'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<p style="text-align: center;"><strong>• RELATIVE PRICE SCORE</strong> •</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/178/original/2019-09-06_09-42-35.png?1567730614" class="editor-image img-responsive" data-smartkarma-image-id="98178"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>INTRODUCTION </strong>- The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at<strong> +4</strong> &amp; <strong>-2</strong> and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech 'bubble'. <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec (6920 JP)</a> has just joined <a href="https://www.smartkarma.com/entities/goldwin-inc" target="_blank" data-smartkarma-citation="entities:410:1" rel="noopener">Goldwin (8111 JP)</a> in being only the second large-cap RPS 'ten-baggers' in the last twenty years. </p><div class="content-highlight"><p><strong>This insight updates our list of Overbought and Oversold companies, reviews the best and worst-performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.</strong></p></div><div></div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/046/original/2019-09-05_12-46-46.png?1567655232" class="editor-image img-responsive" data-smartkarma-image-id="98046"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>STATISTICS</strong> - Currently, of the 3,706 listed companies for which monthly RPS data is available, 81 companies are 'Overbought', and 133 are 'Oversold' - 2.45% and 3.8%, respectively of the total. For the 737 companies with a market capitalisation of over ¥100b, there are 44 'Overbought' and 37 'Oversold' companies, 6% and 5%, respectively.</p><hr><p style="text-align: center;"><strong>• RELATIVE PRICE SCORE 'TOPS' •</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/055/original/2019-09-05_13-06-30.png?1567656423" class="editor-image img-responsive" data-smartkarma-image-id="98055"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>RPS 'TOPS'</strong> - In the last two years, 388 companies have achieved an RPS of '4' or more and the average Overbought 'persistence' is 42 days. 1.26% of the total of 1.94 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 74 days - demonstrating the superior persistence of large capitalisation companies in this regard. The chart above highlights the track record of all 95 large caps which are some point were Overbought in the last twenty-four months and illustrates the extreme outlier status of Goldwin and Lasertec.</p><p><strong>RPS NEGATIVE MEAN REVERSION</strong> - Some examples of RPS mean reversion in the last three months have been <a href="https://www.smartkarma.com/entities/suzuken-co-ltd" target="_blank" data-smartkarma-citation="entities:14996:1" rel="noopener">Suzuken (9987 JP)</a>, <a href="https://www.smartkarma.com/entities/infomart-corp" target="_blank" data-smartkarma-citation="entities:1301:1" rel="noopener">Infomart (2492 JP)</a>, <a href="https://www.smartkarma.com/entities/nichirei-corp" target="_blank" data-smartkarma-citation="entities:7168:1" rel="noopener">Nichirei (2871 JP)</a>, and <a href="https://www.smartkarma.com/entities/fancl-corp" target="_blank" data-smartkarma-citation="entities:15862:1" rel="noopener">Fancl (4921 JP)</a>. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/096/original/2019-09-05_16-25-39.png?1567668352" class="editor-image img-responsive" data-smartkarma-image-id="98096"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/097/original/2019-09-05_16-27-09.png?1567668441" class="editor-image img-responsive" data-smartkarma-image-id="98097"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/098/original/2019-09-05_16-28-42.png?1567668548" class="editor-image img-responsive" data-smartkarma-image-id="98098"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/099/original/2019-09-05_16-30-29.png?1567668640" class="editor-image img-responsive" data-smartkarma-image-id="98099"></figure><div class="content-caption">Source: Japan Analytics</div><hr><p style="text-align: center;"><strong>• RELATIVE PRICE SCORE 'BOTTOMS' •</strong></p><div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/056/original/2019-09-05_13-12-52.png?1567656806" class="editor-image img-responsive" data-smartkarma-image-id="98056"></figure><div class="content-caption">Source: Japan Analytics</div>
</div><p><strong>RPS 'BOTTOMS'</strong> - 259 companies have seen their RPS fall to '-2' or below in the last two years, and the average Oversold 'persistence' is 83 days. 1.46% of the total of 1.94 million traded stock days were by companies with an RPS of less than -2.  For larger capitalisation companies, the numbers are 79 companies and 94 days. The chart above highlights the track record of the 79 large caps which are some point were Oversold in the last twenty-four months and illustrates the strong recovery in the<strong> REITs</strong> Sector and the continuing demise of <strong>Regional Banks</strong>.</p><p><strong>RPS POSITIVE MEAN REVERSION</strong> - Some recent examples of positive RPS mean reversions are <a href="https://www.smartkarma.com/entities/otsuka-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:12292:1" rel="noopener">Otsuka Holdings (4578 JP) </a>and <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE (3938 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/100/original/2019-09-05_16-35-47.png?1567668972" class="editor-image img-responsive" data-smartkarma-image-id="98100"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/098/102/original/2019-09-05_16-36-50.png?1567669047" class="editor-image img-responsive" data-smartkarma-image-id="98102"></figure><div class="content-caption">Source: Japan Analytics</div><p>As we noted in our June <a href="https://www.smartkarma.com/insights/japan-relative-price-scores-overbought-oversold-companies-june-2019" target="_blank" data-smartkarma-citation="insights:30393" rel="noopener">Insight: -</a></p><blockquote><p><strong><a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE (3938 JP)</a></strong>- Line has performed poorly since being featured in last year's Sohn Conference and has had negative and worsening Operating Income for each of the previous five quarters. Although there is a possibility of a double-bottom RPS 'bounce' and <strong>the company is now the most-Oversold non-financial large-cap over one year,</strong> there are no fundamental reasons to own the shares.   </p></blockquote><p>In the <strong>DETAIL </strong>section below, we list the current<strong> Very Overbought (RPS&gt;5</strong>), <strong>Too-Late-To-Buy (RPS &gt;4&lt;5)</strong> and <strong>Oversold (RPS &lt;-2)</strong> stocks as well as the most substantial three-month positive and negative changes in RPS.</p>

• RELATIVE PRICE SCORE •Source: Japan AnalyticsINTRODUCTION - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, 'Overbought' and 'Oversold' outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 &amp; -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech 'bubble'. Lasertec (6920 JP) has just joined Goldwin (8111 JP) in being only the second large-cap RPS 'ten-baggers' in the last twenty years. This insight updates our list of Overbought and Oversold companies, reviews the best and worst-performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.Source: Japan AnalyticsSTATISTICS - Currently, of the 3,706 listed companies for which monthly RPS data is available, 81 companies are 'Overbought', and 133 are 'Oversold' - 2.45% and 3.8%, respectively of the total. For the 737 companies with a market capitalisation of over ¥100b, there are 44 'Overbought' and 37 'Oversold' companies, 6% and 5%, respectively.• RELATIVE PRICE SCORE 'TOPS' •Source: Japan AnalyticsRPS 'TOPS' - In the last two years, 388 companies have achieved an RPS of '4' or more and the average Overbought 'persistence' is 42 days. 1.26% of the total of 1.94 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 95 companies and 74 days - demonstrating the superior persistence of large capitalisation companies in this regard. The chart above highlights the track record of all 95 large caps which are some point were Overbought in the last twenty-four months and illustrates the extreme outlier status of Goldwin and Lasertec.RPS NEGATIVE MEAN REVERSION - Some examples of RPS mean reversion in the last three months have been Suzuken (9987 JP), Infomart (2492 JP), Nichirei (2871 JP), and Fancl (4921 JP). Source: Japan Analytics• RELATIVE PRICE SCORE 'BOTTOMS' •
Source: Japan Analytics
RPS 'BOTTOMS' - 259 companies have seen their RPS fall to '-2' or below in the last two years, and the average Oversold 'persistence' is 83 days. 1.46% of the total of 1.94 million traded stock days were by companies with an RPS of less than -2.  For larger capitalisation companies, the numbers are 79 companies and 94 days. The chart above highlights the track record of the 79 large caps which are some point were Oversold in the last twenty-four months and illustrates the strong recovery in the REITs Sector and the continuing demise of Regional Banks.RPS POSITIVE MEAN REVERSION - Some recent examples of positive RPS mean reversions are Otsuka Holdings (4578 JP) and LINE (3938 JP).Source: Japan AnalyticsAs we noted in our June Insight: -LINE (3938 JP)- Line has performed poorly since being featured in last year's Sohn Conference and has had negative and worsening Operating Income for each of the previous five quarters. Although there is a possibility of a double-bottom RPS 'bounce' and the company is now the most-Oversold non-financial large-cap over one year, there are no fundamental reasons to own the shares.   In the DETAIL section below, we list the current Very Overbought (RPS&gt;5), Too-Late-To-Buy (RPS &gt;4&lt;5) and Oversold (RPS &lt;-2) stocks as well as the most substantial three-month positive and negative changes in RPS.

🇯🇵 Japan • September Relative Price Scores - Life at the Poles Part 2: Companies

Asia Healthcare Analyst, Pathology Associates Limited

Dion Stéfan Büchner M.D., FCAP

Asia Healthcare Analyst

Pathology Associates Limited

Thematic (Sector/Industry)

<div class="content-remarks"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/074/094/original/PA%20Coverage_20181228.PNG?1545990481" class="editor-image img-responsive" data-smartkarma-image-id="74094"></figure></div><div class="content-caption">Source: Pathology Associates research</div><p>                                                                                                                                                                                                                                                                        `                        </p>

Source: Pathology Associates research                                                                                                                                                                                                                                                                        `                        

<ul>
<li>While <a href="https://www.smartkarma.com/entities/13076" target="_blank" data-smartkarma-citation="entities:13076:1">Gni Group Ltd (2160 JP)</a> is our high risk-high return pick, <a href="https://www.smartkarma.com/entities/6311" target="_blank" data-smartkarma-citation="entities:6311:1">Mitsubishi Tanabe Pharma (4508 JP)</a>  is a contrarian call in anticipation of value accretive utilization of cash and Eq. (~40% of market cap.)</li>
<li>
<a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a> continues to remain our favourite pick from a medium to long term investment perspective</li>
<li>Rest are event / catalyst driven trading ideas... (see attachment)</li>
</ul>


While Gni Group Ltd (2160 JP) is our high risk-high return pick, Mitsubishi Tanabe Pharma (4508 JP)  is a contrarian call in anticipation of value accretive utilization of cash and Eq. (~40% of market cap.)

Takeda Pharmaceutical (4502 JP) continues to remain our favourite pick from a medium to long term investment perspective
Rest are event / catalyst driven trading ideas... (see attachment)


Equity Bottom-Up

<p><strong>Key highlights</strong></p><ul>
<li>While the pharmaceutical segment (~60% of total sales) stayed flat (+1.2% to ¥200b), the Nutraceutical business (~30% of total) grew briskly by 9.1% to ¥94b - resulting in overall sales growth of 1.9% to ¥330b</li>
<li>Within Pharmaceuticals, ramp-up of global products, including Abilify Maintena (+21% to ¥22b), Rexulti (+43% to ¥18b) and Samsca (+37% to ¥23b) coupled with brisk uptake of recent domestic market launches (including E Keppra, Bilano, Abraxane and Takecab) nullified the adverse impact of price reform led decline in the sales of long listed drugs.</li>
<li>As for cost, while Core (pre-exceptional) SG&amp;A expenses increased by 7% to ¥141b, Core R&amp;D expenses increased by 18% to ¥49b (for accelerated progress of key late stage assets)</li>
<li>As a result, Core EBIT and EPS declined ~32% and 20% to ¥27b and ¥46.14 / share respectively</li>
</ul>

Key highlights
While the pharmaceutical segment (~60% of total sales) stayed flat (+1.2% to ¥200b), the Nutraceutical business (~30% of total) grew briskly by 9.1% to ¥94b - resulting in overall sales growth of 1.9% to ¥330b
Within Pharmaceuticals, ramp-up of global products, including Abilify Maintena (+21% to ¥22b), Rexulti (+43% to ¥18b) and Samsca (+37% to ¥23b) coupled with brisk uptake of recent domestic market launches (including E Keppra, Bilano, Abraxane and Takecab) nullified the adverse impact of price reform led decline in the sales of long listed drugs.
As for cost, while Core (pre-exceptional) SG&amp;A expenses increased by 7% to ¥141b, Core R&amp;D expenses increased by 18% to ¥49b (for accelerated progress of key late stage assets)
As a result, Core EBIT and EPS declined ~32% and 20% to ¥27b and ¥46.14 / share respectively


Otsuka 3Q FY18 (YE Dec'18) Results - First Glance

<p><strong>Japan CAR-T therapy - Competitive landscape</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/065/356/original/Japan%20CAR-T%20landscape.JPG?1538128874" class="editor-image img-responsive" data-smartkarma-image-id="65356"></figure><p><strong>Japan pharma catching-up with global players… but a large gap remains</strong></p><ul>
<li>
<a href="https://www.smartkarma.com/entities/26851" target="_blank" data-smartkarma-citation="entities:26851:1">Novartis AG (NOVN SE)</a>’ <strong>Kymriah</strong> and <a href="https://www.smartkarma.com/entities/973" target="_blank" data-smartkarma-citation="entities:973:1">Gilead Sciences (GILD US)</a>/ <a href="https://www.smartkarma.com/entities/20664" target="_blank" data-smartkarma-citation="entities:20664:1">Kite Pharma Inc (KITE US)</a>’s <strong>Yescarta</strong> are the two approved CAR-T cell therapies in the US and EU.</li>
<li>Furthermore, Novartis’s Kymriah is expected to secure Japan approval in 1Q FY19e (filed in April 2018).</li>
<li>Despite being the frontrunners amongst Japan pharma majors developing CAR-T therapy for the domestic market<strong>, <a href="https://www.smartkarma.com/entities/3014" target="_blank" data-smartkarma-citation="entities:3014:1">Daiichi Sankyo (4568 JP)</a></strong>, <a href="https://www.smartkarma.com/entities/12292" target="_blank" data-smartkarma-citation="entities:12292:1">Otsuka Holdings (4578 JP)</a><strong>/ <a href="https://www.smartkarma.com/entities/10766" target="_blank" data-smartkarma-citation="entities:10766:1">Takara Bio Inc (4974 JP)</a></strong> and <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono Pharmaceutical (4528 JP)</a> still have a long way to commercialization.</li>
</ul><p><strong>Japan CAR-T market opportunity and key beneficiaries</strong></p><ul>
<li>Globally CAR-T is a $10b+ opportunity in hematologic malignancies, however, since most of the Japanese pharma companies have in-licensed Asia/Japan rights, we estimate the domestic CAR-T opportunity to be between <strong>$3-$5b</strong> (depending on pricing).</li>
<li>As far as the Japan market is concerned, the focus is on patients who fail to respond to 2L or 3L treatment for <strong>leukemia-like acute lymphocytic leukemia/lymphoma</strong> (ALL, Japan population 5000, R/R population 20%) and <strong>diffuse large B-cell lymphoma</strong> (DLBCL, Japan population 18000-22000, R/R population 33%).  </li>
<li>Having said that, multiple myeloma (significantly larger opportunity) targeted clinical trials are progressing well</li>
<li>Furthermore, preliminary data from Ph I clinical trials studying CAR-T therapy for solid tumors is expected to report over the next 2-3 years</li>
<li>
<strong>Daiichi Sankyo</strong> and <strong>Otsuka </strong>in-licensed CAR-T therapy assets from Kite Therapeutics (now part of Gilead) and Takara Bio respectively and are well positioned to capitalize on the opportunity.</li>
<li>However, US approval of Kite’s Yescarta for DLBCL can help accelerate enrollment/review of the Japanese clinical trial (based on US data), thereby significantly increasing its probability of success.</li>
<li>Consequently, Daiichi Sankyo could be the second company (after Novartis) to launch CAR-T therapy in Japan, securing it a strong position in the Japanese CAR-T therapy market.</li>
</ul>

Japan CAR-T therapy - Competitive landscapeJapan pharma catching-up with global players… but a large gap remains

Novartis AG (NOVN SE)’ Kymriah and Gilead Sciences (GILD US)/ Kite Pharma Inc (KITE US)’s Yescarta are the two approved CAR-T cell therapies in the US and EU.
Furthermore, Novartis’s Kymriah is expected to secure Japan approval in 1Q FY19e (filed in April 2018).
Despite being the frontrunners amongst Japan pharma majors developing CAR-T therapy for the domestic market, Daiichi Sankyo (4568 JP), Otsuka Holdings (4578 JP)/ Takara Bio Inc (4974 JP) and Ono Pharmaceutical (4528 JP) still have a long way to commercialization.
Japan CAR-T market opportunity and key beneficiaries
Globally CAR-T is a $10b+ opportunity in hematologic malignancies, however, since most of the Japanese pharma companies have in-licensed Asia/Japan rights, we estimate the domestic CAR-T opportunity to be between $3-$5b (depending on pricing).
As far as the Japan market is concerned, the focus is on patients who fail to respond to 2L or 3L treatment for leukemia-like acute lymphocytic leukemia/lymphoma (ALL, Japan population 5000, R/R population 20%) and diffuse large B-cell lymphoma (DLBCL, Japan population 18000-22000, R/R population 33%).  
Having said that, multiple myeloma (significantly larger opportunity) targeted clinical trials are progressing well
Furthermore, preliminary data from Ph I clinical trials studying CAR-T therapy for solid tumors is expected to report over the next 2-3 years

Daiichi Sankyo and Otsuka in-licensed CAR-T therapy assets from Kite Therapeutics (now part of Gilead) and Takara Bio respectively and are well positioned to capitalize on the opportunity.
However, US approval of Kite’s Yescarta for DLBCL can help accelerate enrollment/review of the Japanese clinical trial (based on US data), thereby significantly increasing its probability of success.
Consequently, Daiichi Sankyo could be the second company (after Novartis) to launch CAR-T therapy in Japan, securing it a strong position in the Japanese CAR-T therapy market.


Japan

Otsuka Holdings Co Ltd is a pharmaceutical company. The Company manufactures, sells, imports and exports pharmaceuticals, clinical testing, and medical equipment for intractable diseases.

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Otsuka Holdings (4578 JP)

🇯🇵 Japan • September Relative Price Scores - Life at the Poles Part 2: Companies

• RELATIVE PRICE SCORE •INTRODUCTION - The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by...

Campbell Gunn

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While Gni Group Ltd (2160 JP) is our high risk-high return pick, Mitsubishi Tanabe Pharma (4508 JP) is a contrarian call in anticipation of value...

Dion Stéfan Büchner M.D., FCAP

Otsuka 3Q FY18 (YE Dec'18) Results - First Glance

Key highlights While the pharmaceutical segment (~60% of total sales) stayed flat (+1.2% to ¥200b), the Nutraceutical business (~30% of total) grew...

Dion Stéfan Büchner M.D., FCAP

Japan CAR-T Therapy Landscape

Japan CAR-T therapy - Competitive landscapeJapan pharma catching-up with global players… but a large gap remains Novartis AG (NOVN SE)’ Kymriah...

Dion Stéfan Büchner M.D., FCAP

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