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Daeil Cha

Recent Posts

Biologics Outsourcing + Butterscotch Cookies

Imagine you have some great recipes for butterscotch cookies, and you want to start a cookie business. Yet, there are some issues. First, the price people are willing to pay for cookies is going down due to intense competition as well as scrutiny from regulators after a few greedy companies ("cookie monsters," if you will) charged exorbitantly high prices. Second, because of the competition, you'll have to spend more on research to keep your cookie line fresh (pun intended). Finally, building a cookie factory is expensive, takes years to build, and requires following many stringent regulatory standards. The thing is, cookies are still in demand and could even get more popular as better cookie recipes are developed! So what do you do?

Posted by Daeil Cha on Apr 19, 2018 3:48:12 PM

Topics: From the Desk of Daeil Cha, Biotechnology

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The Larger Theme in Medical Devices is Still to Come

On March 16th, Johnson & Johnson ("JNJ") received a $2.1b offer for its glucose monitoring business ("LifeScan") from private equity firm Platinum Equity. This isn't too surprising since JNJ announced last year it was thinking about selling the business in order to focus on its core segments. The $2.1b enterprise value for LifeScan reflects a 1.4x multiple on trailing 12-months revenue, which compares to the 1.1x multiple that Panasonic paid for Bayer Diabetes, another diabetes diagnostics business. At face value, this seems to suggest the appetite for medical devices continues to recover. Global M&A activity in healthcare products has stabilized and increased steadily since the financial crisis by all measures -- dollar volume, deal count, and average premium paid per target. See the charts below which show annual data; most recent data dips because those represent YTD figures through March 18, 2018. 

Posted by Daeil Cha on Mar 22, 2018 9:24:24 AM

Topics: From the Desk of Daeil Cha, Healthcare

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What the Moves in the Bond Market Mean for International Equity Investors

The bond markets are seeing a sell-off. Yields on 10-year U.S. Treasuries rose as high as 2.90% in mid-February, compared to the September 2017 low of 2.04%.

Posted by Daeil Cha on Feb 28, 2018 3:18:17 PM

Topics: From the Desk of Daeil Cha, International Equity

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Portfolio Factor Allocation in International Equity Markets

Many hedge funds failed to outperform last year --including some of the most well-known investors-- as individual stock selection became exceptionally difficult in a low volatility environment. This article cites that some investors who struggled last year were those with deep sector knowledge. And yet, some successful investors in 2017 were also sector specialists, albeit experts in different industries (technology and biotech, in this case). With the obvious benefit of hindsight, this suggests that the volatility of a portfolio's returns can be reduced if an investor allocates by sector allocation. But how does this compare to allocation through other factors, like market cap size, style (value vs. growth), and region? Let's look at the numbers.

Posted by Daeil Cha on Feb 1, 2018 11:16:16 AM

Topics: From the Desk of Daeil Cha, International Equity

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Do Lofty Markets Imply Impending Pain?

Despite valuations in several sectors appearing stretched, stock markets continue to fly and defy any negative news that one would expect to rattle investor sentiment. As a follow-up to our previous blog on stretched valuations in international equity markets, we look into the valuations of European banks and the potential downside risk if the market corrects. While record high valuations could imply poor future performance, the earnings yield of European banks might justify further upside. For RIAs and other international equity investors, our goal is to better understand this risk-reward set-up and the potential implications for future returns.

Posted by Daeil Cha on Dec 19, 2017 11:43:26 AM

Topics: From the Desk of Daeil Cha

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Biosimilars: The Opportunity and Growth Potential

A couple months ago, our international equity team published a blog about generic drug prices and the downward pressure. In this blog, we will continue the generic drug theme by exploring the prospects of biosimilars—generic versions of biologic drugs, also known as biologics.

Biologics are molecules made by living organisms such as humans, animals, and microorganisms, which means they typically have a more complex molecular structure compared to conventional drugs. These drugs can treat a wide variety of diseases and potentially see greater efficacy versus other therapies.

Posted by Daeil Cha on Nov 1, 2017 10:24:40 PM

Topics: From the Desk of Daeil Cha

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International Equity Investors Look at the Era of Machine Learning

As a follow-up to the R Squared blog on the impact of automation on bank branches, let's take a look at how the broader financial industry is changing due to a transformative technology: machine learning.

While machine learning (ML) has existed since the 1950s, only in recent years has the hardware progressed enough to make ML applications relevant—and potentially necessary—in business. This year, an index that tracks stocks that are poised to benefit from increased adoption of robotics and machine learning is up over 40%.

Posted by Daeil Cha on Oct 12, 2017 10:53:34 AM

Topics: From the Desk of Daeil Cha

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Generic Drug Pricing in the U.S.: What's the End-Game?

One clear theme in the U.S. drug industry is the downward pressure on generic drug prices. The latest quarterly results at generics manufacturers Impax and Perrigo missed expectations by at least 20%, largely due to lower prices. Overall, the generic drug manufacturers expect prices to fall by as much as 9% this year. Teva thinks generics price deflation will accelerate in 2H17.

Posted by Daeil Cha on Aug 31, 2017 10:34:00 AM

Topics: From the Desk of Daeil Cha

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How Will Technology Impact Bank Branches?

While retail continues to be disrupted by online sales, less attention is focused on technology's potential impact on banking. In an environment of zero-rates and stiffer capital requirements, banks around the world have been challenged to grow profits. One obvious but non-recurring source of profitability is cost-cutting, which banks have resorted to by lowering headcount and closing branches. By the end of 2016, European banks cut their workforce by roughly 10% and their branches by 20% compared to five years prior. 

Posted by Daeil Cha on Jul 27, 2017 1:18:58 PM

Topics: From the Desk of Daeil Cha

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Can Toronto’s Hot Housing Market Be Contained?

In April, Toronto home prices rose 27.7% from a year ago (compared to a 24.1% increase in March) with the average home price in Toronto at C$817,000.

Posted by Daeil Cha on May 23, 2017 6:01:32 PM

Topics: From the Desk of Daeil Cha, Canada, Real Estate

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