COVID-19 stockpiling positive impact

Laboratorios Farmacéuticos ROVI 18 May 2020 Update
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Laboratorios Farmacéuticos ROVI

COVID-19 stockpiling positive impact

Q120 results

Pharma & biotech

18 May 2020

Price

€24.6

Market cap

€1,379m

$1.08/€

Net debt (€m) at 31 March 2020

19.0

Shares in issue

56.1m

Free float

32.1%

Code

ROVI

Primary exchange

MADRID

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.1

(7.9)

37.8

Rel (local)

7.8

41.7

95.3

52-week high/low

€26.9

17.5

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 heparin (LMWH). Its pipeline of drugs is focusing on its proprietary ISM technology.

Next events

DORIA US NDA filing

H220

DORIA EU approval and launch

2020/21

Analyst

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) reported Q120 operating revenue of €101.0m (+23% y-o-y), driven by strong growth both in the speciality pharmaceutical business (+24% to €88.2m) and in the toll manufacturing business (+19% to €12.7m). Top-line growth has, in part, benefited from COVID-19 related stockpiling across all divisions. As a result of operating leverage, EBITDA increased by 68% to €20.0m in Q120 reflecting a 530bp improvement vs Q119. Sales of low molecular weight heparin (LMWH) products (Becat and Hibor) increased by 43% to €53.9m; sales have benefited from increased heparin use for hospitalised COVID-19 patients during the quarter and this could be a source of further uplift in subsequent quarters. ROVI is maintaining FY20 guidance of mid-single-digit growth in total operating revenues, but in light of these results, this seems conservative. The MAA for DORIA has now been filed with the EMA (January 2020); we forecast launch in 2021. We value ROVI at €1.53bn.

Year end

Revenue* (€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

304.8

19.2

0.38

0.08

64.7

0.3

12/19

382.5

45.6

0.77

0.18

31.9

0.7

12/20e

402.7

37.0

0.62

0.14

39.7

0.6

12/21e

438.4

40.8

0.68

0.15

36.2

0.6

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

LMWH sales strong: COVID-19 related uplift

ROVI has reported Becat (enoxaparin biosimilar) sales of €29.6m (+79%) and Hibor (bemiparin) sales of €24.3m (+15%) in Q120. We believe increased sales may in part be related to increasing treatment of COVID-19 related coagulopathies, which are now being documented as a major feature in the underlying pathophysiology of severe COVID-19. Becat, additionally continues to benefit from ongoing roll-out in Europe by ROVI and its partners (now available in 13 countries). We forecast Becat sales of €97.0m in 2020. The toll manufacturing division has benefited from consolidation and the redirection of strategy toward high-value products. ROVI expects the toll manufacturing business to post low double-digit growth in FY20. We forecast 12% growth in 2020/21 in this division given better visibility on contracts.

DORIA MAA filed; US filing to come

Following positive PRISMA-3 data on DORIA (risperidone ISM), ROVI has filed the MAA with the EMA. We continue to forecast launch in Europe in 2021. The NDA filing with the FDA is expected in H220 and we forecast launch in the US in 2022.

Valuation: €1.53bn or €27.2/share

We increase our valuation of ROVI to €1.53bn or €27.2/share vs €1.49bn or €26.6/share previously. Our forecasts and cost assumptions are unchanged, but we have updated for FX, rolled forward our model and reflect net cash of €19.0m at 31 March 2020. Our valuation is underpinned by Becat’s strong growth potential, while the opportunity for DORIA in the US and EU is key, contributing 16.8% and 13.5% to our valuation, respectively.

Q120 financials

ROVI’s Q120 results highlight ongoing momentum in the speciality pharmaceuticals business within a challenging COVID-19 environment. The strong uptake of Becat (+79% to €29.6m) has grown ROVI’s LMWH franchise significantly, which now represents 55% of the operating revenue in Q120 (Q119: 48%). We note that the World Health Organization (WHO) has recommended ROVI’s LMWHs, bemiparin and Becat, as essential medicines in the treatment of COVID-19 patients hospitalised in intensive care units. We believe increased use in COVID-19 patients will offset decreased use in elective surgical settings. Exhibit 1 highlights the sales evolution within the heparin franchise. Gross margin declined 2.3% from 57.0% in Q119 to 54.7% in Q120; the margin was affected by: 1) a €4.6m increase in potential discounts to the NHS related to COVID-19; 2) the ongoing roll-out of Becat; and 3) rising costs of heparin raw materials (+40%) due to African swine fever.

Exhibit 1: LMWH franchise quarterly performance

Source: Laboratorios Farmacéuticos ROVI accounts, Edison Investment Research

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 +85% to €7.9m in Q120, Volutsa +23% to €3.8m in Q120). The cholesterol franchise (Vytorin, Orvatez and Absorcol) increased 31% to €9.5m in Q120; growth in prior quarters has been declining since patent expiry in Q218 of the active ingredient of these products (ezetimibe).

Toll manufacturing revenues increased by 19% to €12.7m, driven by redirection of the strategy toward high-value products. ROVI has capacity in this division and expects new contracts to drive low double-digit growth overall in its toll manufacturing business. EBITDA increased to €20.0m (+68%), reflecting significant operating leverage as a 23% increase in operating revenue (€101.0m) was partially offset by a 29% increase in the cost of sales (€46.0m). EBITDA was positively affected by a 35% reduction in R&D spend (€4.5m). R&D expenses will fluctuate from quarter to quarter as the reducing requirements for DORIA (lower Phase III costs, but regulatory filing costs and development of three-monthly formulation are ongoing) are offset by increasing investment in Letrozole ISM. We forecast €29m in R&D expenses for the year, which may prove too high, but the Q120 R&D amount may in part reflect phasing throughout the year.

ROVI has provided operating revenue guidance of mid-single-digit growth for 2020; we forecast 5.3% growth in FY20 but believe this could be conservative. We expect operating margins to decrease in 2020 (from 11.2% in 2019) to 8.5% (note Q120 reported EBIT margin was15.0%), mainly due to higher SG&A expenses (+10% to €30.8m in Q120) with the ongoing Becat roll-out and ongoing raw material price pressures relating to African swine flu (porcine mucosa is used in manufacturing heparins), and stable R&D expenses. If R&D expenses in Q220 remain at the level of Q120, we will revisit our FY20 operating margin forecasts. We expect the margin to flatten in 2021 (8.6%), reflecting SG&A investment in international subsidiaries to support the DORIA launch, offset by lower R&D expenses. We expect steady margin growth in 2022 and beyond, mainly due to operational leverage and lower R&D costs offsetting DORIA-related launch costs in 2021.

Valuation

Our revised valuation of ROVI is €1.53bn or €27.2 per share, from €1.49bn or €26.6 per share previously. Our product forecasts remain unchanged and we have rolled forward our model, reflected the current FX spot ($1.08/€) and updated for net debt of €19.0m at 31 March 2020. We value DORIA in the US and EU using a standalone NPV calculation (Exhibit 4) and derive value for the rest of the business by using a DCF of our sales and P&L model excluding DORIA (Exhibit 2). Compared to ROVI’s current portfolio of drugs and footprint, the US opportunity for DORIA is large and a key valuation driver, accounting for 16.8% of our valuation (EU DORIA accounts for 13.5%).

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

€m

Sum of for DCF for forecast period to 2025

336.6

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

231.4

Terminal value

515.1

Enterprise value

1,083.1

Net debt at 31 March 2020

19.0

Value of equity of base business

1,064.1

Value per share of base business (€)

18.98

Discount rate

10%

Terminal growth rate

2%

Number of shares outstanding (m)

56.06

Sum of for DCF for forecast period to 2025

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

Terminal value

Enterprise value

Net debt at 31 March 2020

Value of equity of base business

Value per share of base business (€)

Discount rate

Terminal growth rate

Number of shares outstanding (m)

€m

336.6

231.4

515.1

1,083.1

19.0

1,064.1

18.98

10%

2%

56.06

Source: Edison Investment Research

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

Value (€m)

Value per share (€)

DCF of base business

1,064.1

18.98

rNPV of DORIA

462.2

8.24

Net debt at 31 March 2020

19.0

0.34

SOTP valuation

1,526.3

27.22

Source: Edison Investment Research

Exhibit 4: DORIA NPV

Indication

Launch

Peak sales ($m)

Value
(€m)

Probability

rNPV
(€m)

rNPV per share (€)

NPV DORIA US

Schizophrenia

2022

236

344.1

75%

256.4

4.57

NPV DORIA Europe

Schizophrenia

2021

176

277.8

75%

205.8

3.67

Source: Edison Investment Research

Exhibit 5: Financial summary

Accounts IFRS; year-end 31 December; €m

 

2016

2017

2018

2019

2020e

2021e

PROFIT & LOSS

 

 

 

 

 

 

 

Hibor revenue

 

79.7

83.9

91.3

96.8

97.5

97.1

Enoxaparin revenue

 

0.0

1.5

30.2

80.9

97.0

121.3

Other (Pharma & Manufacturing)

 

185.5

192.1

183.3

204.8

208.2

220.0

Total revenues

 

265.2

277.4

304.8

382.5

402.7

438.4

Cost of sales

 

(112.0)

(110.2)

(128.6)

(166.6)

(187.3)

(205.5)

Gross profit

 

153.1

167.2

176.2

215.9

215.5

232.8

Gross margin %

 

57.8%

60.3%

57.8%

56.4%

53.5%

53.1%

SG&A (expenses)

 

(101.9)

(108.5)

(113.2)

(125.5)

(132.9)

(158.2)

R&D costs

 

(17.5)

(28.3)

(32.4)

(29.3)

(29.0)

(17.0)

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

53.6

57.7

Depreciation and amortisation

 

(11.0)

(11.5)

(12.0)

(18.2)

(19.4)

(20.1)

Normalised Operating Income

 

30.7

21.2

20.0

46.5

38.5

42.0

Reported Operating Income

 

28.3

18.4

17.5

42.6

34.1

37.6

Operating Margin %

 

10.7%

6.6%

5.7%

11.2%

8.5%

8.6%

Finance income/(expense)

 

(0.5)

(0.9)

(0.7)

(0.9)

(1.5)

(1.2)

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

37.0

40.8

Reported PBT

 

27.9

17.5

16.7

41.9

32.7

36.4

Income tax expense (includes exceptionals)

 

(1.8)

(0.3)

1.2

(2.6)

(2.2)

(2.6)

Normalised net income

 

28.5

20.0

20.4

43.0

34.8

38.2

Reported net income

 

26.1

17.2

17.9

39.3

30.5

33.8

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

0.54

0.60

Normalised EPS (€)

 

0.58

0.40

0.38

0.77

0.62

0.68

Dividend per share (€)

 

0.18

0.12

0.08

0.18

0.14

0.15

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

82.8

89.1

95.8

131.6

138.2

143.6

Goodwill

 

0.0

0.0

0.0

0.0

0.0

0.0

Intangible assets

 

24.9

27.1

34.7

45.1

50.7

51.3

Other non-current assets

 

13.1

14.1

18.2

16.6

16.6

16.6

Total non-current assets

 

120.8

130.2

148.7

193.3

205.6

211.6

Cash and equivalents

 

41.4

40.7

95.5

67.4

60.8

70.5

Inventories

 

67.4

75.5

94.9

158.8

161.6

168.9

Trade and other receivables

 

53.8

49.7

60.2

81.5

88.3

90.1

Other current assets

 

4.5

2.2

3.5

10.1

10.1

10.1

Total current assets

 

167.1

168.2

254.0

317.9

320.8

339.6

Non-current loans and borrowings

 

20.8

27.0

16.6

72.1

68.2

66.5

Other non-current liabilities

 

7.2

6.4

11.1

4.2

3.7

3.2

Total non-current liabilities

 

28.0

33.5

27.7

82.1

77.7

75.5

Trade and other payables

 

59.9

52.9

68.2

91.9

97.5

101.3

Current loans and borrowings

 

13.0

16.2

17.6

12.7

3.9

1.7

Other current liabilities

 

3.6

4.1

1.7

2.1

2.1

2.1

Total current liabilities

 

76.4

73.2

87.5

106.7

103.5

105.1

Equity attributable to company

 

183.4

191.7

287.5

322.4

345.2

370.6

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Profit before tax

 

27.9

17.5

16.7

41.9

32.7

36.4

Depreciation and amortisation

 

11.0

11.5

12.0

18.2

19.4

20.1

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)

1.5

1.2

Movements in working capital

 

12.7

(9.8)

(24.4)

(63.7)

(4.5)

(5.8)

Interest paid/received

 

0.0

0.0

0.0

(0.1)

(2.1)

(1.8)

Income taxes paid

 

(3.4)

0.1

(3.1)

(8.1)

(2.2)

(2.6)

Cash from operations (CFO)

 

45.5

18.0

8.5

(9.0)

44.7

47.5

Capex

 

(18.1)

(19.9)

(26.5)

(40.5)

(31.7)

(26.0)

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

0.7

0.6

Cash used in investing activities (CFIA)

 

(16.3)

(19.2)

(26.2)

(40.5)

(31.0)

(25.4)

Net proceeds from issue of shares

 

(0.5)

0.5

88.0

0.2

0.0

0.0

Movements in debt

 

(9.7)

9.0

(9.2)

25.8

(12.7)

(3.9)

Other financing activities

 

(6.9)

(9.0)

(6.3)

(4.5)

(7.6)

(8.4)

Cash from financing activities (CFF)

 

(17.1)

0.5

72.5

21.4

(20.3)

(12.3)

Cash and equivalents at beginning of period

 

29.3

41.4

40.7

95.5

67.4

60.8

Increase/(decrease) in cash and equivalents

 

12.1

(0.7)

54.8

(28.1)

(6.6)

9.7

Cash and equivalents at end of period

 

41.4

40.7

95.5

67.4

60.8

70.5

Net (debt)/cash

 

7.6

(2.5)

61.3

(17.4)

(11.3)

2.3

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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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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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

1,185 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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