Biosimilar enoxaparin launches

ROVI Laboratorios Farmaceuticos 14 November 2017 Update
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Laboratorios Farmacéuticos ROVI

Biosimilar enoxaparin launches

Corporate update

Pharma & biotech

 

14 November 2017

Price

€16.69

Market cap

€835m

Net debt (€m) at 30 September 2017

1.5

Shares in issue

50.0m

Free float

11.86%

Code

ROVI

Primary exchange

Madrid

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.2

5.6

29.6

Rel (local)

7.3

8.0

11.4

52-week high/low

€17.2

€11.0

Business description

Laboratorios Farmacéuticos ROVI is a fully integrated Spanish speciality pharmaceutical company involved in the development, in-licensing, manufacture and marketing of small molecule and speciality biologic drugs, with a particular expertise in low molecular weight heparin (LMWH).

Next events

Biosimilar enoxaparin launch in select European countries

Ongoing

Risperidone-ISM Phase III data

2019

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Daniel Wilkinson

+44 (0)20 3077 5734

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

ROVI reported operating revenue of €203m for 9M17 (+ 6%), driven by exceptionally strong growth in the toll manufacturing business (+20%). The speciality pharmaceutical business grew 3%, aided by sales growth in newer product launches offsetting declines in the mature portfolio. ROVI has launched its internally developed biosimilar enoxaparin into the first European market (Germany) ahead of any competition; this is a key driver of sales and operating growth in the medium term. R&D progress continues with the long-acting DORIA (schizophrenia) and letrozole (breast cancer) having entered Phase III and Phase I of clinical-stage development respectively. Our revised valuation is €0.98bn.

Year end

Operating revenue (€m)

PBT* (€m)

EPS* (€)

DPS (€)

P/E (x)

Yield (%)

12/15

246.0

22.9

0.44

0.14

37.9

0.8

12/16

265.2

30.3

0.58

0.18

28.8

1.1

12/17e

277.3

19.6

0.37

0.11

45.1

0.7

12/18e

294.7

29.7

0.56

0.17

29.8

1.0

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

Biosimilar enoxaparin launched in Germany

ROVI is the first company to launch a biosimilar enoxaparin (low molecular weight heparin [LMWH] for anti-coagulant indications) into Germany. We expect further roll-outs in 2018. Maiden guidance of €20-30m sales of biosimilar enoxaparin in 2018 is higher than our original €15m forecast and we have increased our expectation to €26.7m in 2018; we expect new territory launches plus growth in Germany to aid sales growth. We forecast operating revenues of €277.3m (+ 4.6% vs FY16), which remains unchanged. However, we have reduced our FY18 forecast to €297.4m vs €305.4m. We reduce our expectations for Sintron and for the mature portfolio of products largely offset by increasing enoxaparin forecasts.

R&D pipeline progressing

DORIA (Risperidone-ISM), ROVI’s four-weekly formulation of J&J’s Risperdal, has started global Phase III (PRISMA-3) clinical trials in treatment-resistant schizophrenia patients. Top-line results are expected in 2019. Our peak sales estimate for Risperidone-ISM is €76.2m, which could be conservative. We assume a launch in 2021 in Europe. A quarterly formulation of letrozole for breast cancer entered a Phase I clinical trial (LISA-1) in November.

Valuation: €0.98bn (€19.6/share)

We value ROVI at €0.98bn or €19.6/share versus €1.0bn previously. The reduced valuation is a result of the net effect of lowering 2018 revenues, rolling forward our model and updating the net debt position (at 30 September) to €1.5m. Our valuation is underpinned by the sales potential of biosimilar enoxaparin and the base business retaining stable low single-digit growth rates. A stable dividend with a three-year average 33% payout ratio also adds value.

9M17 update

ROVI reported operating revenue of €203m for 9M17 (+ 6%), driven by exceptionally strong growth in the toll manufacturing business (+20%) and 3% growth in the speciality pharmaceutical business (9M17: €133.8m reported revenues). Highlights include:

Speciality pharmaceuticals business includes the flagship product, LMWH bemiparin, Hibor, and over 30 marketed products across nine core franchises. Hibor sales in Spain grew 2% (9M17 €40.8m) and 8% in international markets (9M17 €20.9m). ROVI has guided that it expects to maintain stable international sales growth in 2017. In the longer term, we expect moderate growth in international Hibor (2017-20 estimated CAGR of -3.9%) as ongoing launches of biosimilar enoxaparin and Hibor patent expiry in 2019 clip sales growth. Within the portfolio of in-licensed products Volutsa (BPH in-licensed from Astellas) grew 33% to €6.5m in 9M17, Neparvis (heart failure, in-licensed from Novartis and launched in December 2016) posted €2.8m in 9M17. Growth in the respiratory and cholesterol franchises also helped offset the slowdown in off-patent/mature products.

ROVI’s toll manufacturing business had an exceptionally strong nine months, reporting sales up 20% to €46.1m. This was largely driven by 33% growth in the injectable business offsetting a slowdown in the oral formulation business. (ROVI expects mid to high single-digit growth in the injectable business for FY17 and overall slight growth in the toll manufacturing business vs a decline of 9% in 2016.)

EBITDA decreased to €27.2m in 9M17 (-13%). However, in the comparable period in 2016, it benefited from €4.0m in non-recurring revenue (as a result of the creation of a JV between ROVI and Enervit for the distribution of nutritional products in Spain and Portugal). Underlying EBITDA grew 0.4%. We forecast EBITDA of €28.7m in 2017.

Guidance: ROVI expects mid- to single-digit growth in operating revenues for 2017. We forecast €277.3m (+ 4.6% vs FY16), which remains unchanged. However, we have reduced our FY18 forecast to €294.7m vs €305.4m. On a positive note, this includes our upwardly revised forecast for biosimilar enoxaparin (maiden guidance of €20-30m sales of biosimilar enoxaparin in 2018 is higher than our original €15m forecast) to €26.7m in 2018. This is offset by a reduction in our expectations for the mature product portfolio and Sintron.

Biosimilar enoxaparin launched in Germany

ROVI has set out a clear strategy to launch an enoxaparin biosimilar into key countries in the EU ex Spain. As expected, the first launch in Germany has occurred. As a biosimilar drug, its enoxaparin will be priced at a discount to both branded Lovenox/Clexane and own product Hibor.

For its biosimilar enoxaparin, ROVI utilised the decentralised procedure (DCP) for EU drug applications with Germany acting as a reference state; the DCP completed with a positive outcome in February 2017. As of 30 September 2017 national registration approval has been granted in eight out of the 26 countries (Germany, France, the UK, Hungary, Slovenia, Estonia, Latvia and Slovakia). The national phase of the DCP in the rest of the 26 countries in the EU (excluding Lithuania) is expected to be completed, with marketing authorisation granted at local country level; this national phase could last from three to 10 months. Initially, we forecast launch in Germany, followed by the UK, Italy and France within 18 months. In other regions, we expect that ROVI will use marketing partners as per its strategy.

Valuation

We revise our valuation of ROVI to €0.98bn or €19.6/share from €1.0bn or €20.1/share, largely resulting from a slight reduction in our FY18 revenue expectation (an increase in biosimilar expectations is largely offset by lowering our Sintron and mature products sales expectations). We roll forward our DCF model in time and update for net debt of €1.5m at 30 September. We use a three-stage DCF valuation; we utilise our sales and P&L model out to 2026, from 2026 to 2030 we apply a transition growth rate (reflecting that the company is growing at a high rate during our forecast period) and, finally, we apply a 2.0% terminal growth rate (terminal value represents 47% of our total ROVI valuation). Our standard discount rate assumption for companies with approved products and minimal development risk is 10%. We use a 15% tax rate from 2030. The current tax rate is c 8%, but over time this is expected to normalise to a mid-teens percentage.

Exhibit 1: Three-stage DCF valuation

€m

Sum of DCF for forecast period to 2025

352

Sum of DCF for growth 2026 to 2030 (transition period)

163

Terminal value

468

Enterprise value

983

Net cash/(debt) at 30 September 2017

(1.5)

Value of equity

981.6

Value per share

€19.6

Discount rate

10%

Terminal growth rate

2.0%

Number of shares outstanding (m)

50

Sum of DCF for forecast period to 2025

Sum of DCF for growth 2026 to 2030 (transition period)

Terminal value

Enterprise value

Net cash/(debt) at 30 September 2017

Value of equity

Value per share

Discount rate

Terminal growth rate

Number of shares outstanding (m)

€m

352

163

468

983

(1.5)

981.6

€19.6

10%

2.0%

50

Source: Edison Investment Research

For biosimilar enoxaparin in Europe and international (ex-US) markets, our peak sales forecasts include in-market sales in the four major countries (the UK, Germany, France and Italy), initially with a launch in Spain in 2020 after Hibor’s patent expires in October 2019. We model a decline in Hibor sales post patent expiration. We also include a modest revenue growth contribution from in-licensed products and the toll manufacturing business (growing by 2% a year) until 2020. Our peak sales estimate for Risperidone-ISM is €76.2m. We assume a launch in 2021 in Europe. Our sales forecasts are risk-adjusted (we assume 90% probability of success given its Phase III status and position as a new formulation of a widely available drug).

Valuation sensitivity to biosimilar enoxaparin

As described in our initiation report, Ace of Spain, the potential market for biosimilar enoxaparin is significant in Europe and in international markets (ex-US), with our peak sales forecasts based on assumed penetration rates that we believe are achievable. How the market transpires will depend on the number of new entrants, pricing and underlying volume growth; unit growth in the LMWH market is increasing, and use in other non-anti-coagulant indications could drive upside to our forecast. However, more than three or four other biosimilar entrants could pressure pricing in the market and thus our 20% peak penetration assumptions. We note that, all other things being equal, a 5% increase or decrease in peak market share (equivalent to €30m in peak sales) and the trajectories required to reach that, would generates a c €3/share increase or drop in our valuation, respectively.

Exhibit 2: Financial summary

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

 

2014

2015

2016

2017e

2018e

2019e

Profit & Loss

Hibor revenue

 

72.7

75.1

79.7

82.6

84.2

80.6

Enoxaparin revenue

 

0.0

0.0

0.0

0.4

26.7

44.5

Other (Pharma & Manufacturing)

 

165.4

170.9

185.5

194.3

183.9

199.5

Operating revenues

 

238.0

246.0

265.2

277.3

294.7

324.6

Cost of sales

 

(94.6)

(97.1)

(112.0)

(115.1)

(121.4)

(131.5)

Gross profit

 

143.5

148.9

153.1

162.2

173.3

193.1

Gross margin %

 

60.3%

60.5%

57.8%

58.5%

58.8%

59.5%

SG&A (expenses)

 

(97.8)

(101.7)

(101.9)

(107.3)

(109.1)

(116.9)

R&D costs

 

(12.0)

(16.5)

(17.5)

(27.7)

(26.5)

(26.0)

Other income/(expense)

 

2.9

1.0

5.6

1.6

1.6

1.6

EBITDA (reported)

 

36.6

31.8

39.3

28.7

39.3

51.9

Depreciation and amortisation

 

(8.9)

(10.0)

(11.0)

(11.9)

(13.1)

(13.2)

Normalised Operating Income

 

29.2

23.8

30.7

20.0

30.0

42.0

Reported Operating Income

 

27.7

21.8

28.3

16.8

26.2

38.7

Operating Margin %

 

11.6%

8.9%

10.7%

6.1%

8.9%

11.9%

Finance income/(expense)

 

(2.1)

(0.9)

(0.5)

(0.4)

(0.3)

(0.0)

Exceptionals and adjustments

 

0.0

0.0

0.0

0.0

0.0

0.0

Normalised PBT

 

27.1

22.9

30.3

19.6

29.7

42.0

Reported PBT

 

25.6

20.9

27.9

16.4

25.9

38.7

Income tax expense (includes exceptionals)

 

(1.5)

(1.1)

(1.8)

(1.1)

(1.9)

(3.1)

Normalised net income

 

25.6

21.8

28.5

18.4

27.8

39.0

Reported net income

 

24.1

19.8

26.1

15.3

24.0

35.6

Basic average number of shares, m

 

49.8

49.5

49.0

50.0

50.0

50.0

Basic EPS (€)

 

0.48

0.40

0.53

0.31

0.48

0.71

Normalised EPS (€)

 

0.51

0.44

0.58

0.37

0.56

0.78

Dividend per share (€)

 

0.17

0.14

0.18

0.11

0.17

0.25

 

 

 

 

 

 

 

 

Balance sheet

 

Property, plant and equipment

 

73.6

81.8

82.8

88.0

93.4

99.8

Goodwill

 

0.0

0.0

0.0

0.0

0.0

0.0

Intangible assets

 

17.2

18.9

24.9

30.1

26.3

22.9

Other non-current assets

 

8.5

9.1

13.1

13.1

13.1

13.1

Total non-current assets

 

99.3

109.8

120.8

131.1

132.8

135.8

Cash and equivalents

 

26.7

29.3

41.4

24.1

25.0

37.5

Inventories

 

67.6

63.9

67.4

69.4

69.9

72.0

Trade and other receivables

 

63.7

57.0

53.8

57.0

56.5

57.8

Other current assets

 

4.1

3.9

4.5

4.5

4.5

4.5

Total current assets

 

162.0

154.1

167.1

154.9

155.9

171.8

Non-current loans and borrowings

 

32.0

32.6

20.8

10.6

5.9

4.2

Other non-current liabilities

 

8.7

7.2

7.2

6.4

5.7

4.9

Total non-current liabilities

 

40.7

39.8

28.0

17.0

11.6

9.2

Trade and other payables

 

55.0

45.7

59.9

61.7

59.8

60.8

Current loans and borrowings

 

4.3

10.1

13.0

10.3

4.7

1.6

Other current liabilities

 

2.8

3.3

3.6

3.6

3.6

3.6

Total current liabilities

 

62.1

59.2

76.4

75.6

68.0

66.1

Equity attributable to company

 

158.5

164.8

183.4

193.4

209.0

232.3

 

 

 

 

 

 

 

 

Cash flow statement

 

Profit before tax

 

25.6

20.9

27.9

16.4

25.9

38.7

Depreciation and amortisation

 

8.9

10.0

11.0

11.9

13.1

13.2

Share based payments

 

0.0

0.0

0.0

0.0

0.0

0.0

Other adjustments

 

2.5

(1.1)

(2.7)

0.4

0.3

0.0

Movements in working capital

 

(7.4)

2.3

12.7

(4.0)

(2.8)

(3.1)

Interest paid / received

 

(2.7)

(0.6)

0.0

(0.9)

(0.5)

(0.3)

Income taxes paid

 

(3.9)

(2.0)

(3.4)

(1.1)

(1.9)

(3.1)

Cash from operations (CFO)

 

23.0

29.4

45.5

22.8

34.1

45.4

Capex

 

(25.1)

(19.9)

(18.1)

(22.3)

(14.7)

(16.2)

Acquisitions & disposals net

 

0.0

0.0

0.0

0.0

0.0

0.0

Other investing activities

 

16.6

0.6

1.7

0.4

0.2

0.3

Cash used in investing activities (CFIA)

 

(8.5)

(19.3)

(16.3)

(21.8)

(14.5)

(16.0)

Net proceeds from issue of shares

 

(2.0)

(5.1)

(0.5)

0.0

0.0

0.0

Movements in debt

 

2.7

5.9

(9.7)

(13.0)

(10.3)

(4.7)

Other financing activities

 

(8.0)

(8.3)

(6.9)

(5.3)

(8.3)

(12.3)

Cash from financing activities (CFF)

 

(7.3)

(7.6)

(17.1)

(18.3)

(18.6)

(17.0)

Cash and equivalents at beginning of period

 

19.4

26.7

29.3

41.4

24.1

25.0

Increase/(decrease) in cash and equivalents

 

7.3

2.6

12.1

(17.3)

1.0

12.4

Cash and equivalents at end of period

 

26.7

29.3

41.4

24.1

25.0

37.5

Net (debt) cash

 

(9.6)

(13.5)

7.6

3.2

14.5

31.6

Source: ROVI accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Laboratorios Farmacéuticos ROVI and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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. This document is provided 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. 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Schumannstrasse 34b

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London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

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295 Madison Avenue, 18th Floor

10017, New York

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Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Laboratorios Farmacéuticos ROVI and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. 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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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