials needed to convince doctors of the safety of their stents. mainly to be used for clinical trials. After safety. We are confident that these trials. 2) Efficacy. It also has indicated that its marketing and distribution plans are in place with more than 50 distributors worldwide including Krauth Medical (Germany). to be coordinated by Dr David Holmes at Mayo Clinic. 4) Availability. 3) Deliverability. the DES market is determined primarily by 4 main factors: 1) Safety. Appendix DI: Biosensors Income Statement (2003-2006) 20 | P a g e Biosensors International . Boston Scientific. code-named BioFlex™. BIG's S-Stent has received good reviews as it was specifically designed with wider struts and more uniform geometry to optimize the release of anti-restenosis drugs by using its proprietary asymmetrical coating process. hospitals need to stock up on a number of varying sized stents . BIG has about USD54m in cash and has raised another USD20m through convertible notes. BIG has proven in its STEALTH I trials for CE marking that BioMatrix is not inferior to present day stents.Appendix C: Peculiarities for DES industry. Unlike most healthcare consumer goods which are primarily dictated by price. Invatec (Italy) and Palex Medical (Spain). It has also formed a key partnership with Terumo with exclusive distributorship in Japan and nonexclusive in EU and parts of Asia. BIG has conducted its STEALTH trial for CE marking and will be conducting its 1584 patients. will be successful. STEALTH II trials in the US for FDA regulatory clearance. This is the top most concern for clinicians and patients alike.

Assets Side) Appendix DIII: Biosensors Balance Sheet (2002-2006. Liabilities Side) 21 | P a g e Biosensors International .Appendix DII: Biosensors Balance Sheet (2002-2006.

840. see appendix DII ^ Based on Biosensors’ average of past three years total expenditures.607 + 282.541 + 28.548) / 46.00 = 176.875.219) / 46.419. Equities Side) Appendix E: Calculations for Defensive Interval* Pre IPO DI (2004) Post IPO DI (2005) = 365 x (17.Appendix DIV: Biosensors Balance Sheet (2002-2006.833.833.8days * Figures from Biosensors’ Balance Sheets.840.596 + 5. see appendix DI Appendix F: Nominal Rates vs Effective Rates 22 | P a g e Biosensors International .995.00^ = 365 x (47.856 + 6.184.3days = 429.

377 265.767 555.962 181.141 281.099.092 447.005 894.964 637.169.024 299.117 174.162 1.170 494.553 321.318 2.572 15% 377.991 142.467 1.189 137.632 4.650 30% 127.559 WACC 20% 239.423 188.601 196.377 4% 5% 6% 7% 8% 9% 10% 758.440.691 134.938 409.122.138 146.463 130.451 25% 169. OIR estimates Appendix GII: Stent Revenue Growth in Chinese market Appendix H: NPV Valuation Sensitivity Analysis Sensitivity Analysis 251.333 251.624 205.681 Long Term Growth Rate 23 | P a g e Biosensors International .Appendix GI: Coronary and Peripheral Stent China market forecast Source: FAS.

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