2021: A pinnacle year

Laboratorios Farmacéuticos ROVI 10 March 2021 Update
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Laboratorios Farmacéuticos ROVI

2021: A pinnacle year

Full year results

Pharma & biotech

10 March 2021

Price

€41.7

Market cap

€2,338m

$1.21/€

Net debt (€m) at 31 December 2020

21.3

Shares in issue

56.1m

Free float

31%

Code

ROVI

Primary exchange

Madrid

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.9)

12.7

83.7

Rel (local)

(8.4)

9.2

66.7

52-week high/low

€47.6

€20.3

Business description

Laboratorios Farmacéuticos ROVI is a fully integrated Spanish speciality pharmaceutical company involved in developing, manufacturing and marketing small molecule and speciality biologic drugs, with expertise in low molecular weight heparins (LMWHs). Its pipeline of drugs is focused on its proprietary ISM technology.

Next events

Letrozole ISM regulatory discussions

H121

DORIA US approval

H221

DORIA EU approval and launch

Early 2022

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr John Priestner

+44 (0)20 3077 5700

Laboratorios Farmacéuticos ROVI is a research client of Edison Investment Research Limited

Laboratorios Farmacéuticos ROVI (ROVI) has reported a strong set of FY20 results, with all pillars of the business contributing to revenue growth of 10% and EBITDA margin expansion of 650bp to 22.4%. Total revenues of €421.1m were driven by its LMWH franchise (+14%) and high-value, toll manufacturing business (+39%), which has been catapulted into the international spotlight. In July 2020, ROVI signed a deal with US biotech Moderna to provide finished COVID-19 vaccine mRNA-1273 for supply ex-US. ROVI’s revised FY21 guidance is for 20–30% revenue growth and we expect toll manufacturing to be a substantial contributor. DORIA remains on track in the US for potential approval and launch in 2022, while the EMA’s request for an additional PK study has delayed European approval and launch to 2022. We value ROVI at €2.34bn or €41.7/share.

Year end

Revenue*
(€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

304.8

19.2

0.38

0.08

109.7

0.2

12/19

382.5

45.6

0.77

0.18

54.2

0.4

12/20

421.1

77.6

1.18

0.38

35.3

0.9

12/21e

505.3

97.3

1.56

0.37

26.7

0.9

Note: *Total revenue includes government grants. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

DORIA EU and US launch expected in 2022

ROVI has requested a clock stop on the European approval process to complete an additional bioequivalence study comparing DORIA to a European reference product required by the EMA. ROVI had expected that the US bioequivalence study would be sufficient for the regulatory submission dossier, which makes sense. The result is a short delay in the expected approval and launch to early 2022.

Moderna tie-up highlights manufacturing expertise

ROVI’s guidance of 10–15% growth in toll manufacturing revenues in FY21 excludes production of the Moderna COVID-19 vaccine. Including production of the vaccine, we forecast 60% growth in this division in FY21. We anticipate that in the near term ROVI will benefit from ongoing demand for COVID-19 vaccines, and in the future the partnership could expand to Moderna’s mRNA oncology portfolio.

Financials: Capitalise on share price strength

We note that US DORIA approval (expected in H221) and launch (expected in 2022) will be a key inflection point. ROVI may partner the product in this key territory or elect to self-commercialise. Given the improved visibility across all parts of the business, if it decides to self-commercialise, a secondary listing in the US would be a good way to strengthen its balance sheet ahead of DORIA launch.

Valuation: €2.34bn or €41.7 per share

Our revised valuation is €2.34bn or €41.7per share (versus €1.86bn or €33.2/share previously). Our major forecast upgrades relate to the toll manufacturing division and minor adjustments across the speciality pharma portfolio reflecting ongoing stable growth for some products. We delay DORIA EU launch by one year to 2022. ISM products (DORIA and Letrozole) contribute 23% to our valuation, with peak sales forecasts unchanged for both.

2021: Unprecedented growth ahead

The future looks bright, despite the slight slippage of DORIA’s potential EU launch into 2022. ROVI has been investing (€39.7m in capital expenditure in 2020 vs €27.0m in 2019, the latter excluding asset acquisitions) for future growth. This includes investment in R&D expenditure on its ISM platform assets (DORIA and Letrozole), in working capital ahead of international Becat launches, and expansionary capex to increase its toll manufacturing capacity and capabilities. Investment in the latter has enabled the deal with Moderna to provide finished mRNA-1273 COVID-19 vaccine for supply ex-US, This is a significant endorsement of ROVI’s manufacturing capabilities and could provide the gateway for additional deals with Modena given its broad mRNA pipeline in vaccines and oncology. ROVI has provided revised FY21 guidance, significantly upgrading to 20–30% growth in operating revenues vs prior guidance for mid-single digit (although this excluded any contribution from production of the Moderna vaccine).

FY20 was a remarkable year, with all areas of the business growing rapidly, including speciality pharmaceuticals and its high-value toll manufacturing business. Total revenues increased by 10% to €421.1m, driven by its low molecular weight heparin (LMWH) franchise (+14%, €202.8m) and high-value, toll manufacturing business (+39%, €91.6m). ROVI’s internally developed biosimilar enoxaparin, Becat, continues to benefit from ongoing roll-out in Europe by ROVI and its marketing partners (ROVI has already signed out-licensing agreements covering 95 countries). The strong uptake of Becat has led to significant growth in ROVI’s heparin franchise, which now represent ~50% of FY20 operating revenue. Sales of LMWHs Becat and Hibor increased by 25% to €101.4m and 5% to €101.4m respectively. Hibor grew 21% internationally, offsetting a 2% decline in Spain. We forecast total peak sales of €200m for Becat, including Europe and the international opportunity ex-US, which at the current growth rate looks conservative. Exhibit 1 highlights the sales trajectory across the last 13 quarters. We conservatively forecast annual sales of Becat to grow by 20% to €126.7m in 2021.

Exhibit 1: Becat sales ramp since launch

Source: ROVI corporate presentation

In the broader portfolio of in-licensed products, growth in sales of Neparvis (heart failure, in-licensed from Novartis) and Volutsa (benign prostate hyperplasia, in-licensed from Astellas) offset declines in the mature portfolio (Neparvis +34% to €29.6m in FY20, Volutsa +7% to €14.2m in FY20). The cholesterol franchise (Vytorin, Orvatez, Absorcol) and respiratory franchise (Ulunar and Hirobriz) face challenging conditions as the active ingredient of these products is now off-patent.

Toll manufacturing successful evolution

ROVI is a global leader in pre-filled syringe manufacturing, which is a high-margin contributor to the toll manufacturing business. ROVI’s contract manufacturing business provides a range of industrial services including injectables (pre-filled syringes and vials) for own use and supply to biotechnology or pharmaceutical companies that wish to outsource their manufacturing processes. Revenues in this division grew 39% to €91.6m, representing 22% of FY20 total operating revenues (17% in FY19). The recent upsurge in growth is related to reorientation of the toll manufacturing activities towards higher value-add products (with the income received from Moderna making a small contribution). ROVI’s guidance of 10–15% growth in toll manufacturing revenues in FY21 excludes production of the Moderna vaccine. For total operating revenue, management has revised guidance up to 20–30% in FY21 and, taking this into account, a significant chunk of growth will be related to production of the Moderna vaccine. We therefore forecast 60% growth in FY21 to €146.5m in the toll manufacturing division. Beyond the pandemic opportunity, we believe ongoing revenue growth will be secured as the virus becomes endemic requiring annual vaccinations, and we expect leverage into other mRNA products at Moderna and potentially across the industry, given the high technical specialisation required for the manufacturer of pre-frilled syringes.

DORIA launch in 2022 in US and EU

Following positive PRISMA-3 data on DORIA (risperidone ISM), ROVI filed a marketing authorisation (MAA) with the EMA in January 2020. In March 2021, ROVI announced a clock stop on the European approval process as the CHMP had requested an additional pharmacokinetic (PK) study comparing the bioequivalence of multiple doses of DORIA versus a European reference product (risperidone product approved in Europe). The EU dossier submitted by ROVI included bioequivalence data that compare DORIA to a risperidone product available in the US (BORIS study). In our view, the request is surprising. Nonetheless, it is a requirement and ROVI expects to complete the study and submit the data in November this year. This is a low-risk trial as the European and US reference products can be considered bioequivalent on the basis of in vitro and in vivo studies performed by ROVI (the products use the same formulation and excipient) and the cost is not material (c €6m). In the US, ROVI has submitted the NDA filing for DORIA to the FDA under the 505(b)(2) pathway for approval and the PDUFA date has been set for 24 September 2021. We forecast launch in the US and Europe in 2022. ROVI does not expect the short delay in the European approval process to affect its guidance for FY21 or long-term guidance for 2023.

Valuation

Our revised valuation is €2.34bn or €41.7per share (versus €1.86bn or €33.2/share previously). We have reviewed our sales forecasts and made the following changes: 1) faster Becat ramp-up, but we maintain our peak forecasts; 2) significantly increased toll manufacturing growth rates in the near term to 60% growth in FY21 and 20% in FY22, reflecting income relating to the manufacture of the Moderna COVID-19 vaccine; and 3) reflect better than previously expected growth for Neparvis and Volutsa within the pharmaceutical portfolio. This has been offset by the delay of DORIA launch in EU by one year to 2022. In terms of valuation, the opportunity for DORIA in the US and EU is key, contributing 16%. We roll forward our model, update FX and reflect net debt of €21.3m at end December 2020.

Exhibit 2: Three-stage DCF valuation of base business (excludes DORIA and Letrozole ISM cash flows)

€m

Sum of DCF for forecast period to 2026

574.6

Sum of DCF for growth 2027 to 2031 (transition period)

376.6

Terminal value

858.2

Enterprise value

1,809.3

Net debt at 30 December 2020

(21.3)

Value of equity of base business

1,788.0

Value per share of base business (€)

31.9

Discount rate

10–12.5%

Terminal growth rate

2%

Number of shares outstanding (m)

56.1

Source: Edison Investment Research

Exhibit 3: ROVI sum-of-the-parts valuation

Value (€m)

Value per share (€)

DCF of base business

1,809.33

32.27

rNPV of DORIA

364.80

6.51

rNPV of Letrozole ISM

183.88

3.28

Net debt at 31 December 2020

(21.28)

(0.38)

SOTP valuation

€2,336.7m

€41.7m

Source: Edison Investment Research

Financials

ROVI reported gross profit of €242.5m in FY20 (+12% versus 215.9m in FY19), with 1.1% margin expansion attributable to higher-margin toll manufacturing sales, higher Hibor pricing related to pushing through higher raw material prices and improving Becat margins. EBITDA increased by 55% to €94.2m in FY20 (€60.9m in FY19) and EBIT margins expanded to 18% in FY20 vs 11% in FY19, mainly as a result of operational leverage as revenue grew faster than operating expenses. ROVI reported €23.8m R&D expenses and €124.4m in SG&A, respectively, in FY20.

ROVI has issued revised operating revenue guidance of mid-single digit growth for 2020. We had highlighted that previous guidance was conservative and we now upgrade our forecasts, as expected. Our revised forecast is 20% from prior 6% growth in total operating revenues in FY21. We have increased near-term growth rates for the LMWH franchise and other key products like Neparvis, such that we forecast ~10% growth in speciality pharmaceuticals. We significantly increase toll manufacturing growth expectations to 60% from 15% in FY21. Our revised EBITDA forecast for FY21 is €116.4m from €71.6m. We expect the operating margin to increase slightly in 2021 (to 18.8% vs 17.7% in FY20), reflecting gross margin expansion relating to higher margin toll manufacturing contribution, lower SG&A investment in international subsidiaries to support the DORIA launch, partially offset by higher R&D expenses. ROVI will benefit from its recent capital allocation decisions of investing in R&D, working capital and plant capacity. We expect top-line growth will lead to an uptick in operating margin expansion in 2022/23 as gross margins normalise and R&D expenses reduce, and through operational leverage as multiple products are launched through the newly established European subsidiaries. We believe operating margins could reach 23.2% in 2023.

At its capital markets day in November 2020, ROVI reiterated the longer-term financial targets of doubling its operating revenues by 2023 (from €303.2m in 2018) and increasing recurrent ‘pre-R&D’ EBITDA two and a half times (from €63.0m generated in 2018). This suggests revenues of c €606m and pre-R&D EBITDA of c €158m in 2023. This implies pre-R&D EBITDA margin expansion of 500bp over the next three years to 25.3% from 20.3%, which is achievable in 2023 driven by growth in Becat, DORIA and toll manufacturing revenues (even excluding Moderna opportunities), and with stabilisation in Hibor sales. These targets could prove conservative.

Exhibit 4: Financial summary

Accounts: IFRS, year-end: December, €m

 

2016

2017

2018

2019

2020

2021e

PROFIT & LOSS

 

 

 

 

 

 

 

Hibor revenue

 

79.7

83.9

91.3

96.8

101.4

105.0

Enoxaparin revenue

 

0.0

1.5

30.2

80.9

101.4

126.7

Other (Pharma & Manufacturing)

 

185.5

192.1

183.3

204.8

218.3

273.7

Total revenues

 

265.2

277.4

304.8

382.5

421.1

505.3

Cost of sales

 

(112.0)

(110.2)

(128.6)

(166.6)

(178.7)

(207.2)

Gross profit

 

153.1

167.2

176.2

215.9

242.5

298.1

Gross margin %

 

57.8%

60.3%

57.8%

56.4%

57.6%

59.0%

SG&A (expenses)

 

(101.9)

(108.5)

(113.2)

(125.5)

(124.4)

(152.8)

R&D costs

 

(17.5)

(28.3)

(32.4)

(29.3)

(23.8)

(29.0)

Other income/(expense)

 

5.6

(0.6)

(1.1)

(0.2)

(0.0)

0.0

EBITDA (reported)

 

39.3

29.9

29.5

60.9

94.2

116.4

Depreciation and amortisation

 

(11.0)

(11.5)

(12.0)

(18.2)

(19.6)

(21.3)

Normalised Operating Income

 

30.7

21.2

20.0

46.5

78.6

98.7

Reported Operating Income

 

28.3

18.4

17.5

42.6

74.7

95.0

Operating Margin %

 

10.7%

6.6%

5.7%

11.2%

17.7%

18.8%

Finance income/(expense)

 

(0.5)

(0.9)

(0.7)

(0.9)

(1.1)

(1.4)

Exceptionals and adjustments

 

0.0

0.0

0.0

0.0

0.0

0.0

Normalised PBT

 

30.3

20.3

19.2

45.6

77.6

97.3

Reported PBT

 

27.9

17.5

16.7

41.9

72.6

93.7

Income tax expense (includes exceptionals)

 

(1.8)

(0.3)

1.2

(2.6)

(11.5)

(9.7)

Normalised net income

 

28.5

20.0

20.4

43.0

66.1

87.6

Reported net income

 

26.1

17.2

17.9

39.3

61.1

83.9

Basic average number of shares, m

 

49.0

50.0

53.0

56.1

56.1

56.1

Basic EPS (€)

 

0.53

0.34

0.34

0.70

1.09

1.50

Normalised EPS (€)

 

0.58

0.40

0.38

0.77

1.18

1.56

Dividend per share (€)

 

0.18

0.12

0.08

0.18

0.38

0.37

BALANCE SHEET

 

 

 

 

 

 

Property, plant and equipment

 

82.8

89.1

95.8

131.6

155.4

162.0

Goodwill

 

0.0

0.0

0.0

0.0

0.0

0.0

Intangible assets

 

24.9

27.1

34.7

45.1

41.4

42.8

Other non-current assets

 

13.1

14.1

18.2

16.6

13.1

13.1

Total non-current assets

 

120.8

130.2

148.7

193.3

209.9

217.8

Cash and equivalents

 

41.4

40.7

95.5

67.4

53.2

56.8

Inventories

 

67.4

75.5

94.9

158.8

227.2

255.4

Trade and other receivables

 

53.8

49.7

60.2

81.5

76.4

103.8

Other current assets

 

4.5

2.2

3.5

10.1

7.8

7.8

Total current assets

 

167.1

168.2

254.0

317.9

364.6

423.9

Non-current loans and borrowings

 

20.8

27.0

16.6

72.1

68.4

66.7

Other non-current liabilities

 

7.2

6.4

11.1

4.2

3.6

3.1

Total non-current liabilities

 

28.0

33.5

27.7

82.1

77.9

75.7

Trade and other payables

 

59.9

52.9

68.2

91.9

91.4

102.2

Current loans and borrowings

 

13.0

16.2

17.6

12.7

6.0

1.7

Other current liabilities

 

3.6

4.1

1.7

2.1

25.5

25.5

Total current liabilities

 

76.4

73.2

87.5

106.7

122.9

129.4

Equity attributable to company

 

183.4

191.7

287.5

322.4

373.7

436.7

CASHFLOW STATEMENT

 

 

 

 

 

 

Profit before tax

 

27.9

17.5

16.7

41.9

72.6

93.7

Depreciation and amortisation

 

11.0

11.5

12.0

18.2

19.6

21.3

Share based payments

 

0.0

0.0

0.0

0.0

0.0

0.0

Other adjustments

 

(2.7)

(1.2)

7.4

(0.4)

1.8

1.4

Movements in working capital

 

12.7

(9.8)

(24.4)

(63.7)

(63.8)

(45.4)

Interest paid/received

 

0.0

0.0

0.0

(0.1)

(0.2)

(1.9)

Income taxes paid

 

(3.4)

0.1

(3.1)

(8.1)

(6.0)

(9.7)

Cash from operations (CFO)

 

45.5

18.0

8.5

(9.0)

46.9

59.4

Capex

 

(18.1)

(19.9)

(26.5)

(40.5)

(39.7)

(29.3)

Acquisitions & disposals net

 

0.0

0.0

0.0

0.0

0.0

0.0

Other investing activities

 

1.7

0.7

0.1

0.1

0.0

0.5

Cash used in investing activities (CFIA)

 

(16.3)

(19.2)

(26.2)

(40.5)

(39.6)

(28.7)

Net proceeds from issue of shares

 

(0.5)

0.5

88.0

0.2

0.2

0.0

Movements in debt

 

(9.7)

9.0

(9.2)

25.8

(11.7)

(6.0)

Other financing activities

 

(6.9)

(9.0)

(6.3)

(4.5)

(10.0)

(21.0)

Cash from financing activities (CFF)

 

(17.1)

0.5

72.5

21.4

(21.5)

(27.0)

Cash and equivalents at beginning of period

 

29.3

41.4

40.7

95.5

67.4

53.2

Increase/(decrease) in cash and equivalents

 

12.1

(0.7)

54.8

(28.1)

(14.3)

3.7

Cash and equivalents at end of period

 

41.4

40.7

95.5

67.4

53.2

56.8

Net (debt)/cash

 

7.6

(2.5)

61.3

(17.4)

(21.3)

(11.6)

Source: Company accounts, Edison Investment Research


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This report has been commissioned by Laboratorios Farmacéuticos ROVI and prepared and issued by Edison, in consideration of a fee payable by Laboratorios Farmacéuticos ROVI. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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