Improving industry prospects. Our scan of the Drug Eluting Stent (DES) industry has yielded encouraging results. DES usage has risen to the mid-70% range (vs ~65% year ago). While there are still proponents and opponents to DES usage, rising clinical usage indicate that practitioners are more comfortable with the significant research put in for the last three years. Even less sanguine opponents of DES usage like Dr Edoardo Camenzind* said to "resist short-term (marketing) distractions and stick with (products with good) medical evidence". Biosensors possesses positive "medical evidence" and we expect its next update in end Sep 09 at a clinical conference to be encouraging.

Peer group scan. Abbott's Xience V DES is now the key product that has been gaining market share. Along with Boston Scientifics' Promus DES (sub-licensed Abbott DES platform), market watchers estimate that the Xience V platform has >50% market share in the US. JnJ continues to lose market share with its older Cypher DES but is hoping to roar back with its Nevo DES (but likely only in 2010). Medtronic's Endeavour DES platform is estimated to command market share in the mid-teens. The battle continues to be intense but the trend for technological superiority is sustained. We believe that the current iteration for clinicians to stick to products with strong clinical data will bode well for Biosensors' BioMatrix DES which is authenticated by strong clinical data.

Pricing pressure not for premium products. Abbott's and JnJ's 2Q webcasts indicate that ASP pricing pressures for DES have come more from hospitals vs. peers engaging in a price undercutting war. Abbott's management indicated that its newer generation Xience V DES have been sustaining ASPs. Our previous checks with Biosensors indicate that ASPs have been holding up in the EU markets.

M&A exit. We still believe a key exit for long-term investors will be an M&A situation. Adequate intellectual property protection, superior technology and a well-executed product launch has catapulted Biosensors onto the radar screens of the big boys. However, we think the company may need significantly more cash and people bandwidth to sustain its growth trajectory past FY11F. Our bets for future acquirers are Medtronic (lagging technology pipeline) and Terumo (Asian based powerhouse and current Biosensors' licensee). Maintain BUY at S$0.74 fair value.