Portfolio Manager/Head of Equity Investment, Tandem Investors Limited

Jason Oh

Portfolio Manager/Head of Equity Investment

Tandem Investors Limited

Equity Bottom-Up

New entry into our Asia Pacific Model Portfolio at 4.54% weight: We added <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono Pharmaceutical Co Ltd (4528 JP)</a> to our Asia Pacific Model Portfolio at the weight of 4.54%. According to our proprietary quant scoring system, TTS(Tandem Technical Score: more information in detail section), it's a good time to accumulate the name. The company's shares have been sliding by more than 50%, since it reached the peak over JPY 5,000 in Jun 2016, due to the disappointing results of its flagship product, Opdivo, from the trial on 1st-line NSCLC of its Licensee, <a href="https://www.smartkarma.com/entities/1133" target="_blank" data-smartkarma-citation="entities:1133:1">Bristol Myers Squibb Co (BMY US)</a>. More details are available at <a href="https://www.smartkarma.com/insights/opdivo-fails-nsclc-test" target="_blank" data-smartkarma-citation="insights:5134">Opdivo Fails NSCLC Test</a> written by <a href="https://www.smartkarma.com/profiles/710" target="_blank" data-smartkarma-citation="accounts:710">Pelham Smithers</a>.Negative news on Opdivo overly reflected in the share price: Basically, we see the negative outcome of BMY's trial on Opdivo was overly reflected in the share price, given that 1) the trial of Opdivo was under tougher conditions compared to its competitor, Keytruda of <a href="https://www.smartkarma.com/entities/1130" target="_blank" data-smartkarma-citation="entities:1130:1">Merck &amp; Co. Inc. (MRK US)</a>, such as proportion of PD-L1 expression(5% vs 50%) and 1st-line monotherapy, maybe due to the ambition targeting broader patients, in my opinion, 2) Opdivo is the product already generating revenue, which should be differentiated from all-or-nothing type of products in phase II or III of the pipeline. 3) Opdivo is immunotherapeutic cancer medicine and it's now just applied to a small portion of cancer, such as melanoma and NSCLC.  So, in our view, the potential expansion of the application to the other type of cancer, especially as a combo with others, is not reflected in the share price.Attractive Entry Point given the benign multiples and conservative enough consensus: In terms of valuation, according to the Bloomberg consensus, it's trading at 23.7x P/E on the 12month forward basis. It's even cheaper than 25.9x of domestic peers, Japanese specialty pharma companies, and we believe consensus earnings are conservative enough resulting from the continuous downward revision of the earnings estimates after the negative news flows. There might be some more uncertainties or negative news going forward, but we believe there should be little downside at the current price and it's a good time to accumulate this name.

New entry into our Asia Pacific Model Portfolio at 4.54% weight: We added Ono Pharmaceutical Co Ltd (4528 JP) to our Asia Pacific Model Portfolio at the weight of 4.54%. According to our proprietary quant scoring system, TTS(Tandem Technical Score: more information in detail section), it's a good time to accumulate the name. The company's shares have been sliding by more than 50%, since it reached the peak over JPY 5,000 in Jun 2016, due to the disappointing results of its flagship product, Opdivo, from the trial on 1st-line NSCLC of its Licensee, Bristol Myers Squibb Co (BMY US). More details are available at Opdivo Fails NSCLC Test written by Pelham Smithers.Negative news on Opdivo overly reflected in the share price: Basically, we see the negative outcome of BMY's trial on Opdivo was overly reflected in the share price, given that 1) the trial of Opdivo was under tougher conditions compared to its competitor, Keytruda of Merck &amp; Co. Inc. (MRK US), such as proportion of PD-L1 expression(5% vs 50%) and 1st-line monotherapy, maybe due to the ambition targeting broader patients, in my opinion, 2) Opdivo is the product already generating revenue, which should be differentiated from all-or-nothing type of products in phase II or III of the pipeline. 3) Opdivo is immunotherapeutic cancer medicine and it's now just applied to a small portion of cancer, such as melanoma and NSCLC.  So, in our view, the potential expansion of the application to the other type of cancer, especially as a combo with others, is not reflected in the share price.Attractive Entry Point given the benign multiples and conservative enough consensus: In terms of valuation, according to the Bloomberg consensus, it's trading at 23.7x P/E on the 12month forward basis. It's even cheaper than 25.9x of domestic peers, Japanese specialty pharma companies, and we believe consensus earnings are conservative enough resulting from the continuous downward revision of the earnings estimates after the negative news flows. There might be some more uncertainties or negative news going forward, but we believe there should be little downside at the current price and it's a good time to accumulate this name.

Ono Pharmaceutical

Ono Pharmaceutical: Time to Accumulate