Biosensors’ share price takes a beating after analyst downgrades

Don’t expect a turnaround anytime soon.

Biosensors’ share price has taken a beating since it was downgraded by CIMB two weeks ago. Now, CIMB further warns that there are potentially more blind spots for BIG, especially when restructuring efforts and sales strategy are unclear at the moment.

BIG claimed that its lower China sales volume is due to seasonality, but CIMB states that this reason is not entirely convincing. BIG is struggling not only from China’s anti-corruption crackdown but also with fierce competition from new products.

“We see no major re-rating catalysts in the face of continued sluggish earnings. BIG’s sales model transition in Japan will not come to fruition soon, especially when China sales are struggling too,” noted CIMB.

Here’s more from CIMB:
New products are providing fierce competition to BIG. We noted that the likes of Microport’s new Firehawk (CFDA approved in Jan 14), together with its cobalt-chromium-coated DES, did well with a 10% yoy rise in revenue for 1HCY14. 

Changes in BIG’s sales team in China could be one reason that the traction in key hospital accounts is lost. While there is no breakdown of its product sales, we estimated China sales will be around US$64m (-13% yoy) in FY15.

BIG commented in its recent 2Q15 results briefing that the company has invested in clinical trials for BioFreedom both in the US and Japan. R&D expense was US$8.3m in 2Q15 or 12% of product revenue (vs. 10% a year ago).

R&D expenses as a percentage of total product revenue for 2Q15 will be comparable with the same period last year, meaning that BIG has spent c.US$1.4m for these clinical trials. As BIG is embarking on a pre-IDE trial in the US, this amount will grow over time and potentially form a big part in the expense item.