CIMB5.30.14 QT Vascular

Medical Equipment & Svs│Singapore

May 30, 2014

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The future of vascular medicine The story of QT Vascular (QTV) has never been about its turnaround. It is about how a tried-and-tested technology is finding its way back to the physician’s table, after a breakthrough. It is about how one can participate in the growth of an early-stage medical company with a star-studded cast of expert investors. This is the story of QTV!

We initiate coverage with an Add rating and target price of S$0.64, based on blended P/Sales, EV/EVITDA, P/E, EV/Sales and DCF valuations. QTV’s outreach may seem aggressive but is certainly not outlandish, in our view, given product adoption globally and exclusive partnerships with reputable distributors. Pipeline creations and staggered approvals are key to transforming this early-stage incubator into a serious contender in the global vascular market, leading to maiden profits and potential M&As with medical giants.

Vascular market reshaped The exit of the-then drug-eluting stent market leader, Johnson & Johnson in 2011, and China’s Shandong Weigao in 2012 offers insights into how physicians and patients are re-thinking the use of invasive treatments for vascular disease. The successful penetration of its flagship Chocolate balloon in the US and GliderXtreme in Japan speaks volumes about QTV’s innovation and success in re-shaping

a plain-vanilla minimally-invasive vascular device.

Billion-dollar question Already equipped with FDA-approved peripheral artery products, the company’s next game changer lies in a penetration of the US$8bn worldwide coronary disease treatment market. In our opinion, various geographical approvals for coronary balloon catheters will bring QTV’s growth trajectory to the next level.

Playing the money game Globally, QTV has forged distribution agreements with renowned distributors (Century Medical, Weigao and Cordis) to distribute its products. This is important, as a previous lack of scale and networks has been addressed, paving the way for an eventual lowering of distribution costs and a widening catchment of global hospitals/physicians. Schemes of distribution agreements are instrumental in helping QTV lower its opex, in our view, possibly turning around its bottom line.

QT Vascular COMPANY NOTE QTVC SP / QTVC.SI Current S$0.40

Market Cap Avg Daily Turnover Free Float Target S$0.64

US$238.0m US$4.49m 42.0% Prev. Target S$

S$298.6m S$5.63m 755.9 m shares Up/Downside 62.0% Conviction| |

Sources: CIMB. COMPANY REPORTS

Notes from the Field

————————————————————————————————————————

Gary NG T (65) 6210 8699 E [email protected]

Company Visit Expert Opinion

Channel Check Customer Views

————————————————————————————————————————

Show Style "View Doc Map"

‘‘‘‘ I spend a lot of time in hospitals all over the world to see how we can treat patients in very critical situations, where other technologies didn’t work. Avoiding amputations and decreasing the risk of heart attacks are important goals. A patient that asks to be treated with Chocolate, or a call from a physician who shares how my product saved his patient… those are extremely satisfying.”

– Dr Eitan Konstantino, President & CEO

95.0

107.0

119.0

131.0

143.0

155.0

0.200

0.250

0.300

0.350

0.400

0.450

Price Close Relative to FSSTI (RHS)

Source: Bloomberg

20

40

60

80

100

Apr-14 May-14 May-14 May-14

Vo

l m

Financial Summary

Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F

Revenue (US$m) 1.45 5.47 13.53 28.03 44.93

Operating EBITDA (US$m) (13.13) (16.91) (11.96) 2.17 15.11

Net Profit (US$m) (4.01) (34.52) (13.11) 0.95 11.48

Normalised EPS (US$) (0.007) (0.053) (0.017) 0.001 0.015

Normalised EPS Growth (69%) 626% (67%) NA 1113%

FD Normalised P/E (x) NA NA NA 251.4 20.7

DPS (US$) - - - - -

Dividend Yield 0% 0% 0% 0% 0%

EV/EBITDA (x) NA NA NA 104.1 14.5

P/FCFE (x) NA NA NA NA 41.21

Net Gearing (103%) (60%) (94%) (74%) (67%)

P/BV (x) NA NA 14.44 13.65 8.23

ROE 15% 167% (583%) 6% 50%

% Change In Normalised EPS Estimates

Normalised EPS/consensus EPS (x)

0.40

0.64

0.28 0.41

Target

52-week share price range

Current

SOURCE: CIMB, COMPANY REPORTS

http://www.efasoftware.com/

QT Vascular

May 30, 2014

2

PEER COMPARISON

Research Coverage

Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside

Biosensors Int'l BIG SP SG HOLD 1,292 0.96 1.01 5.8%

QT Vascular QTVC SP SG ADD 238 0.40 0.64 62.0%

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Rolling P/BV (x)

Biosensors Int'l QT Vascular

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

12-month Forward Rolling FD P/E (x)

Biosensors Int'l QT Vascular

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

21.0%

24.0%

27.0%

30.0%

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Peer Aggregate: P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

125%

150%

0

5

10

15

20

25

30

35

40

45

50


Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth

12-mth Fwd FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs)

Valuation

FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x)

Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15

Biosensors Int'l 21.44 24.93 20.52 1.05 1.04 1.00 13.33 13.69 11.15

QT Vascular NA NA 251.36 NA 14.44 13.65 NA NA 104.09

Growth and Returns

FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield

Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15

Biosensors Int'l -45.9% -14.0% 21.5% 5.0% 4.2% 5.0% 0.65% 0.00% 0.00%

QT Vascular 625.9% -67.2% NA 166.5% -583.2% 5.6% 0.00% 0.00% 0.00%


Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends. NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively.

QT Vascular

May 30, 2014

3

Turnaround hinges on wider

sales channels achieved

through anchored

distributors. EBITDA

breakeven could come about

in 2H15.

Cash burn is improving

significantly with the

commercialisation of

products worldwide. IPO

proceeds are instrumental in

turning its operating cash

flow (and eventually free

cash flow) positive in a year’s

time.

Share price info

Share px perf. (%) 1M 3M 12M

Relative 14.3

Absolute 16.2

Major shareholders % held

Three Arch Partners 20.8

Luminor 14.4

BMISIF (EDB) 8.8

-6,000%

-5,000%

-4,000%

-3,000%

-2,000%

-1,000%

0%

1,000%

2,000%


P/BV vs ROE

Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-200%

-100%

0%

100%

200%

300%

400%

500%

600%

700%


12-mth Fwd FD Normalised P/E vs FD Normalised EPS Growth

12-mth Fwd Rolling FD Normalised P/E (x) (lhs)

Diluted Normalised EPS Growth (rhs)

Profit & Loss

(US$m) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F

Total Net Revenues 1.45 5.47 13.53 28.03 44.93

Gross Profit (1.17) (0.39) 4.74 16.82 35.95

Operating EBITDA (13.13) (16.91) (11.96) 2.17 15.11

Depreciation And Amortisation (0.96) (0.96) (0.68) (0.68) (0.68)

Operating EBIT (14.09) (17.87) (12.64) 1.48 14.43

Financial Income/(Expense) 8.31 (17.74) (0.82) (0.38) (0.23)

Pretax Income/(Loss) from Assoc. 0.00 0.00 0.00 0.00 0.00

Non-Operating Income/(Expense) 0.00 0.00 0.00 0.00 0.00

Profit Before Tax (pre-EI) (5.78) (35.60) (13.46) 1.10 14.20

Exceptional Items

Pre-tax Profit (5.78) (35.60) (13.46) 1.10 14.20

Taxation (0.00) (0.00) 0.00 (0.13) (2.41)

Exceptional Income - post-tax

Profit After Tax (5.78) (35.60) (13.46) 0.97 11.78

Minority Interests 1.76 1.08 0.35 (0.02) (0.30)

Preferred Dividends

FX Gain/(Loss) - post tax

Other Adjustments - post-tax

Preference Dividends (Australia)

Net Profit (4.01) (34.52) (13.11) 0.95 11.48

Normalised Net Profit (5.78) (35.60) (13.46) 0.97 11.78

Fully Diluted Normalised Profit (4.01) (34.52) (13.11) 0.95 11.48

Cash Flow


EBITDA (13.13) (16.91) (11.96) 2.17 15.11

Cash Flow from Invt. & Assoc. 2.76 5.78 (3.02) 0.00 0.00

Change In Working Capital 0.26 0.75 0.19 (2.42) (1.63)

(Incr)/Decr in Total Provisions

Other Non-Cash (Income)/Expense

Other Operating Cashflow 0.33 14.15 5.61 4.71 (1.53)

Net Interest (Paid)/Received (2.86) (17.84) (1.40) (0.81) (0.77)

Tax Paid 0.00 0.00 0.00 (0.09) (1.69)

Cashflow From Operations (12.64) (14.08) (10.58) 3.55 9.49

Capex (0.10) (0.18) (2.00) (2.30) (2.50)

Disposals Of FAs/subsidiaries

Acq. Of Subsidiaries/investments

Other Investing Cashflow (0.58) (4.08) (2.00) (3.00) 0.00

Cash Flow From Investing (0.68) (4.26) (4.00) (5.30) (2.50)

Debt Raised/(repaid) 12.32 14.61 1.50 (6.40) (1.22)

Proceeds From Issue Of Shares 0.96 3.94 40.65 0.00 0.00

Shares Repurchased

Dividends Paid 0.00 0.00 0.00 0.00 0.00

Preferred Dividends

Other Financing Cashflow 0.00 0.00 (3.00) 0.66 0.43

Cash Flow From Financing 13.28 18.55 39.15 (5.74) (0.79)

Total Cash Generated (0.04) 0.22 24.57 (7.50) 6.20

Free Cashflow To Equity (1.00) (3.73) (13.08) (8.16) 5.77

Free Cashflow To Firm (10.46) (0.50) (13.47) (1.16) 7.49

BY THE NUMBERS


QT Vascular

May 30, 2014

4

Financing is needed for the

development of its pipeline

products for commercial

marketing. There is room in

its balance sheet for further

leverage funding.

Balance Sheet


Total Cash And Equivalents 5.00 5.20 29.39 21.34 27.09

Total Debtors 0.54 1.87 4.45 6.91 8.62

Inventories 2.83 3.53 3.34 5.76 7.39

Total Other Current Assets 0.00 0.00 0.00 0.00 0.00

Total Current Assets 8.36 10.59 37.18 34.01 43.10

Fixed Assets 0.79 0.38 2.08 4.08 6.28

Total Investments 0.00 0.00 0.00 0.00 0.00

Intangible Assets 3.13 6.83 8.45 11.07 10.68

Total Other Non-Current Assets 0.19 0.19 0.00 0.00 0.00

Total Non-current Assets 4.11 7.39 10.53 15.14 16.96

Short-term Debt 11.36 6.90 4.40 0.00 0.00

Current Portion of Long-Term Debt

Total Creditors 3.18 12.78 4.45 6.53 8.62

Other Current Liabilities 0.00 0.00 0.00 0.00 0.00

Total Current Liabilities 14.54 19.68 8.85 6.53 8.62

Total Long-term Debt 25.99 5.48 9.48 7.48 6.26

Hybrid Debt - Debt Component

Total Other Non-Current Liabilities 2.41 4.82 12.89 16.34 14.14

Total Non-current Liabilities 28.40 10.30 22.36 23.81 20.39

Total Provisions 1.00 0.00 0.00 0.00 0.17

Total Liabilities 43.94 29.98 31.22 30.34 29.18

Shareholders' Equity (29.48) (11.99) 16.48 17.43 28.92

Minority Interests (1.99) 0.00 0.00 1.38 1.96

Total Equity (31.47) (11.99) 16.48 18.81 30.87

Key Drivers


ASP (% chg, main prod./serv.) N/A N/A N/A N/A N/A

Unit sales grth (%, main prod./serv.) -37.8% 328.6% 137.7% 74.5% 55.0%

Util. rate (%, main prod./serv.) N/A N/A N/A N/A N/A

ASP (% chg, 2ndary prod./serv.) N/A N/A N/A N/A N/A

Unit sales grth (%,2ndary prod/serv) 21.3% -3.4% 222.6% 290.9% 67.4%

Util. rate (%, 2ndary prod/serv) N/A N/A N/A N/A N/A

BY THE NUMBERS

Key Ratios


Revenue Growth (28%) 276% 148% 107% 60%

Operating EBITDA Growth 22% 29% (29%) NA 598%

Operating EBITDA Margin (904%) (309%) (88%) 8% 34%

Net Cash Per Share (US$) (0.059) (0.010) 0.021 0.018 0.028

BVPS (US$) (0.053) (0.016) 0.022 0.023 0.038

Gross Interest Cover (4.93) (1.00) (11.38) 2.48 28.83

Effective Tax Rate 0.0% 0.0% 0.0% 12.0% 17.0%

Net Dividend Payout Ratio NA NA NA NA NA

Accounts Receivables Days 208.6 80.6 85.2 74.0 63.2

Inventory Days 357.0 197.9 142.4 148.1 267.7

Accounts Payables Days 380.8 477.2 343.9 178.7 308.4

ROIC (%) (262%) (416%) (78998%) 9% 56%

ROCE (%) (37%) (489%) (80%) 6% 46%


QT Vascular

May 30, 2014

5

The future vascular medicine 1. BACKGROUND

1.1 Most exciting emerging leader in the treatment of complex vascular diseases

QTV is an emerging leader in the development and commercialisation of next-generation minimally-invasive products for the treatment of complex vascular diseases. It works closely with leading physicians and scientists from around the world to create differentiated devices that can improve procedural and clinical outcomes. QTV is based in Singapore, with a US subsidiary, TriReme Medical, in Pleasanton, California. It was listed on the Catalist of the SGX on 29 Apr 14.

1.2 Leaving nothing behind

QTV’s flagship product, Chocolate, was invented and designed in Singapore with the collaboration of its team in Silicon Valley. It is a device that provides stent-like results without stents. Essentially, patients get the same results as stents, without leaving anything in their systems.

Peering into angioplasty’s history, the first balloons were invented in the late 1980s, with later stents developed to address the shortcomings of balloons and keep arteries open longer.

Stents have been very effective in addressing coronary blockage but not in the legs, where blockages are much longer and calcified, with a more hostile environment for implants. With Chocolate, instead of proceeding to the next level of stent creation, QTV went back to fundamentals and made a better balloon. The clinical outcomes for patients and physicians alike have been fascinating.

1.3 From an American medical-device start-up to a Singapore listed company

QTV started out as TriReme in the Silicon Valley nine years ago, founded by its current President and CEO, Dr Eitan Konstantino.

While its products gained wider acceptance in the US and Europe (FDA approved with CE marking), Dr Konstantino was adamant that Asia would be one of the largest markets for QTV’s range of vascular treatment devices.

Singapore makes sense to the group as a springboard to Greater Asia, since the Republic has a business-friendly environment and its regulators are enthusiastic about promoting healthcare companies in the country.

Indeed, establishing a presence here has allowed management to understand the region and conduct business in China, in fact, anywhere in Asia. It has also enabled the company to attract investors from around the region.

Table of Contents

1. BACKGROUND p.5

2. CHOCOLATE EXPLAINED p.6

3. OUTLOOK p.14

4. RISK p.17

5. MANAGEMENT TEAM p.17

6. FINANCIALS p.18

7. VALUATION AND RECOMMENDATION p.21

‘‘‘‘ I spend a lot of time in hospitals all over the world to see how we can treat patients in very critical situations, where other technologies didn’t work. Avoiding amputations and decreasing the risk of heart attacks are important goals. A patient that asks to be treated with Chocolate, or a call from a physician who shares how my product saved his patient… those are extremely satisfying.

– Dr Eitan Konstantino, President & CEO

QT Vascular

May 30, 2014

6

2. CHOCOLATE EXPLAINED: GENIUS OF A MEDICAL DEVICE

2.1 Introducing balloon angioplasty

Lower extremity peripheral artery disease (PAD) affects more than 8m people in the US and more than 202m people globally. PAD is associated with a high prevalence of coincident coronary artery disease and cerebrovascular disease, which serve to increase patient morbidity and mortality.

Balloon angioplasty remains the core of lower extremity endovascular intervention. For patients with symptomatic lower extremity PAD, the assuagement of pain, prevention of amputation, preservation of ambulatory/functional status, cardiovascular protection and containment of healthcare costs are important. The safety, efficacy and lower cost of endovascular interventions compared with surgical revascularization have been previously demonstrated. Balloon angioplasty, either as primary or adjunctive therapy for stents and other devices, remains the core of lower extremity endovascular intervention.

Ongoing improvements in angioplasty balloon design, catheters, and stents serve to further increase acute technical success, primary patency and the long-term viability of lower extremity endovascular intervention. However, flow-limiting dissection, the need for bailout stenting, and the need for target lesion revascularization (TLR) remain frustrating concerns for the endovascular specialist.

2.2 QTV’s Chocolate PTA

The technique of balloon inflation during angioplasty is of paramount importance to the end result: under-inflation can lead to elastic recoil, whereas over-inflation can lead to neointimal hyperplasia, either of which could result in restenosis. Achieving the best possible result with angioplasty entails minimising the strain on the vessel wall. The standard angioplasty balloon unfolds with inflation, resulting in the application of force in a non-uniform manner to the stenotic lesion.

Uncontrolled expansion with the standard angioplasty balloon results in increased torsional (Figure 1), longitudinal (Figure 2) and radial (Figure 3) stresses that can strain the vessel wall and increase the incidence of dissection, elastic recoil and abrupt vessel closure.

Figure 1: Torsional stress can be imparted on the vessel wall through a twisting motion when a plain balloon unfolds during

inflation

SOURCES: MAY 2014 INSERT TO ENDOVASCULAR TODAY (sponsored by Cordis Corp)

QT Vascular

May 30, 2014

7

Figure 2: Longitudinal stress elongates the vessel wall when a plain balloon unfolds during inflation


Figure 3: Radial stress outwardly expands the vessel wall when a plain balloon unfolds during inflation


2.3 Controlled dilatation technique can address these challenges and ultimately lead to much better flow

QTV’s Chocolate Percutaneous Transluminal Angioplasty (PTA) Balloon Catheter (distributed by Cordis Corporation) is a novel balloon catheter with a mounted nitinol-constraining structure, specifically designed for uniform, controlled inflation and rapid deflation, resulting in atraumatic dilatation without the need for cutting or scoring (Figure 4).

QT Vascular

May 30, 2014

8

Figure 4: Finite Element Analysis of vessel wall stress of the Chocolate PTA Balloon Catheter compared with a conventional PTA balloon catheter


2.4 Use of pillows and grooves

The nitinol-constraining structure of the Chocolate PTA Balloon creates balloon segments or “pillows” that make contact with the vessel and functions to minimise local forces. The “grooves” facilitate plaque modification (Figure 5). The distinctive pillows and grooves serve to minimise vessel trauma, reducing the rate of dissection and decreasing the need for bailout stenting.

Figure 5: The Chocolate PTA Balloon Catheter with distinctive “pillows” and “grooves” that serve to reduce vessel wall trauma


In addition, the Chocolate PTA Balloon retains its cylindrical shape while deflating and facilitates lesion recrossing after multiple inflations. It is an over-the-wire balloon dilatation catheter that is compatible with 0.014- and 0.018-inch guidewires. It is available in sizes to treat both above- (ATK) and below-the-knee (BTK) lesions, with balloon diameters of 2.5-6 mm, balloon lengths of 40-120 mm and catheter lengths of 120-150 cm.

QT Vascular

May 30, 2014

9

Figure 6: The Chocolate® PTA Balloon Catheter


2.5 QTV brings forth an amazing medical solution

Chocolate PTA design represents a breakthrough in PTA balloon catheters (for the treatment of PAD). The Chocolate PTA is used for the treatment of patients with vascular disease in their legs. It was designed to provide predictable, uniform and less traumatic dilatation of peripheral vasculature. It has demonstrated a very low rate of dissections and bail-out stenting in clinical studies in the US.

Figure 7: QTV’s flagship product, Chocolate: drug-coated and coronary versions are in the making

* Based on Chocolate BAR clinical study results with 350 patients

SOURCES: COMPANY REPORTS

QTV’s product pipeline includes a drug-coated Chocolate balloon. This will combine the acute benefits of the Chocolate PTA with paclitaxel-based coating, an anti-proliferative drug that has been shown to be efficacious in the prevention of a re-narrowing of the artery over time (see outlook).

QT Vascular

May 30, 2014

10

Figure 8: QTV’s current commercialised products: the Glider range of balloon catheters

SOURCES: COMPANY REPORTS

QTV’s catheters are available in the US and northern Europe, Germany and Turkey. In Asia, its Glider range is available in China, Japan and Singapore.

Figure 9: Ongoing clinical trials for PAD

Study name Product

Est. study

completion

date Sponsor Details

DEFINITIVE AR Cotavance DCB Jun-14 Coviden/MEDRAD Testing DCB use alone compared to atherectomy device and DCB.

EXCITE ISR (Laser) Jun-14 Spectranetics Testing laser and balloon angioplasty together and alone.

DURABILITY II Proteger

EverFlex Stent

Aug-14 Covidien Testing use of stent alone.

DESTINY 2 XIENCE PRIME Nov-14 Flanders Medical Research Program Long-term efficacy study of coronary stent in PAD.

PACE (ALDH Bright Cells) May-15 University of Texas & NHLBI Testing use of stem cells injections to improve blood flow.

OSPREY Misago SX Jul-15 Terumo Testing stent.

OPEN FlexStent SX Sep-15 Flexible Stenting Solutions Testing use of stent for PAD.

STANCE Arsenal BVS Sep-15 480 Biomedical Testing bioresorbable scaffold.

IN.PACT SFA I IN.PACT DEB Jun-16 Medtronic Testing DCB use in SFA and proximal popliteal artery.

LEVANT II Moxy DCB Dec-16 Lutonix Testing DCB use in SFA.

INPACT-DEEP IN.PACT DEB CLOSED Medtronic Testing DEB in tibial vessels. Trial stopped and product recalled.

IN.PACT SFA II IN.PACT DEB Jun-18 Medtronic Testing DEB use in superficial femoral artery and proximal popliteal artery.

(MultiGeneAngio) MultiGeneAngio Dec-24 MultiGene Vascular Systems Testing cell therapy products for PAD. SOURCES: ClinicalTrials.gov

QT Vascular

May 30, 2014

11

Figure 10: QTV’s products and competition

Company Product Competitive Products Comments

Chocolate • All other balloons and stents Chocolate is classified as a balloon, but produces results that are similar to stents.

Drug-coated Chocolate (“DCC”) • Medtronic In.Pact Admiral DEB

• CR Bard Lutonix DCB

• Covidien/CV Ingenuity DCB

DCC uses the same drug,

paclitaxel, which is used by

competitors to inhibit tissue growth but utilizes the Chocolate balloon platform.

GliderXtreme (“GX”) • Abbott Fox SV

• BSC Sterling SL

GX uses similar POBA

technology, but has

“slide-lock” feature for greater push force transmission.

GliderfleX (“GF”) • Boston Scientific Coyote

• Abbott Armada

GF is similar to the GX

except it also has a continuous braid shaft for further maneuverability. SOURCES: Company

2.6 Clinical cases for Chocolate are favourable

The Chocolate Balloon Angioplasty Registry (BAR, Principal Investigator, Jihad A. Mustapha, MD) is a corelab adjudicated registry with up to 500 patients from up to 40 centres. Interim data from the first 354 patients in the registry were presented at LINC 2014 by Tony Das, MD, and included 174 patients in the ATK cohort and 180 patients in the BTK cohort.

Only 2% of the patients who underwent ATK intervention with the Chocolate® PTA Balloon Catheter were found to have evidence of a flow-limiting dissection; 90% achieved less than 30% diameter stenosis and 94% achieved freedom from bailout stenting. Six months after intervention, 11% of the patients required TLR, 96% survived without amputation while 89% were free of major adverse consequences.

The success rate for BTK intervention was similarly impressive: 99% of the patients treated with the Chocolate PTA Balloon Catheter had no flow-limiting dissections, 94% achieved less than 30% diameter stenosis, and 3% required bailout stenting. Three months later, 7% of the patients required TLR, the amputation-free survival rate was 97% and the rate for freedom from major adverse events was 90%.

Other initial cases also verified that the Chocolate is safe for use. Interim results from the Chocolate balloon angioplasty registry conducted in the US suggest that the use of the Chocolate percutaneous transluminal angioplasty balloon achieved high rates of treatment success and limb preservation in patients with peripheral arterial diseases.

The Auckland Hospital in New Zealand recently concluded a 6-month clinical study using QTV’s Chocolate PTA Balloon Catheter. Early data present compelling evidence that the design of the Chocolate Balloon is effective in reducing procedural complications, thereby improving acute outcomes during peripheral angioplasty procedures, even with long complex lesions. Six-month results also show encouraging clinical outcomes in challenging below-the-knee cases.

QT Vascular

May 30, 2014

12

What about Singapore? QTV recently started clinical cases with the Chocolate PTA balloon catheter in Singapore. Five cases were performed at the National University Hospital (NUH) and Changi General Hospital (CGH), in total.

The vascular surgeon at CGH, Dr Steven Kum, an expert in treating PAD, stated in a research paper that the Chocolate PTA has an important role in the peripheral lab as it offers less traumatic treatment without the use of a permanent implant, after treating several patients with severe disease both above and below the knee. Dr Kum also elaborated on the potential for the drug-coated chocolate balloon for below-the-knee disease that is more common in Singapore as there are no adequate treatment options for those patients.

Dr Julian Wong, Division Head of Vascular & Endovascular Surgery at NUH, concurred that the Chocolate PTA gives a more uniform angioplasty result with less intimal dissection. Dr Wong thinks that the Chocolate PTA has great potential in reducing the use of stents in complex lesions below and above the knee.

According to Singapore Health Services, PAD is a major cause of limb loss (amputation) in Singapore. However, it does not receive as much attention as diseases involving other vascular beds, namely coronary artery disease and cerebrovascular disease.

Figure 11: Recent studies evaluating ATK endovascular interventions

Trial Device Average

Lesion

Length

Number

of

Patients

Flow-Limiting

Dissection,

n (%)

Bailout

Stenting,

n (%)

Target Lesion

Revascularization

Chocolate

BAR, as of

2014

Chocolate PTA Balloon

Catheter (Cordis)

93 mm 180 3 (< 2%) 10 (5.6%) 11% at 6 months

Bare-metal stents

ABSOLUTE

Schillinger et

al

Dynalink or Absolute

(Guidant) vs PTA

132 ± 71 BMS;

127 ± 55 PTA

104 PTA group, 9 (16%) PTA group, 17 (32%) Binary restenosis (> 50%)

at 6 months was 25% for

the BMS group and 45%

for PTA group

ASTRON Dick

et al

Astron (Biotronik GmbH)

vs PTA

98 ± 54 BMS;

71 ± 43 PTA

73 PTA group, 6 (15%) PTA group, 10 (26%) Binary restenosis (> 50%)

at 6 months was 21% for

the BMS group and 50%

for PTA group

RESILIENT

Laird et al

Lifestent (Bard

Peripheral Vascular) vs

PTA

71 ± 44 BMS;

64 ± 41 PTA

206 PTA group, 11 (15%) PTA group, 29 (40.3%) BMS group, 1.5%;

PTA group, 47.4%

Drug-eluting stents

SIROCCO

long term

Duda et al

irolimus-coated

S.M.A.R.T. stents

(Cordis) vs Uncoated

S.M.A.R.T. Stents

(Cordis)

85 ± 44 DES;

81 ± 52 BMS

93 Not reported Not reported Binary in-stent restenosis

(> 50%) at 24 months was

22% for the Sirolimus stent

group and 21% for

BMS group

Zilver PTX

Dake et al

Zilver PTX (Cook

Medical) vs PTA

66.4 ± 38.9 DES;

63.2 ± 40.5 BMS

479 Not reported Not reported Patency at 12 months 83%

in the Zilver PTX group and

33% in the PTA

group

Drug-coated balloons

PACIFIER

Werk et al

Paclitaxel-coated

In.Pact Pacific

(Medtronic, Inc.) vs

Uncoated Pacific

Xtreme balloons

(Medtronic, Inc.)

70 ± 5.3 DCB;

66 ± 5.5 uncoated balloon

85 Uncoated balloon, 25/34 (74%);

DCB, 18/38 (47.4%)

Uncoated balloon, 16/47 (34%);

DCB, 9/44 (20.5%)

Uncoated balloon, 21%;

DCB, 7%

LEVANT

Scheinert et

al

Lutonix DCB (Lutonix,

Inc., a subsidiary of C.

R. Bard) vs uncoated

balloons

80.8 ± 37 DCB;

80.2 ± 37.8 uncoated balloon

101 Uncoated balloon, 10/52 (19%);

DCB, 9/49 (18%)

Uncoated balloon, 6/38 (16%);

DCB, 1/37 (3%)

Uncoated balloon, 10/45

(22%);

DCB, 6/47 (13%)


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2.7 Chocolate vs. other balloons and stents

Over the past decade, several specialty balloons and stents have been developed to address the limitations of conventional balloon angioplasty. To date, while there are no published randomised controlled trials comparing the Chocolate PTA Balloon Catheter with the other specialty balloons or stents, the Chocolate BAR Registry believes that the Chocolate PTA Balloon Catheter is safe and efficacious for long, complex, ATK and BTK lesions without the need for cutting, scoring or stenting.

Balloon angioplasty, either as a primary therapy in regions where stenting is avoided (e.g. popliteal and infrapopliteal arteries) or as an adjunctive therapy for stents and other devices, remains the mainstay of lower extremity endovascular intervention. The Chocolate PTA Balloon Catheter has proven to be safe, highly deliverable and efficacious in ATK and complex BTK interventions with a low rate of dissections and low need for bailout stenting or TLR during 3- and 6-month follow-up.

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3. OUTLOOK

3.1 Just how big is the market for vascular disease?

PAD is estimated to affect 202m people worldwide. PAD is caused by the build-up of fatty substances that collect and adhere to the linings of arteries, in a process known as atherosclerosis. The build-up causes the internal linings of arteries to thicken, narrowing the arteries and limiting blood flow to vital tissues and organs. Commonly affected arteries include those located in the legs, arms, neck and kidneys.

The vast majority of patients with PAD also have significant concomitant coronary artery disease (CAD) and a high proportion of morbidity and mortality in these patients is related to myocardial infarction, ischemic stroke or cardiovascular death. PAD is estimated to affect 202m people worldwide.

Due to the nature of the disease, it is estimated that at least 50% of the people suffering from PAD are currently undiagnosed. With the expansion of healthcare services in many countries and economic recovery, it is expected that more people will be diagnosed with and treated for PAD. Many cases of PAD are treated using minimally-invasive procedures, such as Percutaneous Transluminal Angioplasty (PTA) balloon catheters. These devices have gone through many improvements in recent decades, improving their efficacy and reducing their costs.

Figure 12: Peripheral vascular disease device market: estimation in 2011

US$ bn CAGR through 2017

USA 2.6 5%

Europe 1.2 5%

Japan 0.5 1%

China 0.3 > 7% SOURCES: CIMB, COMPANY REPORTS, Redwood Valuation Partners

3.2 It is not about government healthcare spending but how governments fund medical treatment effectively and efficiently

An ageing population, along with increasing awareness of the disease, has been behind an increase in the number of procedures. With the recent economic downtown, many governments across the world are looking to reduce healthcare costs. As most healthcare systems are government-funded, there is increased pressure on hospitals to bring down the ASPs of existing devices or the number of devices used.

New devices with better efficacy maintain their ASPs due to their ability to deliver better clinical results and reduce complications, leading to better patient outcomes. The need to limit overall healthcare spending has been driving the trend towards more affordable healthcare. The US recently enacted an Affordable Health Care Act, which requires people to be under some form of health insurance coverage. In China, an ageing population and rapid urbanisation have contributed to the growth of the medical-device market. China also has a long-term goal of ensuring that its massive population has good access to healthcare. We believe these trends present substantial opportunities for the group to expand its business.

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3.3 Not a one-trick pony; QTV has more stuff to show

QTV is also developing its next-generation product pipeline, to stay ahead of the competition. The Chocolate PTCA Balloon Catheter is a coronary version of the flagship Chocolate PTA, for use in heart artery intervention. This product has received the CE mark in the EU and is in the process of obtaining US FDA approval.

Other products in the pipeline include the Drug Coated Chocolate (DCC) and SILK PTA Balloon Catheter, a version of Chocolate PTA that is made for intervention in longer lesions.

The coronary business is an important growth element for the group. The coronary market is larger than the peripheral market. Therefore, it is important for QTV to start introducing coronary products and help with the treatment of patients with heart disease. Already, there are plans to launch its Chocolate PTCA initially in the US, when approved. We understand that the group will then make this product available in international markets.

Figure 13: QTV already has key products gaining approval and is in the process of getting approval in major markets

US EU China Japan

FDA CE Mark CFDA Shonin

GliderXtreme™

PTA Balloon

Catheter

Approved Approved Approved Approved

GliderfleX®

PTA Balloon

Catheter

Approved Approved In Progress In Progress

Chocolate®

PTA Balloon

Catheter

Approved Approved In Progress In Progress

Chocolate®

PTCA Balloon

Catheter

In Progress Approved In Progress In Progress

Glider™ PTCA

Balloon

Catheter

Approved Approved In Progress Approved

Product

SOURCES: CIMB, COMPANY REPORTS

Figure 14: Product pipeline is exciting with its cardiovascular Chocolate PTCA awaiting US FDA approval

Product

CandidateIndication Stage of Development Anticipated Milestones

• FDA 510(k) submitted in Q4

of 2013

• CE Mark received in

January 2014

• OUS feasibility study in 2014

• CE Mark submission in 2014

SILK PTA Peripheral Design Feasibility• CE Mark submission in Q1

of 2015

Chocolate®

PTCACoronary Design Verification

Drug

Coated

Chocolate®

(DCC)

Peripheral Design Optimisation


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3.4 Distribution by Cordis, Weigao and Century Medical increases reach and network of customers

In Feb 14, QTV signed a distribution agreement with Cordis for the distribution of its: i) peripheral products (excluding DCC) in the US; ii) peripheral and coronary products worldwide outside the US, with the exceptions of Japan and the PRC; and iii) coronary products, DCC and drug-coated Chocolate PTCA in the PRC, on an exclusive basis.

Cordis will only distribute QTV’s Chocolate PTA in the US. This arrangement should help to validate and rapidly advance the commercialisation of QTV’s peripheral and coronary products, by opening access to new geographical markets and customers that QTV does not currently reach.

Globally, QTV has entered into distribution agreements with recognised distributors such as Century Medical, Weigao and also Cordis to distribute its products. In the US, QTV presently sells to more than 150 hospitals. Its list of customers has been growing since the launch of Chocolate PTA.

3.5 Century Medical in Japan

Based in Tokyo, Century Medical is a subsidiary of ITOCHU Corporation, a US$115bn international trading company. Century Medical has 38 years of experience in the import, sale and marketing of advanced single-use and implantable medical devices.

Back in Dec 10, QTV entered into a distribution agreement with Century Medical for the distribution of its products in Japan (CMI Distribution Agreement). Century Medical received Shonin approval to market the Glider PTCA in Mar 13 for treating the stenotic portion of coronary arteries or bypass grafts to improve myocardial perfusion. In Nov 13, Century Medical also received Shonin approval for the GliderXtreme PTA for the treatment of peripheral arterial blockages. Pursuant to the CMI Distribution Agreement, QTV appointed Century Medical as its exclusive importer and distributor of its PTA and PTCA products in Japan, with a first right of refusal to import and distribute future products.

The CMI distribution agreement is valid for four years, beginning with the expiry of the pre-marketing term, and will be extended automatically for two years subject to Century Medical’s ability to meet minimum purchase levels.

3.6 Johnson & Johnson’s thinking is suggestive

Johnson & Johnson’s recent history of M&As offers a good proxy for the future of device makers such as QTV, in our view. In recent years, J&J has been rebuilding and/or repositioning all its three healthcare divisions (consumer healthcare, medical devices & diagnostics and pharmaceuticals) around scale and focus/dominance. In pharmaceuticals, it has targeted five areas: immunology, oncology, neurosciences, infectious disease and cardiology.

Within each franchise, J&J went about building its pipeline via small acquisitions, licensing deals and internal development. It was able to take this earlier-stage focus even when its organic pharmaceutical sales declined yoy from 2008 to 2010, by channelling profits from its medical-device and consumer segments to pharmaceutical R&D spending, which never dipped below 20% of its sales and has remained above this level even when its pharmaceutical business recovered.

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Figure 15: Swot Analysis

Strengths Opportunities

* New innovative Balloon Angioplasty product

* Star-studded cast of investors and partners lend

weight to new start-up branding

* Various regulatory approvals for key products

around the world (e.g. FDA, CE mark)

* penetration of major developed and developing

markets through renowned exclusive distributors

worldwide

* Development of more PTCA, coronary balloon

products

* Greater collaboration with international partners and

Weakness Threats

* Current reliance on distributors and lack of own

international sales teams

* Incumbents like stents and other balloon catheters

makers could challenge its positioning

SOURCES: CIMB

4. RISKS

4.1 Competition in the market

New and novel devices are still coming to the market, such as the IN.PACT drug-coated balloon from Medtronic and Lutonix drug-coated balloon from C.R. Bard. Both are available for sale in Europe and are completing trials in the US, with a market launch in the US expected in 2015-16. These new devices are expected to command high ASPs through their increased efficacy and ease of use.

4.2 Regulatory approval delays

Any longer-than-expected approval by the FDA could delay market-share-grabbing chances, allowing the other players to consolidate their footholds. By and large, we believe that the catalyst for QTV’s share price lies in FDA approval for the launch of Chocolate PTCA. We do not think that its current share price has adequately priced this in.

5. MANAGEMENT TEAM

5.1 Dr Eitan Konstantino: founder and CEO

Dr Konstantino has more than 15 years of experience in the medical technology industry. He founded QTV in 2005 when he set up TriReme US as a medical-device company focused on providing innovative tools to improve success rates in challenging peripheral and coronary interventions. He was a member of the board of directors of TriReme US from its inception to Jul 13. He was appointed to QTV’s board on 11 Jul 13 and is responsible for the overall management and business development of the group.

Prior to founding QTV, he was the founder, president and chief scientist of an angioplasty company, AngioScore, from 2003 to 2007. Dr Konstantino is one of the primary inventors of AngioScore’s products. In 2002, he was the CEO and COO of Advanced Stent Technologies, Inc. (AST), a bifurcation stent company that was acquired by Boston Scientific Corporation in 2004, where he co-invented the Petal bifurcation stent. Prior to AST, he was chief technical officer at Bypass, Inc., a developer of nitinol anastomotic devices for minimally-invasive heart surgery from 1999 to 2002.

He is also one of the founding directors of Singapore Medtech Accelerator, an appointed Biomedical Science Accelerator (BSA) under the Singapore Government’s Research, Innovation and Enterprise 2015 plan. The Singapore Medtech Accelerator and BSA programme are designed to stimulate the growth of the medical-device industry in Singapore, involving co-funding by SPRING SEEDS Capital Pte. Ltd., a wholly-owned subsidiary of SPRING Singapore.

Dr Konstantino has more than 48 patents and patent applications worldwide in the field of medical devices and solar control systems. He received his PhD in Laser Surface Treatment, Optical Design, Materials Science from Technion-Machon Technologi Le’Israel in 1999. He also serves as the

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May 30, 2014

18

co-chairman of the F04.30.06 Cardiovascular Standards Task Group of the American Society for Testing and Materials, a globally recognised leader in the development and delivery of international voluntary consensus standards.

On top of that, he is a member of SPRING Singapore’s Medtech Network of Advisors, whose functions are to advise the local medical technology business on business challenges and strategies and to advise the management of SPRING Singapore on the development and review of strategies and initiatives to address the development needs of small-medium enterprises in the medical technology sector.

5.2 Mark Wan: Non-Executive Chairman

Mr Wan was a member of the board of directors of TriReme US from May 07 to Jul 13. He was appointed to the board on 11 Jul 13. Mr Wan is a managing member of Three Arch Management, a healthcare-focused investment firm formed in 1993 to provide young companies in the healthcare industry with access to relevant clinical and business resources as well as capital. Mr Wan started a venture-capital firm in 1987 with Brentwood Associates where he became a general partner. He has been a founder of or seed investor in numerous healthcare companies, including ePocrates, Inc., Odyssey Healthcare, Inc. and Perclose, Inc.

5.3 Michael Kleine: lead independent director

Mr Kleine has more than 25 years of experience in the medical-device and healthcare industries, having successfully managed several biomedical companies focused on the market advancement of numerous leading-edge products.

From 2008 to 2010, Mr Kleine was the President and CEO of Biosensors International Group, a medical-device company listed on the main board of the SGX. Under his supervision, the product revenue of Biosensors leapt from US$44m to US$139m.

6. FINANCIALS

6.1 Chocolate sales to keep testing new highs

QTV’s revenue was US$5.5m in FY13, up from US$1.5m a year ago. 4Q13 revenue (US$2.4m) alone accounted for 44% of FY13 revenue, buttressed by wider acceptance of its flagship product, the Chocolate PTA Balloon Catheter, in the worldwide market. This sets the stage for FY14, especially when we consider the group’s exclusive distributorship agreements (with Shandong Weigao in China, Century Medical in Japan and Cordis in the US and other parts of the world), giving it access to new geographical markets and customers. We believe that its 1Q14 sales will mirror 4Q13 levels, though the big kicker should almost definitely come in 2Q14, when Cordis starts distributing QTV’s products (started in Apr 14).

An important measure of value in the medical-device field is the number of units sold and patients treated. QTV sold 10,311 products in FY13, up from 3,497 products in FY12. We believe that it can continue to increase this number as well as the number of patients using its products through its distributors’ stronger networks and clinical and commercial channels.

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Figure 16: FY12 revenue breakdown Figure 17: FY13 revenue shows rising contributions from both the US and Asia

Title:

Source:

Please fill in the values above to have them entered in your report

United States73%

Europe24%

Asia2%

Rest of the world1%

Title:

Source:


United States84%

Europe6%

Asia9%

Rest of the world1%

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

6.2 Cost-to-sales ratio to improve significantly

The cost structure of the group should improve going forward, again based on 4Q13 indications. The emergence of exclusive distributors essentially eliminates the scalability problems that QTV previously had. With a wider network, FY14 should mark a turning point for QTV, when its admin/SG&A costs to revenue should significantly drop with the help of these distributors, which have effectively taken over its sales network. Additionally, given its ability to capitalise development expenses, QTV will not need to scale back its R&D spending. Such spending has been instrumental in pushing out its blockbuster products.

Figure 18: Costs to revenue should improve with the help of exclusive distributorships

2012 2013 2014F 2015F 2016F

COGS 180% 107% 65% 40% 20%

Sales & marketing 293% 142% 47% 30% 18%

Administrative expenses 171% 141% 50% 25% 17%

Net R&D expenses 436% 41% 30% 24% 30% SOURCES: CIMB, COMPANY REPORTS

6.3 Maiden gross profit in 4Q13; Asia to overtake Europe in FY16; sustained margins anticipated

Not surprisingly, for the first time since its inception, the group booked a gross profit (US$0.9m) in 4Q13. It actually recorded a fair-value loss on financial instruments of US$14.1m in FY13 (vs. a fair-value gain of US$11.2m in FY12). As such fair-value adjustments are non-cash in nature, we readjust the group’s reported earnings. With this, its FY13 adjusted recurring loss was not as wide as its reported US$34.5m loss. In short, the group fared better (with its losses reduced to -US$20.4m), partly due to its cost-to-sales reduction.

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Figure 19: Penetration of key markets in the US and Asia in 2013 was already great, prior to the engagement of Cordis, Weigao and Century Medical as distributors

Title:

Source:


0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

United States Europe Asia Rest of the world

2012 2013

+329%

-3% +2,078% +467%


We believe that volume growth alone in key markets like the US and Asia will underpin QTV’s earnings improvements, given the extensive coverage of its new distribution networks. We forecast that Asian markets, especially China and Japan, will overtake Europe in sales contributions, given the penetration rates of products marketed through Shandong Weigao and Century Medical. All this can deliver gross-margin advantages (through cheaper assembling costs and economies of scale), which could lift its net margins to 75-80%, on par with industry peers.

Figure 20: The US will remain QTV’s biggest market. Asia to overtake Europe in 2016

2012 2013 2014F 2015F 2016F

United States 1.1 4.6 10.9 19.0 29.4

yoy growth -38% 329% 138% 74% 55%

Europe 0.4 0.3 1.1 4.3 7.2

yoy growth 21% -3% 223% 291% 67%

Asia 0.0 0.5 1.5 4.7 8.1

yoy growth 188% 2078% 199% 210% 74%

Rest of the world 0.0 0.1 0.1 0.1 0.2

yoy growth 125% 467% 18% 83% 110%

Total Revenue 1.5 5.5 13.5 28.0 44.9

yoy growth -28% 276% 148% 107% 60% SOURCES: CIMB, COMPANY REPORTS

6.4 Net cash; manageable capex; but R&D spending will rise

We believe that working-capital requirements will be stable amid longer receivable days due to larger sales volumes. The group has also turned net cash following its IPO, with additional cash flowing in from better working-capital management and manageable capex. That said, we are not expecting QTV to pay dividends, as it could potentially use its cash to develop more products for commercialisation.

We believe that the group will continue to invest money and effort in R&D, though a portion of its net spending on R&D expenses can be capitalised. The group capitalised US$4.1m in development expenses back in FY13. While we have built in progressively higher R&D expenses (US$6.6m for FY14; US$8.9m for FY15 and US$10m for FY16), these should hit no more than 40% of group consolidated revenue.

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May 30, 2014

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Figure 21: Stabilising capex with stronger operational and free cash flows

Title:

Source:


-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

FY11 FY12 FY13 FY14F FY15F FY16F

Change in working capital CAPEX Free Cash Flow to Firm Free Cash Flow to Equity Net cash


7. VALUATION AND RECOMMENDATION

7.1 Explaining an early-stage medical-device company

Young start-ups are difficult to value for a number of reasons. Some are start-up and idea businesses, with little or no revenue to boast and operating losses. Even those young companies that are profitable have short histories with most dependent on private capital (owners’ savings, initially) and venture capital and private equity later on. As a result, many of the standard techniques we use to estimate cash flows, growth rates and discount rates either do not work or yield unrealistic numbers.

Young companies can span the spectrum. Some have yet to hit the commercial stage, where the owner of the business has an idea that he thinks can meet a need among consumers. Others have scaled a little up the value chain and converted their ideas into commercial products, albeit with little to show in revenue or earnings.

QTV has moved up the curve to hit some respectable commercial success and has a market for its products, with revenue and the potential for some profits. We believe valuation methods have to be adjusted to fit its situation.

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Figure 22: Early stages of the life cycle

SOURCES: Aswath Damodaran, Stern School of Business, New York University

7.2 M&As of peers in the device universe provide the biggest hint of QTV’s real market value

Market leaders in the treatment of PAD include large medical companies such as Boston Scientific, Johnson & Johnson, Covidien, CR Bard, and Abbott Laboratories. These have already carved out niches in particular segments of the peripheral vascular market. However, as instances and awareness of PAD increase, more and more companies will be interested to break into the market, leading to ever-shifting market shares, price pressures and the development of new devices as companies strive to differentiate their offerings.

The large incumbents often grow by swallowing up smaller companies in the market, for their new and upcoming devices. Transactions done in recent years included:

(i) Metronic’s US$500m acquisition of Invatec

(i) CR Bard’s acquisition of Lutonix in 2011 for its drug-coated balloons (DCB)

(ii) Covidien’s acquisition of CV Ingenuity Corp. for its DCB in 2013.

The acquired devices are often still completing clinical trials at the point of acquisition. This is especially true of the new drug-eluting balloons (DEB) and DCB devices, the majority of which have CE marks and are going through clinical trials in the US with expected launch dates in 2014-16.

We do not rule out strategic partnerships with the established players, though more likely than not, JVs and distribution agreements would give QTV an immediate footprint in its specific market. While we have not built in such prospects in our earnings, our SOP target price includes such potential. The listing of QTV has also put a price tag on the company.

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Figure 23: Historical M&As in the vascular device market and QTV’s market proposition

End-User Revenue (US$)

USD$120M

(‘09)

Chocolate PTA & Glider PTCA : FDA & CE Mark Approval

Chocolate Registry (n=350)

Chocolate & Glider Revenue

GliderXtreme : China CFDA Approval

US$ 500 million($350M + $150M earn-outs)

Sold to Medtronic in 2010

undisclosed US$ amount

Sold to Covidien in 2013

US$ 325 million

Sold to CR Bard in 2011

DEB FIM Trials

DEB CE Mark

First Revenue

US FDA (Target 2014)

DEB FIM Trials

First Revenue

US FDA (Target 2017)

Multi-Product Platform (35 products)

PTA Balloon US FDA

DEB FIM Study Complete

DEB Sales in Europe

DEB US FDA

Chocolate PTCA : CE Mark Approval

Valuation (US$)

2014

2015

2013

Solely focused on DEB,CV Ingenuity was soldfollowing FIM Trials

Solely focused onDEB, Lutonix wassold following FIMTrials and CE Mark

Invatec had a multi-productplatform and generatedsubstantial revenue. Thecompany was sold shortlyafter attaining US FDAapproval on its PTA balloonand commencing DEB salesin Europe.

QTV figures do not represent value.For illustrative purposes only.

SILK PTA : CE Mark Submission

Peripheral DEB Study

Chocolate PTA : Singapore HSA Approval

Chocolate, GliderfleX & Glider : Vietnam Approval

DEB FIM Study Complete

Glider PTCA & GliderXtreme : Japan Shonin Approval

DCC : CE Mark Submission

Chocolate PTCA : US FDA Submission


7.3 Valuation methodology

Blended valuations. In establishing a target price for QTV, weightage has been given to valuations derived from: 1) a discount to multiples for more mature biotech companies; 2) multiples for QTV’s forecast revenue, operating earnings and profitability that are benchmarked to peers in the high-growth stage; and 3) discounted cash flows. Last but not least, we also referred to privatisation valuations in various buy-out deals for companies such as QTV.

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May 30, 2014

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Figure 24: Blended valuation

2012 2013 2014F 2015F 2016F

Revenue (US$ m) 1.5 5.5 13.5 28.0 44.9

EBITDA (US$ m) -13.1 -16.9 -12.0 2.2 15.1

Recurring PATMI (US$ m) -15.2 -20.4 -13.1 0.9 11.5

Multiples

Price to sales Multiples 10

EV/EBITDA Multiples 18

P/E Multiples 25

EV/sales Multiples 6

DCF 5.6% WACC

Implied equity valuation based on :- US$ m S$ m Per share (S$) Weightage (%)

Price/sales 449 553 0.73 30%

EV/EBITDA 265 326 0.43 10%

P/E 287 353 0.47 10%

EV/sales 262 323 0.43 10%

DCF 445 547 0.72 40%

Fully diluted shares 756

Blended valuation 485 0.64

10% discount to peers took out multiples

Similar to US high growth Medtech companies

Similar to US high growth Medtech companies

15% discount to peers trading value

3% terminal growth

Basis


7.4 Initiate with Add and target price of S$0.64

We initiate coverage of QTV with an Add rating and a target price of S$0.64, based on blended P/Sales, EV/EBITDA, P/E, EV/Sales and DCF valuations. QTV’s outreach may seem aggressive but is not outlandish, in our view, given product adoption globally, made better by exclusive partnerships with reputable distributors. We believe that pipeline creations and staggered approvals are key to transforming this early-stage medical-science company into a serious contender in the global vascular market, leading to maiden profits and perhaps M&As with medical giants.

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Figure 25: Peers Comparison

Bloomberg Price

Target

Price

Market

Cap Core P/E (x) 3-year EPS P/BV (x)

Recurring

ROE (%)

Dividend

Yield (%)

Company Ticker Recom. (lcl curr) (lcl curr) (US$ m) CY2014 CY2015 CAGR (%) CY2014 CY2014 CY2014

QT Vascular QTVC SP Add 0.40 0.64 238 na 251.4 na 14.44 -583.2% 0.0%

Asian Peers

Biosensors Int'l BIG SP Hold 0.96 1.01 1,292 24.9 20.5 10.7% 1.04 4.2% 0.0%

Shandong Weigao Group Medical 1066 HK NR 7.41 NA 4,278 24.0 19.7 11.4% 2.73 11.5% 1.1%

Microport Scientific Corp 853 HK NR 5.35 NA 976 23.0 17.4 -0.4% 2.32 9.1% 1.2%

Terumo Corp 4543 JP NR 2,114 NA 7,906 23.5 18.3 2.0% 1.58 7.7% 1.4%

Global Peers

Abbott Laboratories ABT US NR 39.60 NA 59,477 17.9 15.9 90.5% 2.44 12.9% 2.2%

Boston Scientific Corp BSX US NR 12.99 NA 17,182 16.2 14.5 na 2.55 11.7% 0.0%

Covidien PLC COV US NR 72.62 NA 32,743 17.7 16.3 5.9% 3.22 18.9% 1.8%

Johnson & Johnson JNJ US NR 100.8 NA 285,060 17.1 15.9 17.2% 3.42 20.6% 2.8%

Medtronic Inc MDT US NR 60.62 NA 60,669 19.8 14.2 7.7% 2.90 18.5% 2.0%

Mindray Medical International MR US NR 30.70 NA 3,633 15.8 14.1 12.2% 2.12 14.2% 1.6%

Hospitals

IHH Healthcare IHH SP Add 1.61 1.85 10,472 53.4 38.7 35.7% 1.86 3.5% 0.5%

Raffles Medical Group RFMD SP Add 3.67 3.89 1,627 28.1 23.6 17.1% 3.92 14.5% 1.4%

KPJ Healthcare KPJ MK Hold 3.31 3.48 1,054 28.7 25.9 3.8% 2.67 9.9% 1.8%

Bangkok Chain Hospital BCH TB Reduce 7.65 6.60 582 30.5 25.4 11.0% 4.53 15.2% 2.0%

Bangkok Dusit Med Service BGH TB Add 16.40 19.50 7,745 32.9 27.7 17.4% 5.61 18.0% 1.2%

Bumrungrad Hospital BH TB Hold 112.5 98.00 2,499 29.3 25.1 11.1% 7.47 27.1% 1.7%

Simple Average 25.2 34.4 16.9% 3.81 -21.5% 1.3% SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

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authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge, London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Order”); (c) are persons falling within Article 49 (2) (a) to (d) (“high net worth companies, unincorporated associations etc”) of the Order; (d) are outside the United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

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Rating Distribution (%) Investment Banking clients (%)

Outperform/Buy/Trading Buy/Add 56.2% 4.6%

Neutral/Hold 28.0% 2.7%

Underperform/Sell/Trading Sell/Reduce 15.8% 1.0%

Distribution of stock ratings and investment banking clients for quarter ended on 31 March 2014

1416 companies under coverage for quarter ended on 31 March 2014

Spitzer Chart for stock being researched ( 2 year data )

QT Vascular (QTVC SP)

0.200

0.250

0.300

0.350

0.400

0.450

Apr-14 May-14 May-14 May-14 May-14

Price Close

As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any recommendations stated in this report.

CIMB Recommendation Framework #1 Stock Ratings Definition Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

CIMB Stock Recommendation Framework #2 * Outperform The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. Neutral The stock's total return is expected to be within +/-5% of a relevant benchmark's total return. Underperform The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. Trading Buy The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months. Trading Sell The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily

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outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

CIMB Stock Recommendation Framework #3 ** Outperform Expected positive total returns of 10% or more over the next 12 months. Neutral Expected total returns of between -10% and +10% over the next 12 months. Underperform Expected negative total returns of 10% or more over the next 12 months. Trading Buy Expected positive total returns of 10% or more over the next 3 months. Trading Sell Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.

AAV – Good, ADVANC - Excellent, AMATA - Very Good, ANAN – Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH – Good, BCP - Excellent, BEC - Very Good, BGH - not available, BJC – Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET – Very Good, CENTEL – Very Good, CK - Excellent, CPALL - Very Good, CPF – Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO – Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY – Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Excellent, ITD – Very Good, IVL - Excellent, JAS – Very Good, KAMART – not available, KBANK - Excellent, KKP – Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR – Very Good, MAKRO – Very Good, MCOT - Excellent, MEGA – not available, MINT - Excellent, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS – Excellent, SAMART – Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI – Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP - Excellent, THAI - Excellent, THCOM – Excellent, TICON – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW – Excellent, TUF - Very Good, VGI – Excellent, WORK – Good.

CIMB5.30.14 QT Vascular

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