Chugai Pharmaceutical (4519): Risks Too High to Justify Premium
We have continued to shy away from recommending Chugai as an investment over the past year as we viewed valuations to be too high given the level of uncertainty. The Baxalta patent claim against emicizumab (ACE910) may come to nothing, but it could be disastrous if it is shown to have merit.
Equally, while we can have a positive read-through for Tecentriq from the Keytruda+chemo data, it isn’t a given that one drug’s data pattern follows another. As for the J-ALEX data for Alecensa, yes this is positive, but we already had Alecensa beating out similarly priced Zykadia, the question mark is whether it is sufficiently better to beat the much cheaper Xalkori.
With the share price down close to 30% from its August 2015 high, this report discusses whether or not Chugai is now sufficiently enough out of favour that an opportunity is rearing its head. We test whether the core thesis “that Chugai is the best biotechnology firm in Japan as both developer and marketer” still holds, and whether ¥3,000 should remain the “reappraisal price target”.
Chugai Pharmaceutical is a pharmaceutical company. Along with its subsidiaries, Co. is engaged in the research and development of new prescription medicines and the subsequent manufacturing, marketing and distribution activities. Co. sells its pharmaceutical products to the nationwide appointed stores in Japan, as well as in overseas, such as Germany, the U.K., France, Taiwan, China, South Korea and the U.S. Co., through its subsidiaries, is also involved in the management of research facilities, and the research on drug discovery, as well as the provision of literature research services for pharmaceutical information, and pharmaceutical academic information.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012.
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