F 2H15 Healthcare Outlook (은)

2H15Outlook Report

June 1, 2015

Overweight(Maintain)

HealthcareExpanding into advanced markets

Hyun-tae [email protected]

Seung-min [email protected]

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[Summary]

I. 1H15 review

II. Expansion into advanced markets to increase

III. Policy effects

IV. Issues: BiosimilarIssues: Samsung Group’s healthcare business

V. Mid- to long-term outlook: Pipelines

VI. Investment recommendation

Top picksDong-A ST / Osstem Implant / i-SENS [Conclusion] Valuation premium to widen

2H15 Outlook 2

Healthcare stocks (linked with regulatory changes) to reflect expectation for overseas expansion

Source: KDB Daewoo Securities Research

[Summary] Premium from overseas expansion

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KOSPI

KOSPI Pharmaceuticals

(2000.1.2 = 100)<2nd generic boom>- Earnings growth- Wide adoption of generic businessmodel

<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

[Summary] Expanding into advanced markets

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(US$mn) (%)

Healthcare

2H15 Outlook 5

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

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GlobalDMEMKorea

(1/15=100)

Healthcare

2H15 Outlook 6

Note: As of May 29th


Biotech stocks are outperforming KOSDAQPharmaceutical stocks are outperforming KOSPI



• 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

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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

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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

I. 1H15 review

Notes

Code HM71224

Mechanism BTK (Bruton's tyrosine kinase) inhibitor

Indication Rheumatoid arthritis

Partner Eli Lilly

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


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


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

• Sivextro indications to further expand


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Healthcare

2H15 Outlook 11


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)


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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


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

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Healthcare

2H15 Outlook 14


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

• Celltrion applied for FDA approval of Remsima

IV. Issues: Biosimilar

Brand IngredientOriginal maker

Patent expiry Global sales (US$mn)

US EU 13 14 15F 16F 17F 18F 19F

Avastin Bevacizumab Roche 2019 2022 6,751 7,018 7,265 7,214 6,877 6,399 6,938

Enbrel EtanerceptPfizer, Amgen

20292015.

028,325 8,538 8,351 8,349 8,257 8,094 7,878

Herceptin Trastuzumab Roche 2019 2015 6,562 6,863 6,607 6,492 6,182 5,755 5,141

Humira Adalimumab Abbvie2016.

122018.

0410,659 12,543 13,971 15,365 15,982 15,861 15,431

LantusInsulin

glargineSanofi

2015.02

2015.05

7,591 8,428 7,281 7,037 6,654 6,228 5,874

MabThera/ Rituxan

Rituximab Roche 2018 2014 7,503 7,546 7,265 7,214 6,877 6,399 6,010

Remicade InfliximabJ&J,

Merck2018 2015 8,944 9,240 8,270 8,968 8,923 8,644 8,329

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Healthcare

2H15 Outlook 15

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


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

IV. Issues: Samsung Group’s healthcare business

Code Ingredient Original drug Indication Phase

SB4 Etanercept Enbrel Rheumatoid arthritis

Submitted MAA to EMA (EU)

SB2 Infliximab Remicade Rheumatoid arthritis

Submitted MAA to EMA (EU)

SB3 Trastuzumab Herceptin Breast cancer Phase 3

SB5 Adalimumab Humira Rheumatoid arthritis Phase 3

SB9 Insulin Glargin Lantus Diabetes Completed Phase 3

Medicalequipment

Medicine Medical service

Healthcare

2H15 Outlook 17

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


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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


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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


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

Neulapeg Neutropenia Approval

GC1102 Hepatitis recurrence + chronic hepatitis Phase 2

MGAH22 Breast cancer Phase 2

GC1118A Colorectal cancer Phase 1

Chemical GC2107 Anticoagulant Phase 1

Herbal GC6101A Gastritis Phase 2

Viromed Biologics VM202 Critical limb ischemia Phase 2 completed

Diabetic neuropathy Phase 3

Ischemic heart disease Preparing to Phase 2

Amyotrophic lateral sclerosis Phase 1

VM501 Thrombocytopenia Phase 3

VM206 Breast cancer Phase 1 completed

Komipharm Chemical KML001Lung cancer, prostate cancer, biliarytract cancer, liver cancer, lymphoma

Phase 2

Solid cancer Phase 1 completed

PAX-1 Cancer pain Phase 2

SK Chemical Biologics NBP601 Hemophilia Phase 3

Vaccine Sky Cell Flu Influenza Launch

Quadrivalent vaccine Phase 3

Healthcare

2H15 Outlook 20



Source: KDRA, media reports, KDB Daewoo Securities Research Source: KDRA, media reports, KDB Daewoo Securities Research

Company Division Code/project/brand Major indication Phase

Dong-A ST Biologics DA-3801 Infertility Submitted NDA to MFDS (Korea)

DA-3803 Infertility Preparing NDA submission to MFDS (Korea)

DA-3030 Diabetic neuropathy Phase 1 completed (Korea)

DA-3031 Neutropenia Submitted NDA to MFDS (Korea)

DA-3051 Multiple sclerosis Preparing Phase 3 (Brazil)

DMB-3111 Breast cancer Phase 1 (Japan)

DA-3880 AnemiaPhase 1 completed (Europe);Preparing phase 1 (Japan)

Chemical DA-8159 (Zydena) Erectile dysfunction Submitted NDA to the US FDA

Prostatism Phase 2 completed in the US;Phase 2 in progress in Japan and Korea

Pulmonary hypertension Phase 2 (Korea)

DA-7218 (Sivextro)Pulmonary arterial hypertension Launched in the US; Approved in Europe and

Korea

Pneumonia Global Phase 3

DA-1229 Diabetes type 2Phase 3 completed (Korea),IND approval (China)

DA-6034 Gastritis Phase 3 completed (Korea)

Dry eye syndrome Phase 2 completed (Korea)

Herbal DA-9701 (Motilitone)Functional dyspepsia Launched in Korea;

Preparing Phase 2 in the US

DA-9801 Diabetic neuropathy Phase 2 completed (Korea and US)

GemVax Biologics RIAVAX IV Pancreatic cancer Received conditional MFDS approval (Korea)

GV1001 Prostate cancer Phase 3

Non-small cell lung cancer Phase 2

Melanoma Phase 2

Prostatism Phase 2

JW Pharm. Chemical CWP291 Acute myeloid leukemia Phase 1

URC102 Gout Phase 2

DaewoongPharmaceutical

Chemical DWP05195 Neurodegenerative pain Phase 2

DWP09031 Alzheimer's dementia Phase 1

DWP10292 Non-alcoholic fatty liver disease Phase 1

Biologics Easyef (Nepidermin) Stomatitis Phase 3

NOVOSIS (rhBMP-2) Spine fusion Phase 2

Nabota Upper muscle strain after apoplexy Phase 3


LG Life Sciences Vaccine EupentaDiphtheria/tetanus/pertussis/hepatitis B/Hib

Phase 3

Biologics Eutropin Pen-type Growth hormone deficiency Submitted NDAFollitrope (Global) Infertility Phase 3BEPO albumin (Global) Anemia Phase 1Synovian Osteoarthritis Phase 3

Biosimilar LBEC0101 Rheumatoid arthritis Phase 3LBAL Rheumatoid arthritis Phase 1

Chemical Zemiglo Insulin combination therapy Phase 3LC280126 Myocardial infarction Phase 2

Complex ZemiMet Type 2 diabetes Phase 3ZemiStatin Diabetes/hyperlipidemia Phase 3ZemiSU Type 2 diabetes Phase 1

BukwangPharmaceutical

Chemical Apatinib Solid cancer Phase 2

MLR-1023 Type 2 diabetes Phase 2

Contera Pharma(subsidiary)

JM-010 Parkinsonism motor disturbance Phase 2

HLBSubsidiary (LSKB28.0%)

YN968D1(Apatinib mesylate)

Solid cancer Phase 2 (US)

Gastric cancer Approved in China

Il-YangPharmaceutical

Chemical Ilaprazole (No1tec) Antiulcer Launched

Radotinib (Supect) Leukemia LaunchedVaccine Il-Yang flu vaccine Influenza Launched

Quadrivalent vaccine Phase 1/2aKolon Life Science Biologics TG-C Degenerative arthritis (IV) Phase 2 completed

TG-C (S) Degenerative arthritis (MIS) Phase 2Chong Kun Dang Chemical CKD-732 HIAO, severe obesity Phase 2

Prader-Willi Syndrome Phase 3CKD-516 Solid cancer Phase 1CKD-581 Lymphoma Phase 1CKD-519 Hyperlipidemia Phase 1CKD-506 Rheumatoid arthritis preclinical

Biologics CKD-11101 Anemia Phase 3CKD-12201 Cervical cancer vaccine Phase 1

Healthcare

2H15 Outlook 21



Source: KDRA, media reports, KDB Daewoo Securities ResearchSource: KDRA, media reports, KDB Daewoo Securities Research


Alteogen Biologics Enbrel biosimilar Autoimmune disease Pre-clinical phase completed

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


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


Quarterly operating profit of KDB Daewoo Healthcare universe12-month forward P/E band of KDB Daewoo healthcare universe


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

• Earnings anticipated to grow in 2H


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Healthcare

2H15 Outlook 23


Emerging market pharmaceuticals garner higher premiums Consensus revenue and EPS growth (MSCI Pharmaceuticals)

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)


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


Valuation of global peers

Region Classification CompanyMarket cap

(Wbn)

Revenue (Wbn) OP (Wbn) OPM (%) NP (Wbn) P/E (x) P/B (x) ROE (%)

2014 2015F 2016F 2014 2015F 2016F 2014 2015F 2016F 2014 2015F 2016F 2015F 2016F 2015F 2016F 2015F 2016F

US

Pharma(Brand)

J&J 309,161 78,284 78,150 80,926 22,074 22,127 23,698 28.2 28.3 29.3 17,191 18,824 19,551 16.3 15.6 3.7 3.4 23.8 21.7

Pfizer 238,227 52,250 50,708 57,457 13,956 18,647 20,595 26.7 36.8 35.8 9,623 14,143 16,073 17.1 14.9 3.0 3.3 19.9 23.3

Merck 191,522 44,490 43,940 45,453 5,972 14,356 15,111 13.4 32.7 33.2 12,556 10,544 11,776 17.7 15.9 4.2 4.4 21.2 27.9

Pharma(Generic)

Actavis 134,050 13,759 23,858 27,376 -1,335 10,256 12,889 -9.7 43.0 47.1 -1,717 7,101 9,473 17.2 14.3 2.1 2.1 11.8 11.0

Teva 56,740 21,353 21,637 21,147 4,729 6,508 6,234 22.1 30.1 29.5 3,218 4,945 4,811 11.6 11.8 2.1 1.9 16.8 15.7

Biotech

Amgen 132,272 21,133 23,479 24,393 6,521 10,563 11,227 15.2 31.2 32.1 5,433 8,149 8,855 16.3 14.8 4.3 3.7 26.9 26.7

Gilead 183,690 26,217 33,409 33,589 16,079 22,594 22,488 61.3 67.6 67.0 12,746 18,121 18,248 10.4 10.2 7.3 5.2 87.5 57.6

Biogen 103,966 10,221 12,184 13,685 4,184 5,790 6,603 40.9 47.5 48.3 3,091 4,334 4,963 23.7 20.5 7.3 6.2 32.9 32.9

Celgene 101,053 8,079 10,213 12,451 2,653 5,243 6,690 32.8 51.3 53.7 2,107 4,290 5,524 24.1 18.5 9.8 7.4 52.4 52.0

HealthcareEquipment

Medtronic 121,086 18,452 31,002 31,636 4,334 9,096 9,548 23.5 29.3 30.2 3,326 6,884 7,002 17.3 17.1 2.1 2.0 19.8 -

Thermo Fisher 57,447 17,790 18,404 19,166 2,636 4,169 4,514 14.8 22.7 23.6 1,995 3,244 3,570 17.7 15.9 2.4 2.3 14.2 14.7

Illumina 33,061 1,960 2,479 2,941 542 768 930 27.7 31.0 31.6 372 564 682 60.3 50.4 15.0 11.7 28.9 25.3

Solution McKesson 61,156 190,003 208,138 219,903 3,150 5,048 5,736 33.5 41.6 42.4 1,566 3,221 3,660 18.8 16.3 5.3 4.5 25.9 25.0

EU

Pharma(Brand)

Novartis 305,279 55,215 57,793 59,209 11,680 25,210 12,506 21.2 43.6 21.1 10,755 14,028 14,879 19.6 18.1 3.2 3.1 16.8 17.6

Roche 280,886 54,643 55,574 57,922 16,222 20,187 21,701 29.7 36.3 37.5 10,744 14,349 15,689 19.2 17.6 9.6 8.1 52.6 46.7

Pharma(Generic)

Teva 57,236 21,353 21,637 21,147 4,729 6,508 6,234 22.1 30.1 29.5 3,218 4,945 4,811 11.7 11.9 2.1 2.0 16.8 15.7

Actelion 17,722 2,252 2,331 2,403 656 692 733 29.1 29.7 30.5 684 722 780 24.0 22.6 7.0 6.4 28.8 30.0

CMO Lonza 8,255 4,191 4,392 4,614 487 537 590 25.6 32.9 29.5 273 398 452 20.1 17.7 2.9 2.7 14.4 15.2

HealthcareEquipment

Straumann 4,620 818 932 1,023 171 192 233 20.9 20.6 22.8 182 164 192 27.6 23.9 5.1 4.6 18.8 20.1

Nobel Biocare 2,479 824 708 746 93 95 111 11.3 13.5 14.9 62 63 77 38.6 31.4 5.6 5.1 14.6 16.4

Japan

Pharma(Brand)

Takeda 42,800 17,208 16,255 16,710 -1,251 1,385 1,823 -7.3 8.5 10.9 -1,411 825 1,100 33.7 25.5 2.3 2.4 4.1 6.0

Astellas 36,732 12,073 12,158 12,928 1,797 2,278 2,563 14.9 18.7 19.8 1,315 1,682 1,885 21.2 18.6 2.8 2.5 13.5 13.8

Pharma(Generic)

Sawai 2,453 1,021 1,097 1,240 200 213 229 19.6 19.4 18.4 136 142 153 16.6 15.4 2.1 2.0 13.5 13.5

Nichi-Iko 1,567 1,230 1,252 1,394 93 112 124 10.8 14.6 15.6 64 74 83 20.9 18.5 2.2 2.0 10.9 11.3

IndiaPharma

Sun 40,639 4,735 4,380 4,921 1,175 1,697 1,976 24.8 38.8 40.1 788 1,329 1,588 27.4 22.7 6.2 4.9 25.9 24.9

Lupin 14,416 2,187 2,570 3,025 553 669 812 25.3 26.0 26.9 417 472 581 30.1 24.4 7.4 5.9 27.4 26.8

Biotech Biocon 1,578 531 597 688 82 105 124 15.5 17.6 18.0 86 77 90 20.1 17.4 2.5 2.3 12.8 13.6

AU Brand CSL 37,132 5,695 6,320 7,139 1,896 1,968 2,146 33.3 31.1 30.1 1,395 1,542 1,682 24.0 22.0 10.9 8.5 44.8 44.2

Healthcare

2H15 Outlook 25

Dong-A ST (170900 KS)Top picks

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)




License-outDeals


•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

Dong-A ST (170900 KS)

-100.0

0.0

100.0

200.0

300.0

0

0.08

0.16

0.24

7/14 8/14 9/14 10/14 11/14 12/14 1/15 2/15 3/15 4/15 5/15

Weekly prescriptions (L) WoW (R)(US$mn) (%)

Healthcare

2H15 Outlook 27

Source: Amgen, Kyowa Hakko Kirin, Dong-A ST, KDB Daewoo Securities Research

Valuation

Aranesp biosimilar shows similarity to original drug Aranesp revenue

12-month forward EV/EBITDA

Top picks

Value per share (W)

Details

Operating value (A) 173,360 - Based on 12-month forward EBITDA x 17.7x - Net debts of W139.9bn

Evogliptin value (B) 18,146

- Based on sum of estimated 10-year profits from 2018 release in emerging markets

- Assuming market share of 10% (maximum) in emerging markets- Supplying APIs to overseas partners

Aranesp value (C) 16,295

- Based on sum of estimated 10-year profits from 2018 release in Japan

- Assuming market share of 40% (maximum) in Japan- Supplying finished products to Japanese partners

Target price 207,801 (A) + (B) + (C) 60,000

120,000

180,000

14 15 16

18.0x

16.3x

14.7x

13.0x

11.4x

(W)

0

2

3

5

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

USJapanRoW

(US$bn)


Healthcare

2H15 Outlook 28

Top picks

Note: Based on May 29th closing priceSource: Company data, KDB Daewoo Securities Research


Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F

Revenue 568 586 632 688 Current Assets 475 429 456 491 P/E (x) 20.6 32.5 27.9 23.9

Cost of Sales 264 268 287 310 Cash and Cash Equivalents 282 221 233 250 P/CF (x) 8.7 15.2 13.6 12.4

Gross Profit 304 318 345 378 AR & Other Receivables 90 98 106 115 P/B (x) 1.4 2.3 2.2 2.0

SG&A Expenses 256 261 277 300 Inventories 85 91 98 107 EV/EBITDA (x) 11.8 16.9 14.9 13.4

Operating Profit (Adj) 48 57 68 77 Other Current Assets 18 19 19 19 EPS (W) 4,452 4,839 5,647 6,603

Operating Profit 48 57 68 77 Non-Current Assets 603 614 627 641 CFPS (W) 10,560 10,345 11,620 12,729

Non-Operating Profit -4 -9 -12 -12 Investments in Associates 30 30 30 30 BPS (W) 63,288 67,198 71,845 77,449

Net Financial Income -11 -11 -10 -10 Property, Plant and Equipment 457 469 483 497 DPS (W) 750 1,000 1,000 1,000

Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 12 11 10 10 Payout ratio (%) 16.8 20.7 17.7 15.1

Pretax Profit 44 48 56 65 Total Assets 1,078 1,043 1,084 1,132 Dividend Yield (%) 0.8 0.6 0.6 0.6

Income Tax 10 11 13 15 Current Liabilities 222 157 162 167 Revenue Growth (%) 14.5 3.2 7.8 8.9

Profit from Continuing Operations 34 37 43 51 AP & Other Payables 54 58 62 68 EBITDA Growth (%) 21.7 9.6 12.5 10.0

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 128 59 59 59 Operating Profit Growth (%) 23.1 18.8 19.3 13.2

Net Profit 34 37 43 51 Other Current Liabilities 40 40 41 40 EPS Growth (%) - 8.7 16.7 16.9

Controlling Interests 34 37 43 51 Non-Current Liabilities 369 369 369 369 Accounts Receivable Turnover (x) 6.2 6.5 6.5 6.5

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 321 321 321 321 Inventory Turnover (x) 6.5 6.7 6.7 6.7

Total Comprehensive Profit 27 36 43 51 Other Non-Current Liabilities 48 48 48 48 Accounts Payable Turnover (x) 9.1 9.3 9.3 9.2

Controlling Interests 27 36 43 51 Total Liabilities 591 526 531 536 ROA (%) 3.4 3.5 4.1 4.6

Non-Controlling Interests 0 0 0 0 Controlling Interests 487 517 553 596 ROE (%) 7.4 7.4 8.1 8.9

EBITDA 73 80 90 99 Capital Stock 39 39 39 39 ROIC (%) 6.7 7.8 8.9 9.8

FCF (Free Cash Flow) 54 24 32 36 Capital Surplus 227 227 227 227 Liability to Equity Ratio (%) 121.4 101.8 96.0 90.0

EBITDA Margin (%) 12.9 13.7 14.2 14.4 Retained Earnings 40 71 107 150 Current Ratio (%) 214.0 272.6 281.9 293.6

Operating Profit Margin (%) 8.5 9.7 10.8 11.2 Non-Controlling Interests 0 0 0 0 Net Debt to Equity Ratio (%) 31.0 27.6 23.6 19.0

Net Profit Margin (%) 6.0 6.3 6.8 7.4 Stockholders' Equity 487 517 553 596 Interest Coverage Ratio (x) 3.4 3.9 5.1 5.8

Healthcare

2H15 Outlook 29

Top picks Osstem Implant (048260 KQ)

Investments

• Dental implant coverage be expanded to those aged 70 and above starting July 2015; Company’s market share to rise

• Losses at overseas subsidiaries to decrease YoY thanks to revenue growth in 2H

• Market share in China to climb on growing knowledge of implants

• Product mix to improve on domestic and overseas product line expansion

Risks

• Indictment of company officials, including CEO


FY (12) 12/12 12/13 12/14 12/15F 12/16F 12/17F

Revenue (Wbn) 151 156 172 195 225 262

OP (Wbn) 31 29 34 45 55 68

OP Margin (%) 20.5 18.6 19.8 23.1 24.4 26.0

NP (Wbn) 17 18 21 30 37 46

EPS (W) 1,198 1,274 1,484 2,076 2,580 3,207

ROE (%) 19.9 16.9 16.7 19.6 20.0 20.3

P/E (x) 23.9 18.1 24.0 26.4 21.2 17.1

P/B (x) 4.1 2.8 3.7 4.7 3.9 3.1

(Maintain) Buy


Share Price (05/29/15, W) 54,700

Expected Return 26%

OP (15F, Wbn) 45




P/E (15F, x) 26.4


KOSDAQ 711.39

Market Cap (Wbn) 781


Free Float (%) 74.9


Beta (12M) 0.77

52-Week Low 24,550

52-Week High 57,500

(%) 1M 6M 12M

Absolute 14.2 48.6 109.6Relative 11.7 13.9 61.9

Solid domestic revenue growth; Overseas growth to turn positive

80

100

120

140

160

180

200

220

240

5.14 9.14 1.15 5.15

Osstem Implant KOSDAQ

Healthcare

2H15 Outlook 30

Source: Company data, Ministry of Welfare, KDB Daewoo Securities Research

Details of dental implant coverage

Solid dental chair sales Rapid dental implant sales growth

12M-fwd P/E band

Top picks

0

200

400

600

800

1,000

11 12 13 14 15

18.0x

25.8x

33.5x41.3x49.0x

(Wbn)Notes

Code DA-1229 (Evogliptin)




License-outDeals


• 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

200

300

0

1

2

3

4

5

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

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

2015F 650 840 2,757 6,207 2016F 685 922 2,852 7,693

OP (US$mn) 2014A 85 162 446 1,035 2015F 87 178 507 1,773 2016F 102 216 540 2,085

OPM (%) 2014A 11.3 20.9 15.2 22.12015F 13.5 21.2 18.4 28.62016F 14.9 23.4 18.9 27.1

NP (US$mn) 2014A 57 173 323 720 2015F 58 151 365 1,164 2016F 71 177 392 1,357

EPS (US$) 2014A 0.5 11.1 2.3 4.32015F 0.5 9.7 2.6 6.72016F 0.6 11.2 2.8 7.6

EPS growth (%) 2015F 3.7 -12.7 12.2 57.32016F 23.0 15.3 8.4 13.0

ROE (%) 2014A 15.7 23.1 13.4 10.52015F 14.6 18.8 15.2 12.02016F 16.4 20.1 14.5 18.3

P/E (x) 2014A 38.8 23.9 22.8 26.82015F 37.4 27.4 20.3 17.02016F 30.4 23.7 18.8 15.1

P/B (x) 2014A 5.0 5.6 3.4 3.02015F 5.4 5.0 3.1 2.72016F 4.9 4.5 2.8 2.3

EV/EBITDA (x) 2014A 18.4 21.6 12.7 13.82015F 19.3 19.5 12.0 8.92016F 17.0 16.8 11.3 7.8


Healthcare

2H15 Outlook 32

Top picks


Source: Company data, KDB Daewoo Securities Research










Non-Operating Profit -5 -5 -5 -6 Investments in Associates 20 20 20 20 BPS (W) 9,597 11,613 14,193 17,400

Net Financial Income -2 -2 -2 -2 Property, Plant and Equipment 59 57 55 53 DPS (W) 0 0 0 0


Pretax Profit 29 40 50 62 Total Assets 324 355 394 442 Dividend Yield (%) 0.0 0.0 0.0 0.0




Net Profit 21 30 37 46 Other Current Liabilities 101 102 101 102 EPS Growth (%) 16.5 39.9 24.3 24.3








EBITDA Margin (%) 21.5 25.1 26.2 27.1 Retained Earnings 75 105 141 187 Current Ratio (%) 137.1 155.2 176.8 202.7

Operating Profit Margin (%) 19.8 23.1 24.4 26.0 Non-Controlling Interests 0 0 0 0 Net Debt to Equity Ratio (%) -8.8 -14.6 -19.0 -22.7


Healthcare

2H15 Outlook 33

Top picks i-SENS (099190 KQ)

Expanding presence in China

Investment points

• Earnings to meaningfully improving from 2Q

• 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


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


Share Price (05/29/15, W) 54,500

Expected Return 32%

OP (15F, Wbn) 25




P/E (15F, x) 24.0


KOSDAQ 711.39

Market Cap (Wbn) 496


Free Float (%) 74.4


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

12-month forward P/E band

Global blood glucose monitor producers’ annual revenueGlobal blood glucose monitor producers’ quarterly revenue

12-month forward P/B band

Top picks

20,000

40,000

60,000

80,000

13 14 15 16

4.2x

3.7x

3.2x

2.7x

2.3x

(W)

20,000

40,000

60,000

80,000

13 14 15 16

28.9x

25.0x

21.0x

17.1x

13.2x

(W)

0

300

600

900

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

Roche J&J

Bayer Abbott(US$mn)

0

1

2

3

4

2011 2012 2013 2014

Roche J&JBayer Abbott

(US$bn)

i-SENS (099190 KQ)

Healthcare

2H15 Outlook 36

Top picks

Note: As of May 29th 2015Source: Company data, KDB Daewoo Securities Research

i-SENS (099190 KQ)









Non-Operating Profit -1 -1 -1 0 Investments in Associates 11 11 11 11 BPS (W) 13,106 15,375 18,199 21,561

Net Financial Income 0 0 0 1 Property, Plant and Equipment 63 58 52 47 DPS (W) 0 0 0 0


Pretax Profit 18 24 30 36 Total Assets 153 175 202 234 Dividend Yield (%) 0.0 0.0 0.0 0.0




Net Profit 16 21 26 31 Other Current Liabilities 2 3 3 3 EPS Growth (%) -15.3 32.4 24.4 19.1








EBITDA Margin (%) 28.3 29.0 29.8 29.8 Retained Earnings 67 87 113 144 Current Ratio (%) 560.9 729.6 901.6 1,076.0

Operating Profit Margin (%) 20.7 23.4 25.0 25.5 Non-Controlling Interests 0 0 0 0 Net Debt to Equity Ratio (%) 3.0 -13.5 -26.4 -37.4


Healthcare

2H15 Outlook 37

Stocks towatch

Celltrion (068270), Cheil Industries (028260), Schnell (003060),Komipharm (041960), GemVax (082270), Medifron (065650)

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


[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

Dong-A ST(170900) 06/01/2015 Buy 207,000 10/23/2014 Buy 54,000

05/15/2015 Buy 173,000 No Coverage

03/27/2015 Buy 146,000 03/12/2014 Buy 34,000

11/03/2014 Buy 120,000 11/07/2013 Buy 31,000

09/26/2014 Buy 132,000 i-SENS(099190) 07/17/2014 Buy 72,000

No Coverage 03/12/2014 Buy 77,000

05/03/2013 Buy 180,000 11/07/2013 Buy 64,000

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


(W) Osstem Implant

0

20,000

40,000

60,000

80,000

100,000


(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)

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein. Disclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. 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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F 2H15 Healthcare Outlook (은)

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