14 September 2016 Asia Pacific/Japan Equity Research Biotechnology (Biotechnology (Japan)) / MARKET WEIGHT
Sosei Group (4565 / 4565 JP) Rating NEUTRAL* [V] Price (13 Sep 16, ¥) 17,260 INITIATION
Target price (¥) 19,700¹ Chg to TP (%) 14.1 Market cap. (¥ bn) 291.59 (US$ 2.84) Transforming into a formidable R&D engine Enterprise value (¥ bn) 276.79 Number of shares (mn) 16.89 ■ Initiating coverage at NEUTRAL with a ¥19,700 target price (potential return Free float (%) 87.5 14.1%): We believe Sosei is on its course to become the global 52-week price range 25,730 - 3,595 biopharmaceutical company that it aspires to be. With the Heptares acquisition, *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. Sosei has changed into a company with an innovative pipeline addressing ¹Target price is for 12 months. important topics in pharma R&D globally. Our NEUTRAL rating is due to the [V] = Stock considered volatile (see Disclosure Appendix). limited upside to our target price. Research Analysts ■ View Heptares as the core of Sosei's future: Heptares' StaR (Stabilized Yen Ting Chen Receptor) technology is a powerful tool addressing a major obstacle in GPCR 81 3 4550 9936 (G-protein coupled receptor) drug discovery research and over the last 12 [email protected] months has attracted four major deals from major pharmaceutical companies Fumiyoshi Sakai potentially worth over $6bn. We are optimistic that this StaR technology will 81 3 4550 9737 [email protected] continue to attract interest and expect more deals to materialise. ■ Three pipeline products with blockbuster potential to watch: The current pipeline already addresses hot topics in the pharma industry. HTL9936 and HTL18318 for Alzheimer's disease, and the immuno-oncology drug HTL1071 are all drugs with blockbuster potential due to large market sizes and unique mechanisms. ■ Valuation/risks: Our target price is derived from a DCF model using a 6.95% WACC (risk-free rate 0%, ERP 6.75%, beta 1.05, cost of debt 3%) and a terminal growth rate of 2%. Risks to our assumptions include greater than expected development failures/progress, fluctuations in currencies, and changes in partnerships. Over the next 12 months, catalysts include quarterly sales results of the COPD (chronic obstructive pulmonary disorder) drugs, Seebri/Ultibro, out-licenced to Novartis, updates on pipeline developments and new deals.
Share price performance Financial and valuation metrics
Year 3/16A 3/17E 3/18E 3/19E Price (LHS) Rebased Rel (RHS) Sales (¥ mn) 8,151.0 26,500.0 17,600.0 24,300.0 40000 600 Operating profit (¥ mn) 1,075.0 15,700.0 6,800.0 14,300.0 30000 400 20000 Recurring profit (¥ mn) -3,297.0 14,500.0 5,700.0 13,250.0 10000 200 0 0 Net income (¥ mn) -1,432.0 12,800.0 4,400.0 10,050.0 EPS (¥) -93.6 759.4 261.0 596.3 Change from previous EPS (%) n.a. IBES Consensus EPS (¥) n.a. 780.9 479.0 735.2 The price relative chart measures performance against the EPS growth (%) n.m. n.m. -65.6 128.4 TOPIX which closed at 1322.99 on 13/09/16 P/E (x) -173.4 22.7 66.1 28.9 On 13/09/16 the spot exchange rate was ¥102.53/US$1 Dividend yield (%) — 0.1 0.1 0.1 EV/EBITDA(x) 123.5 16.6 35.3 17.1 Performance over 1M 3M 12M P/B (x) 9.5 7.5 6.8 5.5 Absolute (%) 1.1 11.8 354.8 ROE(%) -7.0 39.5 10.8 21.0 Relative (%) 0.6 5.2 364.3 Net debt/equity (%) net cash net cash net cash net cash
Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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14 September 2016 Table of contents
Key charts 3 Investment thesis 4 On pace for best performance in company history in FY3/17 4 Transformation into a world-class R&D engine through Heptares 4 Clinical pipeline featuring two blockbuster hopefuls in Alzheimer's disease and one immuno-oncology 4 Earnings forecast summary 5 Near-term catalysts 5 Risks 5 Opportunities 6 Valuation 6 Company history 7 Transforming into a world-class R&D engine 8 Heptares' StaR technology addresses a key challenge in GPCR drug discovery 8 Three blockbuster-class drugs in development pipeline 11 HTL9936 and HTL18318: Reviving an old target 11 HTL1071: A new oral immuno-oncology drug class 12 Earnings trends 13 Valuation 15 Earnings model 17 Appendix: Management team and top shareholders 20 Management team 20 Shareholder structure 21
Sosei Group (4565 / 4565 JP) 2 14 September 2016 Key charts
Figure 1: Sosei revenue breakdown by source Figure 2: FY3/17 is on course to be the strongest earnings year in Sosei's history and to be surpassed in FY3/22
Upfront and R&D fees Allergan upfront EPS (¥) Revenues (¥ bn) Royalties Milestones 80 2,500 2,160
63 2,000 1,827 3 Others 1,709 60 55 52 1,512 3 1,500 47 3 16 3 9 12 1,074 40 36 7 1,000 759 3 712 27 28 6 596 611 24 25 3 5 4 500 18 4 5 44 261 20 4 5 37 40 40 4 127 14 28 37 8 3 -94 20 0 4 2 2 17 17 2 11 1 6 0 2 4 FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E -500
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 3: Breakdown of Sosei's royalty streams by Figure 4: Pipeline is mostly accounted for by Heptares product Revenues (¥Bn) Ultibro Seebri HTL6636 HTL1071 HTL18318 Other Product Phase Indication 20 NorLevo Marketed Female contraception
16.3 Sosei Loramyc (SO-1105) Phase III Candiasis 16 QVM149 Phase III Asthma (developed by Novartis) 3.3 HTL9936 Phase I Alzheimer's disease; schizophrenia 11.9 12 HTL18318 Phase I Alzheimer's disease; schizophrenia 1.9 3.4 8.6 HTL-1071 Phase I Solid tumors 1.7 0.9 CGRP Antagonist Pre-clinical Migraine 8 6.5 3.9 5.8 0.9 2.4 Heptares 5.4 0.6 1.1 M4 Agonist Pre-clinical Psychosis 4.7 0.1 4.0 1.1 1.1 1.2 1.0 1.0 1.1 Dual M1 & M4 Agonist Pre-clinical Cognitive impairment; psychosis 4 3.1 0.9 2.1 2.3 0.8 0.7 Orexin OX1 Antagonist Pre-clinical Smoking cessation 1.2 4.0 4.3 4.6 4.7 4.7 4.7 0.7 0.6 3.1 3.6 2.3 0.6 1.3 1.5 mGluR5 Modulator Pre-clinical Neurological disorders 0 0.5 FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E APP13002 Pre-clinical Ocular infection Activus APP13007 Pre-clinical Ocular inflammation JIT-2001 Pre-clinical Cardiovascular indication JITSUBO JIT-1007 Pre-clinical Rare disease Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse
Figure 5: Major events for Sosei from FY16-17 Figure 6: Forward P/E at a discount compared to peers Peptidream Sosei FY2016 FY2017 Forward P/E (x) JCR Eisai Q2 Q3 Q4 Q1 Q2 Q3 Q4 Kyowa Hakko Kirin Ono 180 160 P1, HTL9936 P1, HTL1071 Alzheimer's disease Solid tumors; 140 Trial immunooncology readouts 120 P1, HTL18318 Alzheimer's disease 100 80
Phase 1, M4 agonist Phase 1, M1/M4 agonist 60 Psychosis Alzheimer's disease 40
Trial Start Phase 2, HTL9936 P2, HTL18318 20 Alzheimer's disease Alzheimer's disease 0
P1, CGRP antagonist Migraine Commercial Quarterly updates on Seebri/Ultibro sales Source: Company data, Credit Suisse estimates Source: Thomson Reuters, Credit Suisse
Sosei Group (4565 / 4565 JP) 3 14 September 2016 Investment thesis On pace for best performance in company history in FY3/17 On 7 April, Sosei Group signed a $3.3bn+ deal with Allergan for several drugs for neurology. The deal includes a $125mn upfront payment, and in 1Q FY3/17 Sosei recorded ¥15bn in revenue which already surpasses the entire annual sales of ¥8bn in FY3/16. Although the company also plans to increase investments in R&D, we forecast EPS of ¥759, which is six times the previous high set in FY3/14. Given the Allergan mega- deal, we view FY3/17 as an anomaly and expect EPS to come down 66% YoY to ¥261 in FY3/18. However, we still forecast a long-term growth trajectory, expecting steady milestones from an interesting pipeline, new collaborations, and royalties and expect Sosei's revenues to grow at a CAGR of 17% from FY3/18 (next fiscal year) to FY3/26. Transformation into a world-class R&D engine through Heptares Sosei was originally known for having a development strategy consisting of drug reprofiling (developing old drugs for new indications). However, with the $400mn acquisition of Heptares in 2015, the company has now essentially turned into a new organization with innovative technology and a robust pipeline working in R&D themes that are highly relevant in the global market. Heptares' unique StaR technology provides invaluable structural information about GPCRs (G-protein coupled receptors) for drug discovery efforts, and this is attracting interest from several pharma companies. The Sosei acquisition has paid off fast: the company has already made four major deals, which have guaranteed $188mn (including Pfizer's $33mn purchase of new Sosei shares) and potential of up to $6bn in milestone payments plus royalties, and we expect more deals to be announced given Sosei's robust early stage pipeline. (Figure 13) Clinical pipeline featuring two blockbuster hopefuls in Alzheimer's disease and one immuno-oncology Sosei has three compounds from the Heptares pipeline in early stage development, which we believe have blockbuster-caliber potential. HTL9936 and HTL18318: Both compounds are muscarinic M1 agonists being developed in partnership with Allergan with potential peak sales of $2bn each by our estimates. The target was studied over two decades ago, but past development efforts were abandoned due to side effects or lack of efficacy. We expect HTL9936 and HTL18318 to avoid similar adverse events due to better selectivity while maintaining the desired effects. We are optimistic about this drug passing early stage trials and see the key challenge as how it will fare in Phase 3. HTL1071: This is an adenosine A2A antagonist, a brand-new target in immuno-oncology and is in development as a combination with AstraZeneca's PD-L1 inhibitor (known as Durvalumab). The target was previously indicated for Parkinson's disease and ADHD, and we believe has a less risky safety profile. Our preliminary peak sales forecast for HTL- 1071 is $1.8bn.
Sosei Group (4565 / 4565 JP) 4 14 September 2016
Earnings forecast summary
■ Performance similar to FY3/17 will be difficult to replicate since another deal on the same scale as Allergan is unlikely to recur. We forecast a 66% fall in FY3/18 EPS to ¥261 and a rebound to surpass FY3/17 levels by FY3/22, mainly due to milestone payments from multiple late-stage clinical projects that year. Although the decline in FY3/18 might appear to be a concern, we believe it does not reflect the company's actual performance, but is due to the irregular timing of payments from R&D deals that is common in companies that are heavily dependent on royalties and milestones.
■ We expect steady royalty payments from sales of chronic obstructive pulmonary disease (COPD) drugs Ultibro and Seebri to Novartis Pharma to increase at a compound growth of 11% to ¥5.7bn by FY3/26, and will be joined by HTL1071 and HTL9936 as early as FY3/23, assuming view that AstraZeneca will be aggressive with pushing development for HTL1071.
■ We expect OP to increase with compound growth from FY3/17 to FY3/26 of 13% to ¥49.2bn due to larger revenues from milestones and royalties, which have minimal operating expenses. We assume temporarily higher R&D spending in FY3/17–18 due to additional R&D funding support from Allergan. The company is interested in expanding clinical development capabilities and commercializing their own products in the longer term, which we will reflect in our models once we have more color. Near-term catalysts Key events that we expect over the next 12 months include:
■ Start of milestone payments from three clinical projects: Phase 2 for HTL9936, Phase 1 for M4 agonist (both Allergan), and Phase 1 for Teva's CGRP (calcitonin gene- related peptide) project.
■ Quarterly sales updates for Seebri and Ultibro from Novartis. Although royalties are already widely known and factored in the price, we still expect stock price movement upon release.
■ New deal announcements: We expect two more new R&D deals on a similar scale to the $500mn AstraZeneca deal last year (Figure 13). Risks We have identified the following factors as risks that could affect the share price and company performance as follows:
■ Attrition in drug development: Pharmaceutical R&D is a high-risk process, and Alzheimer's in particular has been one of the most difficult areas for new drug development. Faster development timelines than our estimates and success would lead to upside risk.
■ Commercial success of the Seebri/Ultibro franchise: Harsher competition than expected from other major players such as Boehringer Ingelheim or slower penetration into the market due to reluctance by physicians to change prescription patterns may lead to downside risks. On the other hand, clinical data showing efficacy of these drugs would present upside.
■ Technology risk: Advances in pharmaceutical research and development is a constantly evolving process which can result in projects becoming obsolete.
■ Partnership risks: Collaborations can end abruptly even if there have been no issues with development, due to strategic or organizational changes in the partner company. However, a greater number of collaborations or larger deal sizes would be upside risks.
Sosei Group (4565 / 4565 JP) 5 14 September 2016
■ Currency risks: Since most of the collaborations are with overseas partners, royalties, milestone, and other deal payments are highly susceptible to forex risks.
■ Declining earnings in FY3/18: Although this is expected due to the large upfront payment from Allergan this fiscal year, we expect a negative short term response in the share price.
■ Upside risks: Upside risks include greater volume of partnerships and deal size, stronger market performance of the COPD drugs, Seebri and Ultibro faster and successful development progress which exceed our estimates, and a shift to favorable forex rates. Opportunities Assessment of market potential of HTL9936, HTL18318, and HTL1071: All three compounds appear to have blockbuster potential, but we will have more color on this once we understand how they will be used in clinical trials. The double-digit royalty stream expected for these compounds should be far greater than the rate of around 4% that Sosei is receiving now for Ultibro and Seebri. Long term goal to commercialize their own products: Sosei expressed an interest in developing and commercializing its own products in the future as a next step for growth, and we hope to build this into our models once we have more visibility on this effort. Valuation Our target price is based on a DCF and assumes a 6.95% WACC (derived from risk-free rate of 0%, equity risk premium of 6.75%, beta of 1.05, and interest rate of 3%) and 2% terminal growth rate, which we believe are in line with Japanese biotechs with a robust technology platform. Our target price implies a P/E of 30x FY3/17E EPS and 76x FY3/18E EPS.
Sosei Group (4565 / 4565 JP) 6 14 September 2016
Company history Sosei was established as Sosei Co. Ltd in June 1990 by Mr. Shinichi Tamura, the former CEO of Genentech Japan. Sosei was listed on the Tokyo Stock Exchange in July 2004, and renamed "Sosei Group" in 2006 as it reorganized to become a holding company. Sosei began as a company supporting technology transfers between Japanese and foreign pharmaceutical companies. In 1999, the company shifted business focus to drug R&D, with emphasis on drug reprofiling, which involves discovering new indications for old drugs or compounds abandoned by pharmaceutical companies. In 2005, Sosei acquired Arakis, a privately held UK company also focused on drug reprofiling and since then, made three other acquisitions, Activus, JITSUBO, and Heptares, to expand its portfolio of technology platforms for drug R&D. In 2013, Sosei also established a corporate venture capital subsidiary (Sosei CVC) to invest in companies involved in regenerative medicine. The first fund, RMF1, was launched in June 2016 with investors including Mizuho Bank (8411), Shinsei Bank (8303), and Organization for Small & Medium Enterprises and Regional Innovation, Japan. Currently, Sosei has ties to three drugs in the market: Novosyn for emergency contraception for the Japanese market and sold by ASKA pharmaceuticals (4514) (and previously sold by Sandoz in Australia), and Seebri and Ultibro for COPD globally both commercialized by Novartis (and co-promotion with Meiji Seika Pharma in Japan). Sosei has no manufacturing sites or a commercial team. However, the company has expressed intent to commercialize its own products in orphan diseases in the near future in the next part of their growth strategy.
Figure 7: M&A activities by Sosei Figure 8: Marketed products related to Sosei Company Year Deal size ($M) Business of acquired company Product Indication Obtained method Licensee 2015 Sales Structure-based drug design of agents targeting Heptares 2/2015 400 Seebri Neohaler COPD Acquisition of Arakis Novartis $150 M G-protein coupled receptors Ultibro COPD Acquisition of Arakis Novartis $260 M Development of peptides and peptide JITSUBO 12/2014 n/a Emergency In-licensed Japan and Australia rights manufacturing technology NorLevo Aska ¥907 M contraception from Laboratoire HRA Pharma Activus 6/2010 n/a Drug formulation using nano-particle processing Arakis 7/2005 187.4 Drug repositioning Source: Company data, Credit Suisse Source: Company data, Credit Suisse
Figure 9: Sosei's business segments
Segment Subsidiary Description
Sosei Co, Ltd • Domestic pharmaceutical R&D and sales
Domestic Activus Pharma Co, Ltd • Development of nanoparticles for pharmaceutical use pharmaceutical business JITSUBO Ltd • Development of peptides and peptide manufacturing technology
Sosei CVC Ltd • Management of investment fund in regenerative medicine
Overseas Sosei R&D Ltd • Licensing and overseas business development pharmaceutical business Heptares Therapeutics • Structure-based drug design of G-protein coupled receptors
Source: Company data, Credit Suisse
Sosei Group (4565 / 4565 JP) 7 14 September 2016
Transforming into a world-class R&D engine In many ways, Sosei is different from most other Japanese biotechs. It is not a university start-up, several of the management team including the current CEO are non-Japanese, almost the entire management team (everyone aside from the CFO) resides outside of Japan, and the company's success has been more due to M&A rather than its own inventions. Arguably, Sosei's first major success is the acquisition of Arakis in 2005. Through this deal, Sosei obtained royalty rights to COPD drugs including Seebri and Ultibro, which were already licensed out to Novartis before the acquisition and eventually contributed to almost $100mn in milestones for Sosei, with additional royalties expected until patent expiry in calendar year 2026. With the acquisition of Heptares in 2015, we believe Sosei has struck again, with a bigger deal, and we see Heptares as the key to Sosei's ambition to become a global biopharmaceutical company. Heptares' StaR technology addresses a key challenge in GPCR drug discovery Structure-based drug design is a commonly used method in drug discovery research. This Structure-based drug design process begins with obtaining a 3-D image of the target protein, often using a technique is a more "rational" called X-ray crystallography, followed by medicinal chemists studying this data to rationally approach to drug discovery design compounds that can exploit certain structural features. This technique has been by using knowledge on how invaluable in discovering saquinavir, the first HIV protease inhibitor to treat AIDS infection, drugs bind to target proteins and imatinib (Gleevec) for leukemia. For a protein class called GPCRs (G-protein coupled receptors), structure-based drug G-protein coupled receptors design is more challenging. GPCRs are well-established drug targets for various are an important drug target therapeutic areas including neurologic, respiratory, metabolic, and cardiovascular class, but its structure is still disorders. The reason for the difficulty in GPCR structure based drug design is that the poorly understood 3-D structures are hard to obtain, due to the low degree of solubility of these proteins and difficulty of getting them to crystallize while retaining their active conformation. With roughly 40% of drugs in the current market targeting a GPCR it may appear that the chemists are already doing fine without knowing the structure. But in reality, having such information is a useful tool for understanding the mechanism of the protein and design drugs with better efficacy and safety profiles.
Figure 10: Examples of GPCR targeting drugs in the Figure 11: Of druggable GPCR targets, over 40% still have market unknown functions Therapeutic Peak sales Drug Company Peak year GPCRs (#) area ($bn) Plavix Sanofi Cardiovascular 9.6 2011 400 27 Central Nervous Abilify Otsuka 5.7 2013 System 68 300 Boehringer Spiriva Respiratory 4.7 2013 Ingelheim 114 Actos Takeda Metabolism 4.5 2010 200 387 Victoza Novo Nordisk Metabolism 4.2 2021 Kyowa Hakko Poteligeo Oncology 0.3 2022 100 Kirin 178 Maraviroc Pfizer Anti-infective 0.2 2014 0 Unknown Target validated Drugged - small Drugged biologic Total function molecule Source: Company data, EvaluatePharma, Credit Suisse Source: Company data, Credit Suisse
Sosei Group (4565 / 4565 JP) 8 14 September 2016
Heptares' core technology, StaR (Stabilized Receptor) is based on making small As the name implies, StaR modifications on a GPCR to generate stabilized GPCRs while keeping their natural technology makes stable pharmacological conformations intact. These stabilized StaR proteins, in turn, can be GPCR which can be used crystallized to generate 3D views or used for other studies in drug research. Heptares for various purposes in drug uses these StaR proteins for its in-house drug discovery efforts for targets that other discovery research pharmaceutical companies have tried (and failed due to poor selectivity), and two of their lead projects, muscarinic M1 receptor agonists and CGRP (Calcitonin Gene-Related Peptide) antagonists, are such examples. In addition, Heptares is using this StaR In addition to small technology to aid discovery of monoclonal antibodies that target GPCRs. To date, there is molecules, Heptares is also only one such antibody in the market (Kyowa Hakko Kirin's (4151) mogamulizumab), and working on monoclonal Heptares is aiming to address this innovation gap. antibodies targeting GPCRs
Figure 12: Sosei's pipeline marketed product portfolio
Product Generic Name Pharmacological Class Phase Indication Partner Note
Seebri Neohaler glycopyrrolate Long-acting muscarinic Marketed COPD Novartis; Sosei entitled to royalties and antagonist (LAMA) Vectura commercial milestone payments 2015 WW revenues: $150mn Utibron Neohaler glycopyrrolate; Long-acting beta 2 Marketed COPD Novartis; Sosei entitled to royalties and indacaterol maleate adrenoreceptor agonist (LABA) & Vectura commercial milestone payments LAMA 2015 WW revenues: $260mn NorLevo levonorgestrel Progesterone agonist Marketed Female contraception Aska Sosei entitled to royalties until 2020 2015 JPN revenues: ¥907mn Loramyc (SO-1105) miconazole nitrate Imidazole Phase III Candiasis FujiFilm Marketing rights outlicensed to Fujifilm (completed) QVM149 glycopyrronium Anti-asthma agent Phase III Asthma Novartis Sosei entitled to royalties bromide; indacaterol; mometasone furoate HTL9936 - Muscarinic M1 agonist Phase I Alzheimer's disease; Allergan - schizophrenia HTL18318 - Muscarinic M1 agonist Phase I Alzheimer's disease; Allergan - schizophrenia HTL-1071 - Adenosine A2A receptor Phase I Solid tumors; non small- AstraZeneca In combination with AstraZeneca's PD- antagonist cell lung cancer L1 inhibitor CGRP Antagonist - Calcitonin gene-related peptide Pre-clinical Migraine Teva - Research Program (CGRP) receptor antagonist
M4 Agonist - Muscarinic M4 agonist Pre-clinical Psychosis Allergan - Dual M1 & M4 Agonist - Muscarinic M1 & M4 agonist Pre-clinical Cognitive impairment; Allergan - psychosis Orexin OX1 Antagonist - Selective orexin 1 receptor Pre-clinical Smoking cessation - - antagonist mGluR5 Modulator - Metabotropic glutamate receptor Pre-clinical Neurological and - - 5 modulator psychiatric disorders Anti-PAR-2 program - Anti-Par-2 mab Discovery Atopic dermatitis; - - inflammation GLP-1 Antagonist - Glucagon-like peptide 1 (GLP-1) Discovery Hypoglycaemia - - Program antagonist APP13002 - Eye preparation Pre-clinical Ocular infection - Activus project APP13007 - Eye preparation Pre-clinical Ocular inflammation - Activus project JIT-2001 - Undisclosed peptide therapeutic Pre-clinical Cardiovascular - JITSUBO project indication JIT-1007 - Undisclosed peptide therapeutic Pre-clinical Rare disease - JITSUBO project
Note: Excluding projects previously disclosed but with current status unconfirmed Source: Company data, Credit Suisse. Several companies have bought into this technology, as evidenced by the vast number of collaborators. Six of Heptares' in-house projects have been picked up by the likes of Allergan, AstraZeneca, and Teva, and several others, such as Pfizer, Takeda (4502), and Regeneron, have approached Heptares for their target of interest. The pursuit of GPCR targeting mabs is also in progress with biotechs specialized in mab technology, such as Morphosys and Kymab. Interestingly, there are very few other competitors with the similar technology.
Sosei Group (4565 / 4565 JP) 9 14 September 2016
There are several companies with strengths in structure-based drug discovery such as Vertex, Ariad Pharmaceuticals but hardly any that are focused on GPCRs. The closest competitor to Heptares that we identified is ConformetRx, a private company founded by Brian Kobilka, one of the two winners of the 2012 Nobel Prize for their work in GPCR structural biology: Another company would have been Receptos, but it was acquired by Celgene in 2015 for $7.2bn for their key asset, ozanimod, rather than their GPCR techniques. Not-for-profit organizations such as the GPCR consortium are also working on elucidating the structural biology of GPCRs. Figure 13: Collaborations with major pharma companies and biotechs Company Year Deal size ($M) Notes Allergan 2016 3,340 R&D collaboration and licensing of muscarinic receptor agonists Global rights to HTL1071, a small molecule immuno-oncology candidate AstraZeneca 2015 510 Also collaborate on discovery of other A2A receptor antagonists Teva 2015 410 Discovery of small molecule CGRP antagonists for migraine Regeneron 2015 n/a Deliver StaR proteins for select GPCRs for antibody discovery Cubist (now Merck) 2013 9.5 Drug discovery for up to two GPCRs selected by Cubist Takeda 2011 100 Drug discovery project on a GPCR for CNS disorder Novartis 2011 200 Discovery of a small molecule targeting a GPCR selected by Novartis Technology partnerships Leadxpro 2016 n/a Collaboration to develop new technologies to GPCR structure determination Kymab 2016 n/a Strategic collaboration to discover, develop, and commercialize antibody therapeutics $189 M per target Pfizer 2015 $33 M worth of Drug discovery collaboration for up to 10 GPCR targets Sosei shares AstraZeneca 2011 180 Drug discovery collaboration in CNS/pain, CV, inflammatory disorders Medimmune 2011 n/a Multi-target alliance to deliver StaR proteins for antiboy discovery Morphosys 2013 n/a Dicovery and development of novel antibody candidates Source: Company data, Credit Suisse.
Sosei Group (4565 / 4565 JP) 10 14 September 2016 Three blockbuster-class drugs in development pipeline What sets Sosei apart from other Japanese biotechs is that its projects address an unmet need and are in topics that are of global interest in pharma currently. In our view, Sosei's three Phase 1 compounds, HTL9936, HTL18318, and HTL1071, are such examples. HTL9936 and HTL18318: Reviving an old target HTL9936 and HTL18318 are two compounds included in Sosei's $3bn+ deal with Allergan. Several M1 receptor Both drugs target the muscarinic M1 receptor, which was a target of high interest in agonists were studied in the pharma more than two decades ago for Alzheimer's disease. However, due to past but failed due to side cardiovascular and gastrointestinal side effects presumably caused by inadequate effects from unwanted selectivity over receptors, M2 and M3, none of the development projects were successful. targets; HTL9936 and To overcome this problem, HTL9936 and HTL18318 are designed as structurally distinct, HTL18318 were designed to selective agonists of muscarinic M1. Sosei reported Phase 1a and 1b study results of be more selective using HTL9936 showing a favorable safety profile and reporting none of the adverse effects StaR seen in the older M1 agonists. The studies also reported significant changes in brain electrical activity measure using multiple electroencephalography (EEG) biomarkers, but since these studies were on healthy patients, how this has relevance to Alzheimer's patients remains to be seen. HTL18318 is going through similar studies, and results are expected later this year. M1 agonists are expected to be cognitive enhancing agents for Alzheimer's disease, thus similar to donepezil and not like disease modifying agents such as aducanumab, which Biogen and Eisai are currently investigating. Sosei is also planning to study these two drugs for cognitive impairment in schizophrenia where there is no approved therapy currently. Karuna Pharmaceuticals and Anavex are also currently engaged in developing M1 agonists. Currently, there are only four drugs are in the market for Alzheimer's, which we estimate to be $7bn in value globally.
Figure 14: Past muscarinic M1 agonists that failed in the clinic Company Phase Compound name Termination year Reason for discontinuation Eli Lilly Phase III xanomeline 2002 GI side effects GSK Phase III sabcomeline 2001 Lack of efficacy Lundbeck; Forest Phase II LU 25-109 2001 GI side effects Boehringer IngelheimPhase II talsaclidine 2001 Modest efficacy, CV and GI issues Yamanouchi Phase II YM-798 1999 Unknown Source: EvaluatePharma, Credit Suisse
Figure 15: Clinical trials registered for HTL9936 and HTL18318 NCT Number Start date Completion Date Phase Size Study design Objective HTL9936 Randomized, double-blind, Determine safety, tolerability, pharmacokinetics, and NCT02291783 Nov-13 Jul-14 1 108 placebo controlled pharmacodynamics in young and elderly healthy volunteers Randomized, double-blind, Study changes in neural activity using fMRI BOLD signals in elderly, NCT02546310 Oct-15 Sep-16 1 54 placebo controlled healthy volunteers NCT02710188 Feb-16 Sep-16 1 14 Non-randomized, open lable Bioavailability study of a modified release prototype
HTL18318 Randomized, double-blind, Determine safety, pharmacokinetics, and pharmacodynamics in NTR5648 Nov-15 Apr-16 1 72 placebo-controlled healthy younger adult and elderly subjects Randomized, double-blind, Determine safety, pharmacokinetics, and pharmacodynamics in NTR5781 Mar-16 Jul-16 1 48 placebo-controlled healthy younger adult and elderly subjects Source: Clinicaltrials.gov, Credit Suisse
Sosei Group (4565 / 4565 JP) 11 14 September 2016
HTL1071: A new oral immuno-oncology drug class Adenosine A2a receptor antagonists were previously known as the mechanism of caffeine Adenosine A2a blockade is and agents for neurological disorders (for example Nouriast for Parkinson's disease by a potentially offers a new Kyowa Hakko Kirin), but recently this class of drugs is also being investigated for use in mechanism in immuno- immuno-oncology. Studies have found that by releasing a small molecule called oncology similar to PD-1 adenosine, cancer cells can evade the immune system by stimulating the A2A receptors and CTLA-4. on various immune cells (Nature Reviews Cancer 13, 842–857 (2013), Comp. Struc. Biol. Cancer cells produce J. 13, 265-272 (2015)). Thus, blocking the A2A receptors from binding to adenosine was adenosine, which binds to proposed to improve anti-cancer immune activities. Last June, Heptares and Astrazeneca various immune cells and started Phase 1 trials examining the safety and preliminary anti-tumor effect of this drug in reduces their cancer- combination with Astrazeneca's PD-L1 inhibitor Durvalumab. In addition to Astrazeneca, attacking activities Novartis and Roche have also entered this race in the past year.
Assuming HTL1071 can be used with other PD-1/PD-L1 inhibitors, our rough estimate of HTL1071 is $1.8bn without risk adjustments. This is based on: (1) patient size using a Ono's reported number of Opdivo users in Japan in March 2016 extrapolated to number of patients to a full year, and extrapolated across the US and EU based on population; (2) drug price assuming 50% of Tagrisso, the most recently approved for NSCLC (. We added a 50% discount since HTL1071 will be used in combo with an already expensive drug and used for a wider patient group; (3) an average nine-month treatment period, and (4) assuming 10% market share due to competition, market access, and the option of not using a combo therapy.
Figure 16: Competitors in the adenosine A2a receptor Figure 17: Rough estimate of HTL1107 peak sales for antagonist space NSCLC NSCLC patients 1 month Treatment Estimated Company Compound Phase Region to use PD-1 drug drug price duration (mo) sales ($ mn) Sosei; AstraZeneca HTL-1071 Phase I Japan 58,000 × 2524.5 × 9 = 1,318 US 133,800 × 4207.5 × 9 = 5,067 Corvus; Roche CPI-444 Phase I Europe 89,200 × 3155.6 × 9 = 2,533 8,918 Palobiofarma; PBF-509 Phase I Patient share 20% Novartis Redox Therapies; Total 1,784 vipadenant (V2006) Pre-clinical Vernalis Globavir GBV2034 Research project Source: Company data, EvaluatePharma, Credit Suisse Source: Company data, Credit Suisse estimates
Sosei Group (4565 / 4565 JP) 12 14 September 2016
Earnings trends Expecting more deals to come, though not as big as Allergan: FY3/17 is on pace to be the best year in Sosei's history, highlighted by the $3.3bn Allergan deal (including $125mn upfront payment) and the $10mn milestone payment from the AstraZeneca for starting Phase 1 trials for HTL1107. The company has already reported ¥15bn in revenues and ¥11bn in net earnings in 1Q FY3/17. In our assumptions, we do not anticipate another deal as large as Allergan, as that involved a package of several compounds, of which two were already in clinical development and had good safety data and address the large ($7bn) Alzheimer's disease market. However, we assume more deals around the size of AstraZeneca's $510mn deal for HTL1107 will be realized over the next few years, due to the industry's emphasis on in-licensing and collaboration and a long list of new targets and projects in Sosei's pipeline. By FY3/26, we expect ¥63bn in revenue of which 70% be from milestone payments. COPD drug royalties increase to ¥5.7bn by FY3/26: One of Sosei's advantages over other biotechs is that it has financial stability due to royalties from the respiratory drugs Seebri and Ultibro for COPD (chronic obstructive pulmonary disease) from Novartis. Our European research team's forecast for Seebri and Ultibro combined is $535mn in FY3/17 with a CAGR of 8% to reach to $1.2bn in FY3/26. We assume Ultibro receives 4% and Seebri receives 3.75% royalties based on Sosei's revenues from Novartis in FY3/16 minus reported milestone received, and as a result we forecast ¥5.7bn by FY3/26. Furthermore, we also anticipate royalties from other products such as QVM149 (triple combination therapy for asthma which also include the ingredients from Ultibro), HTL1071, HTL18318, and HTL9936 for a total of ¥16bn.
Figure 18: Breakdown of revenue forecast by source Figure 19: Estimated trend in royalties by product
Upfront and R&D fees Allergan upfront Revenues (¥Bn) Ultibro Seebri HTL6636 HTL1071 HTL18318 Other Revenues (¥ bn) Royalties Milestones 20 80 16.3 63 16 3 Others 3.3 60 55 52 3 11.9 47 3 16 12 3.4 3 9 12 1.9 40 36 7 8.6 1.7 3 8 0.9 27 28 6 6.5 3.9 24 25 5.8 0.9 2.4 3 5.4 1.1 5 4.7 0.10.6 18 4 4 5 44 0.1 20 40 40 4.0 1.1 1.1 1.2 1.0 4 5 37 1.0 1.1 4 4 3.1 0.9 14 28 8 3 2.1 2.3 0.8 20 0.7 4.7 4 2 17 17 1.2 4.0 4.3 4.6 4.7 4.7 2 11 0.7 0.6 3.1 3.6 1 2 2.3 2 4 6 0.6 1.3 1.5 0 0 0.5 FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Reduced R&D investments after FY3/18: With up to $50mn in R&D support from Allergan for development of HTL9936 and other compounds in their agreement, we assume higher spending in FY3/17–18 as the companies push forth their assets through development. Even with successful results, we expect scaling back on spending since Allergan will be responsible for Phase 3 studies. We expect Sosei to focus mainly on drug discovery research and early stage development, therefore do not forecast drastic movements in R&D spending, although there is still possibility for change in strategy and M&A which will change spending trends. Taking these together, we forecast strong performance from Sosei in FY3/17, but expect EPS to fall 66% to ¥261 the following year, which is still solid considering the continued heavy investment in R&D and not having the luxury of a multi-billion licencing deal. That said, we still expect EPS CAGR of 26% from FY3/18 to FY3/26 to reach an EPS value of ¥2,160 by FY3/26.
Sosei Group (4565 / 4565 JP) 13 14 September 2016
Figure 20: Sosei Group (4565) – Earnings forecasts summary
Sales Operating profit Recurring profit Net profit EPS DPS P/E
¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥mn YoY (%) ¥ YoY (%) ¥ (x) 3/16 A 8,151 122.0 1,075 3.1 (3,297) NM (1,432) NM (93.6) NM 0.0 NM 3/17 CS E (New) 26,500 225.1 15,700 1360.5 14,500 NM 12,800 NM 759.4 NM 11.9 22.7 CoE 27,925 242.6 17,096 1490.3 14,901 NM 13,064 NM 775.1 NM 0.0 22.3 IBES E 26,504 225.2 17,523 1530.0 - - 13,812 NM 780.9 NM 0.0 22.1 3/18 CS E (New) 17,600 -33.6 6,800 -56.7 5,700 -60.7 4,400 -65.6 261.0 -65.6 14.8 66.1 IBES E 18,872 -28.8 10,982 -37.3 - - 7,794 -43.6 479.0 -38.7 2.0 36.0 3/19 CS E (New) 24,300 38.1 14,300 110.3 13,250 132.5 10,050 128.4 596.3 128.4 14.8 28.9 IBES E 27,495 45.7 18,029 64.2 - - 12,831 64.6 735.2 53.5 5.0 23.5 Source: Company data, I/B/E/S, Credit Suisse estimates
Sosei Group (4565 / 4565 JP) 14 14 September 2016 Valuation The target price is based on a DCF model using a WACC of 6.95%, and terminal growth rate of 2%, which we believe is an appropriate premium for companies with sustainable and robust technology platform. The WACC value is calculated from cost of equity of 7.09% (risk-free rate 0%, ERP 6.75%, beta 1.05) and cost of debt of 3.0%. The beta value is based on our calculated average beta for biotech companies in Japan which we use to normalize the wide range of company beta among biotech (except for JCR Pharma who is the most established company in the group). Our target price implies a P/E of 30x FY3/17 EPS and 76x FY3/18 EPS and the latter is at a premium compared to Japanese companies with interesting pipelines. As seen by the price trend, since late last year Sosei has seen a steady climb due to strong interest from retail investors, who react strongly to news events such as collaboration deals and news on the respiratory products out- licensed to Novartis.
Figure 21: DCF model for Sosei (JPY mn) FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E Operating profit 1,043 1,075 15,700 6,800 14,300 14,600 16,800 24,900 34,700 39,100 41,800 49,200 tax 282 290 4,200 1,800 3,900 3,900 4,500 6,700 9,400 10,600 11,300 13,300 NOPAT 761 785 11,500 5,000 10,400 10,700 12,300 18,200 25,300 28,500 30,500 35,900
Depreciation and amortization 98 926 900 900 900 900 900 900 900 900 900 900 Capex (89) (130) (200) (200) (200) (200) (200) (200) (200) (200) (200) (200) Change in working capital (1,813) 2,756 2,000 (1,100) 800 0 400 1,000 1,300 500 400 900
Free Cash Flow (1,043) 4,337 14,200 4,600 11,900 11,400 13,400 19,900 27,300 29,700 31,600 37,500 YoY growth rate (%) 227% -68% 159% -4% 18% 49% 37% 9% 6% 19%
Discounted FCF 13,278 4,022 9,729 8,716 9,579 13,303 17,064 17,359 17,271 19,165 Terminal Value 395,459 Discounted Terminal Value 202,103
Enterprise Value (JPY MM) 331,590 WACC Calculation Add: Excess Cash & marketable sec. 10,068 Tax rate 27.00% Less: Debt 8,837 Risk-free rate 0.00% Less: Minority interest (114) Expected market return 6.75% Less: Preferred shares β 1.05 Equity value 332,707 Cost of equity 7.09% Cost of debt 3.00% Fully diluted shares O/S (Mn) 16.86 D/E ratio 3.04% Intrinsic Value of Shares (in JPY) 19,739.02 WACC 6.94% Terminal Growth Rate 2.00% Source: Company data, Credit Suisse estimates
Figure 22: Sensitivity of Sosei stock price to WACC and terminal growth rate
WACC 19,739 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 0.0% 25,475 22,308 19,755 17,667 15,936 14,485 13,255 12,204 11,298 0.5% 27,431 23,770 20,870 18,529 16,612 15,021 13,685 12,551 11,581 1.0% 29,877 25,558 22,206 19,548 17,401 15,640 14,176 12,945 11,899 1.5% 33,021 27,792 23,841 20,771 18,333 16,361 14,742 13,394 12,260 2.0% 37,214 30,665 25,883 22,265 19,451 17,214 15,403 13,913 12,672 2.5% 43,083 34,496 28,509 24,133 20,819 18,238 16,184 14,519 13,147 3.0% 51,888 39,859 32,011 26,535 22,527 19,489 17,121 15,234 13,702 3.5% 66,562 47,904 36,913 29,737 24,724 21,053 18,267 16,093 14,358
Terminal GrowthTerminal Rate 4.0% 95,910 61,311 44,266 34,220 27,654 23,064 19,699 17,142 15,144
Source: Company data, Credit Suisse estimates
Sosei Group (4565 / 4565 JP) 15 14 September 2016
Figure 23: Share price has been sensitive to news including new deals and progress with out-licensed products
Sosei TOPIX TOPIX Pharma 700
4/19/2016 Kymab 600 collaboration
4/6/2016 Allergan deal for 500 $3.3 bn, forecast revision
400 6/18-20/2015 Novartis 2/10/2016 P1b results for announce plan to develop HTL9936 QVM149 for asthma; HTL9936 P1a results 12/9/2016 Start P3 study of 300 QVM149 5/20/2015 Novartis announce positive US P3 results for Seebri 11/30/2016 Pfizer 200 and Ultibro collaboration
100
0 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16
Source: Company data, Bloomberg, Credit Suisse Currently, the implied market cap is about the same as Peptidream (4587) in Japan, and in between companies that recently launched blockbuster-caliber drugs in the market (Intercept and Tesaro) drug discovery companies and Ariad, and Exelexis, who have one oncology product in the US market.
Figure 24: Comparison with domestic and global biotech (As of 13 September 2016) Price Market Cap P/E R&D spend Stage of most Ticker Company Currency Close Target CS Rating ($ mn) FY2017E FY2018E FY2019E (LC mn) IPO Year adv product Japan Simple median 40 55 32 4565 Sosei Group JPY 17,260 19,700 N 2,860 23 66 29 3971 2004 Marketed 4587 Peptidream JPY 4,630 5,600 O 2,563 75 55 53 198.679 2013 Phase I 4552 JCR Pharma JPY 2,550 2,800 N 789 40 35 32 3423.606 1992 Marketed US Simple median 96 43 44 VRTX Vertex USD 98 112 N 24,248 96 36 22 1,083 1991 Marketed INCY Incyte USD 81 100 O 15,258 105 51 44 526 1993 Marketed SGEN Seattle Genetics USD 52 53 O 7,276 - - - 324 2001 Marketed ALNY Alnylam USD 74 145 O 6,343 - - - 331 2004 Phase III TSRO Tesaro USD 93 90 O 4,787 - - - 186 2012 Marketed ICPT Intercept USD 152 200 O 3,749 - - - 151 2012 Approved ALDR Alder USD 31 38 O 1,568 - - - 106 2014 Phase III ARIA Ariad USD 10 N/R N/R 2,018 - - - 180 1994 Marketed EXEL Exelixis USD 12 N/R N/R 2,856 - - 87 101 2000 Marketed XNCR Xencor USD 22 N/R N/R 900 31 - - 46 2013 Phase II Note: Ratings: O=OUTPERFORM, N=NEUTRAL, N/R=Not rated Source: Company data, I/B/E/S, EvaluatePharma, Credit Suisse estimates
Sosei Group (4565 / 4565 JP) 16 14 September 2016 Earnings model
Figure 25: Sosei (4565) – Profit and loss statement FY3/14A FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E P/L sheet (¥ mn) Sales 2,069 3,671 8,151 26,500 17,600 24,300 25,000 27,700 36,300 46,600 51,500 54,700 62,600 COGS 251 69 4 0 0 0 0 0 0 0 0 0 0
Gross Profit 1,818 3,602 8,147 26,500 17,600 24,300 25,000 27,700 36,300 46,600 51,500 54,700 62,600
SG&A expenditure (excluding R&D) 757 2,002 3,156 3,800 3,800 4,000 4,200 4,400 4,600 4,800 5,000 5,200 5,400 R&D expenditure 305 557 3,916 7,000 7,000 6,000 6,200 6,500 6,800 7,100 7,400 7,700 8,000 Other Profit/expenses 0 9 137 0 0 0 0 0 0 0 0 0 0
Operating profit 756 1,043 1,075 15,700 6,800 14,300 14,600 16,800 24,900 34,700 39,100 41,800 49,200
Non-operating income 30 405 4 10 30 50 50 100 100 90 200 200 200 Interest income 3 9 4 12 24 27 39 50 66 89 123 159 198 Non-operating loss 49 147 4,377 1,210 1,130 1,100 1,050 1,000 1,000 1,000 1,000 1,000 1,000 Interest expense 0 61 438 177 98 60 22 0 0 0 0 0 0
Profit before tax 738 1,301 -3,297 14,500 5,700 13,250 13,600 15,900 24,000 33,790 38,300 41,000 48,400
Tax -788 791 -1,750 1,800 1,400 3,300 3,400 4,000 6,000 8,400 9,600 10,300 12,100 Minorities 0 -5 -114 -100 -100 -100 -100 -100 -100 -100 -100 -100 -100
Net income attributable to owners of parent company 1,526 515 -1,432 12,800 4,400 10,050 10,300 12,000 18,100 25,490 28,800 30,800 36,400
YoY Growth (%) Total revenues 5.7% 77.4% 122.0% 225.1% -33.6% 38.1% 2.9% 10.8% 31.0% 28.4% 10.5% 6.2% 14.4% Gross profit 11.3% 98.1% 126.2% 225.3% -33.6% 38.1% 2.9% 10.8% 31.0% 28.4% 10.5% 6.2% 14.4% Operating profit -179.2% 38.0% 3.1% 1360.5% -56.7% 110.3% 2.1% 15.1% 48.2% 39.4% 12.7% 6.9% 17.7% Recurring profit -193.5% 76.5% -353.4% -539.8% -60.7% 132.5% 2.6% 16.9% 50.9% 40.8% 13.3% 7.0% 18.0% Pre-tax profit -197.5% 76.3% -353.4% -539.8% -60.7% 132.5% 2.6% 16.9% 50.9% 40.8% 13.3% 7.0% 18.0% Net income -335.9% -66.3% -378.1% -993.9% -65.6% 128.4% 2.5% 16.5% 50.8% 40.8% 13.0% 6.9% 18.2%
Expenditure (%) COGS 12.1% 1.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% SG&A 36.6% 54.8% 40.4% 14.3% 21.6% 16.5% 16.8% 15.9% 12.7% 10.3% 9.7% 9.5% 8.6% R&D 14.7% 15.2% 48.0% 26.4% 39.8% 24.7% 24.8% 23.5% 18.7% 15.2% 14.4% 14.1% 12.8% Tax rate -106.8% 60.8% 53.1% 14.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Margins (%) Gross margin 87.9% 98.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Operating margin 36.5% 28.4% 13.2% 59.2% 38.6% 58.8% 58.4% 60.6% 68.6% 74.5% 75.9% 76.4% 78.6% Ordinary margin 35.6% 35.4% -40.4% 54.7% 32.4% 54.5% 54.4% 57.4% 66.1% 72.5% 74.4% 75.0% 77.3% Net profit margin 73.8% 14.0% -17.6% 48.3% 25.0% 41.4% 41.2% 43.3% 49.9% 54.7% 55.9% 56.3% 58.1%
Number of shares (Million) Shares O/S (average) 12 14 15 15 15 15 15 15 15 15 15 15 15 Shares O/S (year-end) 14 14 17 17 17 17 17 17 17 17 17 17 17 Treasury stocks 0 0 0 0 0 0 0 0 0 0 0 0 0 Shares O/S (year-end) - Treasury stocks 14 14 17 17 17 17 17 17 17 17 17 17 17
Dividends paid 0 0 135 200 250 250 250 250 350 500 500 500 500 Dividends per share (¥) 0 0 0 12 15 15 15 15 21 30 30 30 30 EPS (¥) 127 37 -94 759 261 596 611 712 1,074 1,512 1,709 1,827 2,160 EPS growth rate (%) n/a n/a n/a n/a -65.6% 128.4% 2.5% 16.5% 50.8% 40.8% 13.0% 6.9% 18.2% Dividend payout ratio (%) 0 0 0 0 5.7% 2.5% 2.4% 2.1% 1.9% 2.0% 1.7% 1.6% 1.4% BPS (¥) 1,044 1,063 1,373 2,296 2,542 3,124 3,720 4,417 5,470 6,953 8,632 10,429 12,559 Source: Company data, Credit Suisse estimates
Sosei Group (4565 / 4565 JP) 17 14 September 2016
Figure 26: Sosei (4565) – Cash flow statement FY3/14A FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E Cash flow statement (¥ mn) [Operating cash flow] Net profit 1,526 515 -1,432 12,800 4,400 10,050 10,300 12,000 18,100 25,490 28,800 30,800 36,400 Depreciation and amortization 20 98 926 900 900 900 900 900 900 900 900 900 900 Change in account receivables -56 -2,381 2,384 -1,100 400 -300 -100 -100 -400 -400 -300 -100 -400 Change in inventory 0 0 0 0 0 0 0 0 0 0 0 0 0 Change in other curren assets -116 -816 495 0 0 0 0 0 0 0 0 0 0 Change in account payables -6 1,202 -23 3,100 -1,500 1,100 100 500 1,400 1,700 800 500 1,300 Change in other current liabilities -70 182 -100 0 0 0 0 0 0 0 0 0 0 Change in working capital -248 -1,813 2,756 2,000 -1,100 800 0 400 1,000 1,300 500 400 900 Other operating cash flow -935 1,293 2,221 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Operating cash flow 363 93 4,471 16,700 5,200 12,750 12,200 14,300 21,000 28,690 31,200 33,100 39,200
[Investing cash flow] Capex -11 -89 -130 -200 -200 -200 -200 -200 -200 -200 -200 -200 -200 Other investing cash flow -304 -21,929 -207 -300 -300 -300 -300 -300 -300 -300 -300 -300 -300
Investing cash flow -315 -22,018 -337 -500 -500 -500 -500 -500 -500 -500 -500 -500 -500
[Financing cash flow] Change in short term debt 0 19,850 -21,000 -2,000 0 0 0 0 0 0 0 0 0 Increase in long term debt 0 0 9,800 -1,900 -1,900 -1,900 -1,100 0 0 0 0 0 0 Decrease in long term debt -349 -15 0 0 0 0 0 0 0 0 0 0 0 Change in debt -349 19,835 -11,200 -3,900 -1,900 -1,900 -1,100 0 0 0 0 0 0 Issue of shares 4,724 29 12,884 0 0 0 0 0 0 0 0 0 0 Dividends paid 0 0 -135 -200 -250 -250 -250 -250 -350 -500 -500 -500 -500 Other financing cash flow 0 0 -686 0 0 0 0 0 0 0 0 0 0
Financing cash flow 4,375 19,864 863 -4,100 -2,150 -2,150 -1,350 -250 -350 -500 -500 -500 -500
Foreign Currency Translation Adjustments 254 420 -501 -2,468 0 0 -700 -700 -700 300 300 300 300 Change in Cash and Cash Equivalents 4,677 (1,642) 4,495 9,632 2,550 10,100 9,650 12,850 19,450 27,990 30,500 32,400 38,500
Previous cash balance 2,538 7,215 5,573 10,068 19,700 22,250 32,350 42,000 54,850 74,300 102,290 132,790 165,190 Ending cash balance 7,215 5,573 10,068 19,700 22,250 32,350 42,000 54,850 74,300 102,290 132,790 165,190 203,690 FCF 48 -21,925 4,134 16,200 4,700 12,250 11,700 13,800 20,500 28,190 30,700 32,600 38,700 Source: Company data, Credit Suisse estimates
Sosei Group (4565 / 4565 JP) 18 14 September 2016
Figure 27: Sosei (4565) – Balance sheet FY3/14A FY3/15A FY3/16A FY3/17E FY3/18E FY3/19E FY3/20E FY3/21E FY3/22E FY3/23E FY3/24E FY3/25E FY3/26E B/S sheet (¥ mn) Assets Cash and cash equivalents 7,215 5,573 10,068 19,700 22,250 32,350 42,000 54,850 74,300 102,290 132,790 165,190 203,690 Accounts receivables 100 2,481 97 1,200 800 1,100 1,200 1,300 1,700 2,100 2,400 2,500 2,900 Inventories 0 0 0 0 0 0 0 0 0 0 0 0 0 Marketable securities 0 0 0 0 0 0 0 0 0 0 0 0 0 Other current assets 149 965 470 600 600 600 600 600 600 600 600 600 600
Current assets 7,464 9,019 10,635 21,500 23,650 34,050 43,800 56,750 76,600 104,990 135,790 168,290 207,190
PP&E 60 266 270 300 300 300 300 300 300 300 300 300 300 Depreciable PP&E 0 0 0 0 0 0 0 0 0 0 0 0 0 Other PP&E 0 0 0 0 0 0 0 0 0 0 0 0 0 Intangibles 722 21,712 19,313 16,600 15,300 14,300 13,300 12,300 11,300 10,300 9,300 8,300 7,300 Goodwill 5,426 16,428 15,426 14,000 13,300 12,600 11,900 11,200 10,500 9,800 9,100 8,400 7,700 Intangible Assets 6,148 38,140 34,739 30,600 28,600 26,900 25,200 23,500 21,800 20,100 18,400 16,700 15,000 Other intangibles 0 0 0 0 0 0 0 0 0 0 0 0 0 Securities held 0 0 0 0 0 0 0 0 0 0 0 0 0 Equity Investments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other Investments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other non-current assets 910 408 1,709 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Fixed assets 7,118 38,814 36,718 32,400 30,400 28,700 27,000 25,300 23,600 21,900 20,200 18,500 16,800
Total assets 14,582 47,833 47,353 53,900 54,050 62,750 70,800 82,050 100,200 126,890 155,990 186,790 223,990
Liabilities Accounts payable 156 1,358 1,335 4,400 2,900 4,000 4,100 4,600 6,000 7,700 8,500 9,000 10,300 Short term borrowings 0 19,877 1,990 0 0 0 0 0 0 0 0 0 0 Other current liabilities 51 233 133 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Current liabilities 207 21,468 3,458 5,400 3,900 5,000 5,100 5,600 7,000 8,700 9,500 10,000 11,300
Long term borrowings 0 0 6,847 4,900 3,000 1,100 0 0 0 0 0 0 0 Contingent consideration related to corporate acquisition0 7,024 9,994 4,400 4,400 1,400 0 0 0 0 0 0 0 Other fixed liablities 0 4,499 3,785 3,200 3,200 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000
Fixed liabilities 20 11,523 20,626 12,500 10,600 5,500 3,000 3,000 3,000 3,000 3,000 3,000 3,000
Total liabilities 227 32,991 24,084 17,900 14,500 10,500 8,100 8,600 10,000 11,700 12,500 13,000 14,300
Equity Capital 19,454 19,478 25,955 26,000 26,000 26,000 26,000 26,000 26,000 26,000 26,000 26,000 26,000 Capital surplus 21,574 7,775 14,263 14,300 14,300 14,300 14,300 14,300 14,300 14,300 14,300 14,300 14,300 Accumulated earnings -26,934 -12,614 -14,184 -1,600 2,550 12,350 22,400 34,150 51,900 76,890 105,190 135,490 171,390 Treasury stock - - - - 0 0 0 0 0 0 0 0 0
Shareholder's equity 14,355 14,639 23,143 38,700 42,850 52,650 62,700 74,450 92,200 117,190 145,490 175,790 211,690
Valuation and translation adjustments 262 -38 -2,891 -2,700 -3,300 -400 0 -1,000 -2,000 -2,000 -2,000 -2,000 -2,000 Subscription rights to share - - - - 0 0 0 0 0 0 0 0 0 Minority interests 0 241 126 0 0 0 0 0 0 0 0 0 0
Total equity 14,355 14,842 23,269 36,000 39,550 52,250 62,700 73,450 90,200 115,190 143,490 173,790 209,690
Liabilities and equity 14,582 47,833 47,353 53,900 54,050 62,750 70,800 82,050 100,200 126,890 155,990 186,790 223,990
Accounts receivables turnover rate 28.7 2.8 6.3 40.9 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 Inventories turnover rate ------Accounts payables turnover rate 13.0 4.8 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 Accounts receivables turnover 12.7 128.3 57.7 8.9 79.6 79.6 79.6 79.6 79.6 79.6 79.6 79.6 79.6 Inventories turnover ------Accounts payables turnover 28.0 75.3 60.3 60.3 60.3 60.3 60.3 60.3 60.3 60.3 60.3 60.3 60.3 Source: Company data, Credit Suisse estimates
Sosei Group (4565 / 4565 JP) 19 14 September 2016 Appendix: Management team and top shareholders Management team Sosei's management team is unique among comparable Japanese compamies in that it mainly compriss members who are former Big Pharma executives both in Japan and globally, and in that most of the members reside outside Japan. The scientific managers are also highly recognized in industry and academia for their expertise and contributions to the GPCR field.
Figure 28: Sosei Group's management team Name Title Summary of Professional History Shinichi Tamura Co-founder 4/1978 Joined Fujisawa Pharmaceuticals (Current: Astellas Pharma) President & CEO 2/1987 Joined Genentech Inc Executive Chairman 6/1990 Established Sosei 6/2016 Appointed Executive Chairman of Sosei Peter Bains Senior Vice President 3/1996 Appointed General Manager, Smithkline CEO Beecham (Current GlaxoSmithKline, GSK) 1/2010 Joined Syngene International as Non- executive Director 4/2010 Joined Fermenta Biotech Limited as Non- executive Chairman 2/2015 Appointed Director at Heptares 4/2016 Appointed COO of Sosei 6/2016 Appointed CEO of Sosei Malcom Weir, PhD Executive Vice President 9/1997 Appointed Visiting Professor at Imperial College London Chief R&D Officer 1/1999 Joined Glaxo Wellcome (Current GSK) 6/2000 Joined Inpharmatica (Current: Galapagos) and appointed as CEO 9/2004 11/2006 Joined Medical Research Council Technology 7/2007 Established Heptares and appointed as CEO 6/2015 Appoined Executive Vice President of Sosei Fiona Marshall, PhD Executive Vice President 9/1990 Joined Glaxo Wellcome (Current GSK) Chief Scientific Officer 3/2000 Joined Millenium Pharmaceuticals 9/2002 Joined Cambrididge Uiversity 7/2007 Established Heptares and appointed as CSO 6/2015 Appoined Executive Vice President of Sosei Hidetoshi Torami Executive Vice President 6/1990 Joined Deloitte Tohmatsu CFO 8/1992 Joined Mitsui Trust Bank (Current: Sumitomo Mitsui Trust Bank) 7/2002 Honeywell Japan 7/2009 Joined Sosei 4/2013 Sosei Corporate Venture Capital CEO 6/2015 Appointed CEO of Sosei KK Source: Company data, Credit Suisse
Sosei Group (4565 / 4565 JP) 20 14 September 2016
Shareholder structure
Figure 29: Top shareholders for Sosei Group (As of 31 March 2016) % of Shareholder name # of shares shares owned Central Tanshi Co 710,000 4.21％ Pfizer 471,284 2.80％ Daisuke Gomi 470,000 2.79％ State Street Bank and Trust 460,000 2.73％ Shinichi Tamura 376,100 2.23％ JP Morgan Bank 380578 299,800 1.78％ Matsui Securities 293,700 1.74％ Japan Trustee Services (Trust Account) 278,100 1.65％ Nomura Securities 264,407 1.57％ MSCO Customer Securities 240,300 1.43％ Source: Company data, Credit Suisse
Sosei Group (4565 / 4565 JP) 21 14 September 2016
Companies Mentioned (Price as of 13-Sep-2016) ASKA Pharma (4514.T, ¥1,688) Alder Biopharmaceuticals (ALDR.OQ, $31.12) Allergan Plc. (AGN.N, $240.1) Alnylam Pharmaceuticals, Incorporated (ALNY.OQ, $71.39) AstraZeneca (AZN.L, 4867.0p) Celgene Corporation (CELG.OQ, $104.53) Corvus Pharmaceuticals, Inc. (CRVS.OQ, $16.12) Eli Lilly & Co. (LLY.N, $78.48) Fujifilm Holdings (4901.T, ¥3,909) GENMAB (GEN.CO, Dkr1025.0) GlaxoSmithKline plc (GSK.L, 1597.0p) Incyte Corporation (INCY.OQ, $79.21) Intercept Pharmaceuticals, Incorporated (ICPT.OQ, $146.89) JCR Pharma (4552.T, ¥2,550) Kyowa Hakko Kirin (4151.T, ¥1,581) Lundbeck (LUN.CO, Dkr257.4) MorphoSys (MORG.DE, €37.215) Novartis (NOVN.S, SFr77.0) Novo Nordisk A/S (NOVOb.CO, Dkr302.3) Otsuka Holdings (4578.T, ¥4,550) Peptidream (4587.T, ¥4,630) Pfizer (PFE.N, $34.04) Regeneron Pharmaceuticals, Inc. (REGN.OQ, $390.99) Roche (ROG.S, SFr238.8) Sanofi (SASY.PA, €69.3) Seattle Genetics, Inc (SGEN.OQ, $51.7) Shinsei Bank (8303.T, ¥159) Sosei Group (4565.T, ¥17,260, NEUTRAL[V], TP ¥19,700) Takeda Pharmaceutical (4502.T, ¥4,713) Tesaro, Inc. (TSRO.OQ, $93.94) Teva Pharmaceutical Industries Ltd. (TEVA.N, $51.54) Vectura Grp (VEC.L, 132.7p) Xencor, Inc (XNCR.OQ, $21.85) See Figures 10, 12-14, 16, 24, 28, and 29 for other companies mentioned
Disclosure Appendix Important Global Disclosures Fumiyoshi Sakai and Yen Ting Chen, PhD, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Sosei Group (4565 / 4565 JP) 22 14 September 2016
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
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Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 53% (50% banking clients) Neutral/Hold* 29% (24% banking clients) Underperform/Sell* 18% (44% banking clients) Restricted 0% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for Sosei Group (4565.T)
Method: Our ¥19,700 target price for the Sosei Group is based on DCF model using 6.95% WACC and 2% terminal growth rate. Our assumptions for WACC include cost of equity of 7.09% (derived from ERP of 6.75%, risk-free rate of 0%, and beta of 1.05) and cost of debt of 3.00%. We believe that with the Heptares acquisition, Sosei has changed into a company with a powerful technology platform innovative pipeline addressing important topics in pharma R&D globally. However, we view our target to have limited upside considering the five-fold increase in the share price over the past year. Our NEUTRAL rating is based on a comparison of the company's potential 12-month total return versus our coverage universe. Risk: Upside risks to our ¥19,700 target price and NEUTRAL rating for Sosei Group include stronger performance of Ultibro and Seebri, larger number of partnerships and deal size, and faster progress in development than our estimates. Downside risks include development failures, fluctuations in currencies, and termination of partnerships.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names The subject company (NOVN.S, TSRO.OQ, ALNY.OQ, CRVS.OQ, SASY.PA, REGN.OQ, LUN.CO, ROG.S, INCY.OQ, PFE.N, LLY.N, GSK.L, CELG.OQ, SGEN.OQ, NOVOb.CO, AZN.L, ICPT.OQ, TEVA.N, AGN.N, ALDR.OQ, 8303.T) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (NOVN.S, TSRO.OQ, ALNY.OQ, CRVS.OQ, ROG.S, PFE.N, LLY.N, CELG.OQ, ICPT.OQ, TEVA.N, ALDR.OQ) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (REGN.OQ, CELG.OQ, TEVA.N, 8303.T) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (NOVN.S, TSRO.OQ, CRVS.OQ, PFE.N, LLY.N, ICPT.OQ, TEVA.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (NOVN.S, TSRO.OQ, ALNY.OQ, CRVS.OQ, ROG.S, PFE.N, LLY.N, CELG.OQ, ICPT.OQ, TEVA.N, ALDR.OQ) within the past 12 months
Sosei Group (4565 / 4565 JP) 23 14 September 2016
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (4565.T, NOVN.S, 4151.T, 4502.T, 4578.T, 4587.T, 4901.T, TSRO.OQ, ALNY.OQ, CRVS.OQ, SASY.PA, REGN.OQ, LUN.CO, ROG.S, INCY.OQ, PFE.N, LLY.N, GSK.L, CELG.OQ, SGEN.OQ, NOVOb.CO, AZN.L, ICPT.OQ, TEVA.N, AGN.N, ALDR.OQ, 8303.T) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (REGN.OQ, CELG.OQ, TEVA.N, 8303.T) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (4502.T, ALNY.OQ, REGN.OQ, INCY.OQ, PFE.N, LLY.N, CELG.OQ, SGEN.OQ, TEVA.N). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (8303.T). As of the end of the preceding month, Credit Suisse beneficially own between 1-3% of a class of common equity securities of (NOVN.S). Credit Suisse has a material conflict of interest with the subject company (GSK.L) . An Officer or Director of Credit Suisse is a Director of GlaxoSmithKline plc (LSE:GSK) As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PFE.N). As of the date of this report, an analyst involved in the preparation of this report, Vamil Divan, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the common stock Pfizer (PFE.N). A member of the analyst's household is an employee of Pfizer (PFE.N).
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=241420&v=- 1ty44bah9o76uky4kmpcqenvh . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. The following disclosed European company/ies have estimates that comply with IFRS: (SASY.PA, LUN.CO, AZN.L). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (NOVN.S, TSRO.OQ, CRVS.OQ, PFE.N, LLY.N, GSK.L, CELG.OQ, AZN.L, ICPT.OQ, TEVA.N, AGN.N, ALDR.OQ) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (Japan) Limited ...... Fumiyoshi Sakai ; Yen Ting Chen, PhD To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Japan) Limited ...... Fumiyoshi Sakai ; Yen Ting Chen, PhD
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Sosei Group (4565 / 4565 JP) 24 14 September 2016
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4565_091416_Sosei_E.doc Sosei Group (4565 / 4565 JP) 25