Investing to accelerate long-term growth

AFT Pharmaceuticals 22 December 2015 QuickView

AFT Pharmaceuticals

Investing to accelerate long-term growth

Pharma & biotech

QuickView

21 December 2015

Price

NZ$2.80*

Market cap

NZ$271m*

Share details

Code

AFT (NZX), AFP (ASX)

Listing

NZX, ASX

Shares in issue*
*excludes any oversubscription

96.8m

Business description

AFT Pharmaceuticals is a specialty pharmaceutical company that develops and licenses drugs for sale, primarily in Australasia. The company’s product portfolio includes prescription and over-the-counter drugs to treat a range of conditions and a proprietary nebuliser.

Bull

Strong track record of consistent revenue and earnings growth.

Medicines containing codeine may become prescription only in Australia and New Zealand.

SURF nebuliser opens new high-value avenue for growth.

Bear

Increased new product and geography investment will hurt short-term earnings growth.

SURF nebuliser may require more extensive clinical trials in some target markets.

Relatively small player in the highly competitive specialty pharmaceutical market.

Analysts

Beth Senko

+1 646 563 7026

Dennis Hulme

+61 (0)2 8211 0429

AFT Pharmaceuticals is a New Zealand-based specialty pharmaceutical company that has grown its revenues at an average annual rate of 20% over the past decade. AFT raised an estimated NZ$33m in its December 2015 public offering, which it will use to accelerate new product development and move into new geographies including the EU and US. The company trades at a still relatively modest 4.2x EV/sales based on TTM revenues to September 2015.

A strong regional specialty pharma company

Founded in 1997, AFT Pharmaceuticals has grown to a large regional specialty pharmaceutical company selling more than 100 proprietary and in-licensed products, covering a wide range of therapeutic categories in the hospital, prescription and OTC markets. The company’s lead products include Maxigesic, a non-opioid analgesic, and Crystaderm, a topical cream for skin infections that avoids problems associated with antibacterial creams and antibiotic resistance.

Growth through new products and new geographies

AFT has a solid track record of new product approvals. Over the next three years, AFT will seek approval for a number of new products, most notably its SURF nebuliser, a hand-held intranasal drug delivery device to treat chronic sinusitis; the device could potentially be used to deliver drugs into the circulatory system as an alternative to oral or intravenous administration. AFT plans to complete clinical trials for SURF as a Class I medical device in 2016 and to begin selling in some markets in 2017. The company marketed 63 products in 2008 and now sells 109 products through its own sales force in New Zealand, Australia and South-East Asia. Outside its key markets, AFT will work with distribution partners. By 2018, AFT aims to market its products in more than 100 countries, including the EU and US.

Valuation: Undemanding EV/sales of 4.2x

Following its offering, AFT has an estimated EV of NZ$259m, including post-offering net cash of NZ$12.5m (cash of NZ$37.2m and debt of NZ$24.7m). Although it has been profitable in the past, investment to develop and launch new products has resulted in losses in recent years. However, revenues have grown at an average annual rate of 15% in FY10-15. Using TTM revenue (to September 2015) of NZ$61.6m implies an EV/sales ratio of 4.2x, which we believe is modest given the current and expected growth rates.

Historical financials

Year
end

Revenue
(NZ$m)

PBT
(NZ$m)

EPS
(NZ$)

DPS
(NZ$)

P/E
(x)

Yield
(%)

03/13

40.4

0.31

0.15

0.0

18.7

N/A

03/14

48.9

(1.1)

(0.94)

0.0

N/A

N/A

03/15

56.2

(13.2)

(10.91)

0.0

N/A

N/A

Source: Company accounts

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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