Last close As at 05/08/2026
NZD4.75
▲ −0.03 (−0.63%)
Market capitalisation
NZD499m
Research: Healthcare
AFT Pharmaceuticals recently reported its results for the first half of FY21. Operating revenue grew by a strong 4% year-on-year to NZ$48.8m driven mainly by 11% growth in Australia and despite the impact of COVID-19 across the business. Reported group operating profit was NZ$2.4m compared to NZ$13.7m in the same period a year ago (NZ$3.9m if a one-time gain of NZ$9.8m from the first half of FY20 is excluded). Importantly, AFT continues to guide to operating profit of NZ$14–18m in FY21.
Written by
AFT Pharmaceuticals |
Growth despite COVID-19 challenges |
Financial update |
Pharma & biotech |
24 November 2020 |
Share price performance
Business description
Next events
Analysts
AFT Pharmaceuticals is a research client of Edison Investment Research Limited |
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AFT Pharmaceuticals recently reported its results for the first half of FY21. Operating revenue grew by a strong 4% year-on-year to NZ$48.8m driven mainly by 11% growth in Australia and despite the impact of COVID-19 across the business. Reported group operating profit was NZ$2.4m compared to NZ$13.7m in the same period a year ago (NZ$3.9m if a one-time gain of NZ$9.8m from the first half of FY20 is excluded). Importantly, AFT continues to guide to operating profit of NZ$14–18m in FY21.
Year end |
Revenue (NZ$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/19 |
85.1 |
(2.1) |
(0.02) |
0.0 |
N/A |
N/A |
03/20 |
105.6 |
3.4 |
0.03 |
0.0 |
N/A |
N/A |
03/21e |
117.6 |
13.3 |
0.13 |
0.0 |
37.6 |
N/A |
03/22e |
139.4 |
25.9 |
0.21 |
0.0 |
23.3 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Closer to FDA approval for Maxigesic
AFT received a complete response letter (CRL) from the FDA for the tablet form of Maxigesic in November. The only significant ‘deficiency’ cited in the application was that the FDA needed to inspect the manufacturing facilities, which they were unable to do by the PDUFA date due to COVID-19 related travel restrictions (which has become a relatively common problem for the industry). The timing of an inspection, whether physical or virtual, is unclear. Otherwise, the FDA only requested minor labelling changes and updated safety data.
Maxigesic launched in 34 countries
Maxigesic is now sold and launched in 34 countries, up from 28 at the end of March. The company expects to have Maxigesic launched in an additional nine countries in the second half of FY21. Licensing momentum was hurt by COVID-19 travel restrictions, but has been improving, though this may slow down again with the more recent lockdowns.
COVID-19 impact across the business
The pandemic has had an impact across the business, including product sales, supply and licensing negotiations for Maxigesic. This was mainly due to government restrictions limiting the ability to travel/export and restrictions that hampered the ability of consumers to have non-COVID-19 related medical visits and to have product dispensed at pharmacies. With vaccines likely to be approved shortly, we expect any further negative impact to be relatively brief.
Valuation: NZ$629m or NZ$6.02 per share
We are increasing our valuation from NZ$596m or NZ$5.94 per share to NZ$629m or NZ$6.02 per share, mainly due to rolling forward our NPV and lower net debt. This was partially offset by lower near-term operating profit forecasts due to slower than expected sales in the rest of world region. The company reported NZ$5.9m in cash and NZ$40.1m in debt at the end of the first half of FY21.
H121 results
AFT has reported revenue of NZ$48.8m for the first half of FY21 (H121), the period ending 30 September 2020. This represents a 4% increase over the same period in the prior year. Revenue in Australia was up 11% to NZ$28.6m. The OTC channel, which represents approximately 60% of revenue for Australia, grew 9% (to NZ$17.2m). This was negatively affected by weak Maxigesic sales due to COVID-19 restrictions though this was offset in part by strong growth in eyecare as well as sales of hand sanitizer and face masks. The hospital channel grew by 13% to NZ$8.6m and was helped by antibiotic sales in response to the pandemic. The prescription channel grew 17% thanks to new product introductions but was hampered due to a decline in visits to general practitioners for non-COVID-19 related purposes. Despite all these challenges, operating profits rose to NZ$3.2m in Australia from NZ$1.9m in the same period in FY20.
New Zealand revenue was flat at NZ$13.7m. The OTC channel grew 3% to NZ$7.6m thanks to allergy medicines and face masks. The hospital channel grew by 11% to NZ$2.2m due to strong antibiotic sales. The prescription channel fell by 9% to NZ$4.0m due to restrictions on visits to general practitioners and governments preventing pharmacists from dispensing more than 30 days of medicine. The operating loss (including head office costs) was NZ$1.4m, 3% larger than in the same period last year.
Asia revenue fell by 7% to NZ$2.2m. The OTC segment benefited from COVID-19 related stockpiling of Maxigesic in Singapore, while the hospital and prescription channels declined due to a transition to higher-margin products. This transition helped increase operating profit from NZ$0.1m in H120 to NZ$0.7m in H121. Importantly, e-commerce sales have commenced in China and sales are expected to begin in South Korea in the near future.
Exhibit 1: H121 results by segment
NZ$000s |
Revenues H121 |
Revenues H120 |
Operating profit before tax H121 |
Operating profit before tax H120 |
Australia |
28,552 |
25,697 |
3,195 |
1,861 |
New Zealand |
13,709 |
13,691 |
(1,425)* |
(1,378)* |
Asia |
2,198 |
2,369 |
721 |
98 |
Rest of world |
4,362 |
5,189 |
(69) |
13,110** |
Total |
48,821 |
46,946 |
2,422 |
13,691 |
Source: AFT Pharmaceuticals. Note: *New Zealand profit before tax includes head office expenses. **Rest of world profit before tax includes a non-recurring gain of NZ$9.8m; without this gain profit before tax for this region would have been NZ$3.3m.
Rest of world revenues declined by 16% to NZ$4.4m as licensing income fell by 88% due to delayed deal-signing as a result of COVID-19 related travel restrictions. Deal momentum has been improving according to management, though there may be additional issues as a second wave of lockdowns have occurred. To help mitigate this impact, AFT relocated one of its business development personnel to Switzerland. Revenue from ROW product sales grew by 57% to NZ$3.9m. Sales were assisted by new launch orders shipped to Mexico, Germany, Belgium and Luxembourg, but were negatively affected by COVID-19 in India where Maxigesic is being manufactured. The company is currently in the process of diversifying its manufacturing base.
Maxigesic tablets are now sold and launched in 34 countries, up from 28 at the end of March. The company expects to have Maxigesic launched in an additional nine countries in the second half of FY21. To assist with sales and regulatory filings in Europe, AFT has set up an EU-based affiliate in Ireland. During the first half of FY20, 10 Maxigesic IV licensing and distribution agreements were signed, including in Germany, Austria, France and Italy. And since the end of the period there were additional signings for Maxigesic tablets in Greece and Pakistan and for Maxigesic IV in Hong Kong and the UK. The company continues to work on licensing agreements for both the tablet and intravenous forms of Maxigesic in the US, Japan and China. The fact that the only significant ‘deficiency’ cited in the FDA new drug approval application for the tablet form of Maxigesic was due to COVID-19 related manufacturing facility inspection delays is a positive and should give potential partners comfort.
Exhibit 2: Maxigesic product country totals by status
Maxigesic tablets |
Maxigesic IV |
Maxigesic oral solution |
||||
September 2020 |
March 2020 |
September 2020 |
March 2020 |
September 2020 |
March 2020 |
|
Licensed |
125+ |
125+ |
90 |
80 |
122 |
122 |
Registered |
46 |
44 |
20 |
3 |
||
Sold in |
34 |
28 |
3 |
|||
Source: AFT Pharmaceuticals
With regards to NasoSURF, engineering batches have been successfully completed and development work on a specific dose form has commenced. Clinical studies are planned for calendar year 2021. The 120-patient Pascomer Phase II/III clinical study is continuing to enrol patients, although there have been delays in recruitment due to COVID-19. Study completion is expected in the 2021 calendar year.
Valuation
We are increasing our valuation from NZ$596m or NZ$5.94 per share to NZ$629m or NZ$6.02 per share, mainly due to rolling forward our NPV and lower net debt. This was partially offset by lower near-term operating profit forecasts due to slower than expected sales in the rest of world region.
Exhibit 3: DCF sensitivity table (NZ$/share)
Terminal EBIT margin |
|||||||
Terminal revenue growth |
30.00% |
34.00% |
36.0% |
40.0% |
45.0% |
||
-2% |
4.06 |
4.40 |
4.57 |
4.91 |
5.33 |
||
-1% |
4.28 |
4.65 |
4.83 |
5.20 |
5.67 |
||
0% |
4.54 |
4.95 |
5.15 |
5.56 |
6.06 |
||
1% |
4.86 |
5.31 |
5.54 |
5.99 |
6.55 |
||
2% |
5.26 |
5.76 |
6.02 |
6.52 |
7.16 |
||
3% |
5.77 |
6.35 |
6.64 |
7.22 |
7.94 |
||
4% |
6.45 |
7.12 |
7.46 |
8.14 |
8.98 |
||
5% |
7.40 |
8.21 |
8.61 |
9.42 |
10.43 |
||
Source: Edison Investment Research
Financials
We have decreased our revenue estimate for FY21 to NZ$117.6m from NZ$125.1m and for FY22 to NZ$139.4m from NZ$146.5m mainly due to delays in additional licence agreements and launches of Maxigesic in the rest of world region. We have lowered our SG&A estimate for FY21 by NZ$5.8m and for FY22 by NZ$6.2m. The reason for this was that SG&A expenses in the first half fell by 7% and we had forecast them increasing, so our new forecast puts these expenses more in line with the current run rate. We have also increased our R&D expense estimate by NZ$1.5m in both years as this line item was higher than anticipated. After these changes, our FY21 normalised PBT estimate is NZ$13.3m, compared to NZ$15.5m previously, while our normalised FY22 PBT estimate is now NZ$25.9m, compared to NZ$27.2m previously.
Exhibit 4: Edison forecast changes
FY21e |
FY22e |
|||
Old |
New |
Old |
New |
|
Revenue (NZ$m) |
125.1 |
117.6 |
146.5 |
139.4 |
PBT, normalised (NZ$m) |
15.5 |
13.3 |
27.2 |
25.9 |
EPS, normalised (NZ$) |
0.15 |
0.13 |
0.23 |
0.21 |
Source: Edison Investment Research
The company reported NZ$5.9m in cash and NZ$40.1m in debt at the end of the first half of FY21. AFT raised approximately NZ$12m through the issuance of new equity (c 3.2m shares at NZ$3.75 per share) during the first half, using NZ$3m to pay off debt. The company had expected to use more of the cash to pay off its debt but instead built inventory (inventory increased by NZ$13.3m compared to the same period in the prior year) to mitigate the business impact of COVID-19 related supply and freight difficulties. We believe AFT will be able to further pay down the debt from operating cash flow and is not in need of additional financing.
Exhibit 5: Financial summary
NZ$000 |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 March |
NZ GAAP |
NZ GAAP |
NZ GAAP |
NZ GAAP |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
85,127 |
105,597 |
117,570 |
139,439 |
Cost of Sales |
(44,397) |
(57,332) |
(64,045) |
(69,711) |
||
Gross Profit |
40,730 |
48,265 |
53,526 |
69,728 |
||
EBITDA |
|
|
6,205 |
10,894 |
15,426 |
27,692 |
Operating Profit (before amort. and except.) |
|
|
6,320 |
11,708 |
16,240 |
28,506 |
Intangible Amortisation |
(204) |
(286) |
(286) |
(286) |
||
Exceptionals |
0 |
9,784 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
6,116 |
21,206 |
15,954 |
28,220 |
||
Net Interest |
(8,375) |
(8,329) |
(2,935) |
(2,603) |
||
Profit Before Tax (norm) |
|
|
(2,055) |
3,379 |
13,306 |
25,903 |
Profit Before Tax (reported) |
|
|
(2,259) |
12,877 |
13,020 |
25,617 |
Tax |
(168) |
(185) |
(74) |
(3,586) |
||
Profit After Tax (norm) |
(2,223) |
3,194 |
13,232 |
22,316 |
||
Profit After Tax (reported) |
(2,427) |
12,692 |
12,946 |
22,030 |
||
Average Number of Shares Outstanding (m) |
97.3 |
97.3 |
104.6 |
104.6 |
||
EPS - normalised (c) |
|
|
(2.28) |
3.28 |
12.65 |
21.34 |
EPS - (reported) (NZ$) |
|
|
(0.03) |
0.12 |
0.12 |
0.21 |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
47.8 |
45.7 |
45.5 |
50.0 |
||
EBITDA Margin (%) |
7.3 |
10.3 |
13.1 |
19.9 |
||
Operating Margin (before GW and except.) (%) |
7.4 |
11.1 |
13.8 |
20.4 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
12,334 |
31,716 |
35,424 |
38,465 |
Intangible Assets |
8,239 |
26,984 |
30,704 |
33,629 |
||
Tangible Assets |
357 |
315 |
295 |
411 |
||
Investments |
3,738 |
4,417 |
4,425 |
4,425 |
||
Current Assets |
|
|
51,261 |
55,336 |
64,485 |
78,882 |
Stocks |
25,158 |
22,734 |
35,995 |
39,595 |
||
Debtors |
19,187 |
25,969 |
16,567 |
22,856 |
||
Cash |
6,916 |
6,119 |
11,815 |
16,323 |
||
Other |
0 |
514 |
108 |
108 |
||
Current Liabilities |
|
|
(58,504) |
(25,102) |
(19,906) |
(19,121) |
Creditors |
(16,368) |
(22,993) |
(19,713) |
(19,121) |
||
Short term borrowings |
(41,750) |
(2,000) |
0 |
0 |
||
Other |
(386) |
(109) |
(193) |
0 |
||
Long Term Liabilities |
|
|
0 |
(44,695) |
(38,195) |
(34,195) |
Long term borrowings |
0 |
(41,200) |
(34,700) |
(30,700) |
||
Other long term liabilities |
0 |
(3,495) |
(3,495) |
(3,495) |
||
Net Assets |
|
|
5,091 |
17,255 |
41,808 |
64,031 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
9,610 |
21,999 |
11,287 |
18,839 |
Net Interest |
(8,375) |
(6,936) |
(2,935) |
(2,603) |
||
Tax |
(168) |
(185) |
(74) |
(3,586) |
||
Capex |
(3,465) |
(6,562) |
(3,952) |
(4,141) |
||
Acquisitions/disposals |
(1,419) |
0 |
0 |
0 |
||
Financing |
0 |
3 |
11,652 |
0 |
||
Dividends |
(134) |
(566) |
(187) |
0 |
||
Net Cash Flow |
(3,951) |
7,753 |
15,792 |
8,509 |
||
Opening net debt/(cash) |
|
|
23,708 |
34,834 |
37,081 |
22,885 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
(7,175) |
(10,000) |
(1,596) |
0 |
||
Closing net debt/(cash) |
|
|
34,834 |
37,081 |
22,885 |
14,377 |
Source: company reports, Edison Investment Research
|
|
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