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Research: Healthcare
Interim results highlight the momentum at Laboratorios Farmacéuticos ROVI, as both H119 operating revenue (21% y-o-y to €177.5m) and EBITDA (99% y-o-y to €26.5m) grew by double-digit percentages. The focus on new, proprietary products continues to benefit ROVI, as evidenced by the ongoing success in rolling out its enoxaparin biosimilar (Becat) in Europe. Becat sales grew fourfold y-o-y to €36.5m and continue to aid ROVI’s expansion of its low molecular weight heparin (LMWH) franchise (H119 revenues: €81.7m vs H118: €57.2m). ROVI has upgraded its revenue growth guidance for the year to high double-digit growth from low double digits. We value ROVI at €1.33bn vs €1.17bn previously.
Written by
Laboratorios Farmacéuticos ROVI |
Outperforming the market |
H119 results |
Pharma & biotech |
1 August 2019 |
Share price performance
Business description
Next events
Analysts
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Interim results highlight the momentum at Laboratorios Farmacéuticos ROVI, as both H119 operating revenue (21% y-o-y to €177.5m) and EBITDA (99% y-o-y to €26.5m) grew by double-digit percentages. The focus on new, proprietary products continues to benefit ROVI, as evidenced by the ongoing success in rolling out its enoxaparin biosimilar (Becat) in Europe. Becat sales grew fourfold y-o-y to €36.5m and continue to aid ROVI’s expansion of its low molecular weight heparin (LMWH) franchise (H119 revenues: €81.7m vs H118: €57.2m). ROVI has upgraded its revenue growth guidance for the year to high double-digit growth from low double digits. We value ROVI at €1.33bn vs €1.17bn previously.
Year end |
Revenue* (€m) |
PBT** |
EPS** |
DPS |
P/E |
Yield |
12/17 |
277.4 |
20.3 |
0.40 |
0.12 |
52.3 |
0.6 |
12/18 |
304.8 |
19.3 |
0.39 |
0.08 |
53.6 |
0.4 |
12/19e |
364.6 |
31.6 |
0.54 |
0.12 |
38.7 |
0.6 |
12/20e |
391.0 |
36.6 |
0.62 |
0.13 |
33.7 |
0.6 |
Note: *Total revenue including government grants. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
LMWH franchise going from strength to strength
We have upgraded our forecast for enoxaparin biosimilar (Becat) following strong growth in H119. We now forecast FY19 Becat revenue of €74.1m (vs €60.5m previously). We have adjusted our FY19 gross margin upwards to 56.5% (vs 54.5% previously), noting that the effect on Q219 margins from higher LMWH raw material prices and increased sales of the lower-margin Becat was less than we had expected. R&D expenses fell 12% y-o-y, mainly due to completion of the Phase III DORIA study (risperidone long-acting injectable). SG&A costs grew 16% to €60.7m, driven by the Europe-wide subsidiary expansion for Becat. The significant revenue growth mentioned above contributed to H119 net income of €16.2m (114% y-o-y).
ISM platform hitting key milestones
Successful completion of Phase III PRISMA-3 has served as validation of ROVIs recent investment in R&D. ROVI now expects to submit an NDA to the FDA in H120 (vs H219 previously) and an MAA to the EU before then. We believe our forecast launch in both markets in 2021 remains viable. In addition, preliminary Phase I data for Letrozole ISM were recently presented and have confirmed the technology’s ability to provide a prolonged release version of letrozole.
Valuation: €1.33bn or €23.7/share
We increase our valuation of ROVI to €1.33bn or €23.7/share vs €1.17bn or €20.9/share previously, driven predominately by upgraded Becat forecasts. We have also rolled our DCF/rNPV model forward, and updated for FX and net cash of €19.1m at 30 June 2019. Our valuation is underpinned by the strong growth potential of Becat, while the base business remains stable with low single-digit growth rates. The opportunity for DORIA in the US and EU is key, contributing 17% and 13% to our valuation, respectively.
Laboratorios Farmacéuticos ROVI is a research client of Edison Investment Research Limited
H119 financials: Growth across divisions
H119 results demonstrated substantial growth for ROVI’s LMWH franchise and toll manufacturing business, driving a 21% y-o-y revenue increase to €177.5m for H119. ROVI has upgraded its FY19 revenue growth guidance to high double-digit growth from low double digit.
Revenue from the LMWH franchise grew 43% y-o-y to €81.7m (H118: €57.2m), see Exhibit 1. Becat sales were the main driver of franchise growth as ROVI continues to roll out the product across Europe (H119: €36.5m vs H118: €8.9m). Hibor sales in Spain remain strong and increased slightly to €35.5m in H119 vs €33.9m in H118. These increases were offset slightly by a 33% reduction in Hibor international sales due to an uncharacteristically weak Q119. However, management expected this to rebound, as has now been evidenced in Q2 sales (Q219: €6.2m vs Q119: €3.5m).
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Exhibit 1: LMWH franchise quarterly performance |
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Source: ROVI, Edison Investment Research |
H119 toll manufacturing revenues grew 15% y-o-y to €26.5m (H118: €23.0m), with Q219 picking up substantially from a slow Q119 (€10.7m). Oral form drug manufacturing continues its trend from Q119, with a 13% reduction in sales to €11.4m (H118: €13.1m). However, the injectable business picked up significantly with 53% y-o-y growth to €15.2m. ROVI has upgraded its toll manufacturing revenue forecasts for FY19 to a low double-digit rate. We have updated our forecasts to reflect this and now forecast toll manufacturing revenue of €60.6m in FY19 (FY18: 54.6m).
The product portfolio outside the LMWH franchise continues to perform well, with new products replacing ageing franchises. Notably in H1, sales of Neparvis increased 63% to €9.6m, Volutsa increased 20% to €6.4m and contrast imaging agents 9% to €16.7m, while ageing franchises Absorcol, Vytorin and Orvatez decreased 22% to €15.4m. In H119, ROVI acquired the rights to market TEVA’s osteoporosis drug Tetridar (five-year agreement, undisclosed financials). It also acquired MSD’s dexchlorpheniramine maleate antihistamines (ROVI paid €13.5m to MSD) and Falithrom (ROVI paid €9m to Hexal), which is used for the treatment of thromboembolic diseases, for the German market.
Increasing LMWH raw material prices (+35% above H118 prices) and sales of the lower-margin Becat continue to affect gross margin. However, the impact was less than we had expected in Q2 and, overall, we adjust our FY19 gross margin upwards to 56.5% vs 54.5% previously. SG&A costs grew 16% to €60.7m, driven mainly by the Europe-wide subsidiary expansion for Becat.
H119 EBITDA increased to €26.5m (+99%), reflecting a significant increase in revenue and a reduction in R&D spend related to DORIA as the Phase III clinical trial costs start to reduce. R&D expenses will fluctuate as reducing requirements for DORIA are offset by increasing investment in Letrozole ISM.
ROVI’s reported financial statements have been affected by changes in IFRS 16 accounting rules, which came into effect on 1 January 2019 and required operating leases to be recognised on the balance sheet as a financial liability. The primary impact of this was recognition of €22.8m in assets under property plant and equipment, offset by an increase of €22.8m in debt under financial liabilities for current (€3.7m) and non-current (€19.1m) leases, which has reduced ROVI’s reported net cash to €19.1m at 30 June 2019. Operating lease payments, which originally went through the SG&A line, are now recognised as depreciation (for use of the asset) and financial expense (for discounting the lease), resulting in a €1.6m uplift in EBITDA. We have reflected the changes resulting from IFRS 16 accounting and the acquisition of new assets in our financial estimates (Exhibit 3), forecasting end-2019 net cash of €21.8m.
At ROVI’s general shareholder meeting on 12 June, a dividend of €0.0798/share was approved on FY18 earnings, representing a 25% payout. This was paid on 4 July.
Valuation
We increase our valuation of ROVI to €1.33bn (or €23.7/share) vs €1.17bn (or €20.9/share) previously, driven predominately by upgraded Becat forecasts. In addition, we have rolled our DCF/rNPV model forward and, updated for FX and net cash of €19.1m at 30 June 2019. Our valuation is underpinned by the strong growth potential of Becat, while the base business remains stable with low single-digit growth rates. The opportunity for DORIA in the US and EU is key, contributing 17% and 13% to our valuation respectively.
Exhibit 2: ROVI sum-of-the-parts valuation
Value (€m) |
Value per share (€) |
||
DCF of base business |
912.9 |
16.28 |
|
rNPV of DORIA |
394.3 |
7.03 |
|
Cash at 30 June 2019 |
19.1 |
0.34 |
|
Valuation |
1,326.3 |
23.66 |
|
Source: Edison Investment Research
Exhibit 3: Financial summary
Accounts: IFRS, year-end: December, €m |
|
2016 |
2017 |
2018 |
2019e |
2020e |
PROFIT & LOSS |
|
|
|
|
|
|
Hibor revenue |
|
79.7 |
83.9 |
91.3 |
96.8 |
99.4 |
Enoxaparin revenue |
|
0.0 |
1.5 |
30.2 |
74.1 |
88.9 |
Other (Pharma & Manufacturing) |
|
185.5 |
192.1 |
183.3 |
193.7 |
202.6 |
Total revenues |
|
265.2 |
277.4 |
304.8 |
364.6 |
391.0 |
Cost of sales |
|
(112.0) |
(110.2) |
(128.6) |
(158.6) |
(177.9) |
Gross profit |
|
153.1 |
167.2 |
176.2 |
206.0 |
213.1 |
Gross margin % |
|
57.8% |
60.3% |
57.8% |
56.5% |
54.5% |
SG&A (expenses) |
|
(101.9) |
(108.5) |
(113.2) |
(131.3) |
(136.8) |
R&D costs |
|
(17.5) |
(28.3) |
(32.4) |
(29.8) |
(22.0) |
Other income/(expense) |
|
5.6 |
(0.6) |
(1.1) |
0.0 |
0.0 |
EBITDA (reported) |
|
39.3 |
29.9 |
29.5 |
45.0 |
54.2 |
Depreciation and amortisation |
|
(11.0) |
(11.5) |
(12.0) |
(17.8) |
(22.7) |
Normalised Operating Income |
|
30.7 |
21.2 |
20.1 |
31.5 |
37.2 |
Reported Operating Income |
|
28.3 |
18.4 |
17.5 |
27.1 |
31.5 |
Operating Margin % |
|
10.7% |
6.6% |
5.7% |
7.4% |
8.1% |
Finance income/(expense) |
|
(0.5) |
(0.9) |
(0.7) |
0.1 |
(0.6) |
Exceptionals and adjustments |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Normalised PBT |
|
30.3 |
20.3 |
19.3 |
31.6 |
36.6 |
Reported PBT |
|
27.9 |
17.5 |
16.7 |
27.2 |
30.9 |
Income tax expense (includes exceptionals) |
|
(1.8) |
(0.3) |
1.2 |
(1.4) |
(1.7) |
Normalised net income |
|
28.5 |
20.0 |
20.6 |
30.3 |
34.9 |
Reported net income |
|
26.1 |
17.2 |
17.9 |
25.8 |
29.2 |
Basic average number of shares, m |
|
49.0 |
50.0 |
53.0 |
56.1 |
56.1 |
Basic EPS (€) |
|
0.53 |
0.34 |
0.34 |
0.46 |
0.52 |
Normalised EPS (€) |
|
0.58 |
0.40 |
0.39 |
0.54 |
0.62 |
Dividend per share (€) |
|
0.18 |
0.12 |
0.08 |
0.12 |
0.13 |
BALANCE SHEET |
|
|
|
|
|
|
Property, plant and equipment |
|
82.8 |
89.1 |
95.8 |
121.7 |
124.2 |
Goodwill |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Intangible assets |
|
24.9 |
27.1 |
34.7 |
44.5 |
38.9 |
Other non-current assets |
|
13.1 |
14.1 |
18.2 |
18.2 |
18.1 |
Total non-current assets |
|
120.8 |
130.2 |
148.7 |
184.3 |
181.1 |
Cash and equivalents |
|
41.4 |
40.7 |
95.5 |
76.7 |
48.4 |
Inventories |
|
67.4 |
75.5 |
94.9 |
108.6 |
146.2 |
Trade and other receivables |
|
53.8 |
49.7 |
60.2 |
64.9 |
64.3 |
Other current assets |
|
4.5 |
2.2 |
3.5 |
3.5 |
3.5 |
Total current assets |
|
167.1 |
168.2 |
254.0 |
253.7 |
262.3 |
Non-current loans and borrowings |
|
20.8 |
27.0 |
16.6 |
35.5 |
31.6 |
Other non-current liabilities |
|
7.2 |
6.4 |
11.1 |
10.6 |
10.0 |
Total non-current liabilities |
|
28.0 |
33.5 |
27.7 |
46.1 |
41.6 |
Trade and other payables |
|
59.9 |
52.9 |
68.2 |
64.0 |
67.5 |
Current loans and borrowings |
|
13.0 |
16.2 |
17.6 |
19.4 |
3.9 |
Other current liabilities |
|
3.6 |
4.1 |
1.7 |
1.7 |
1.7 |
Total current liabilities |
|
76.4 |
73.2 |
87.5 |
85.1 |
73.1 |
Equity attributable to company |
|
183.4 |
191.7 |
287.5 |
306.8 |
328.7 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
Profit before tax |
|
27.9 |
17.5 |
16.7 |
27.2 |
30.9 |
Depreciation and amortisation |
|
11.0 |
11.5 |
12.0 |
17.8 |
22.7 |
Share based payments |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other adjustments |
|
(2.7) |
(1.2) |
7.4 |
(0.1) |
0.6 |
Movements in working capital |
|
12.7 |
(9.8) |
(24.4) |
(23.2) |
(34.0) |
Interest paid / received |
|
0.0 |
0.0 |
0.0 |
(0.9) |
(1.4) |
Income taxes paid |
|
(3.4) |
0.1 |
(3.1) |
(1.4) |
(1.7) |
Cash from operations (CFO) |
|
45.5 |
18.0 |
8.5 |
19.5 |
17.1 |
Capex |
|
(18.1) |
(19.9) |
(26.5) |
(32.5) |
(19.5) |
Acquisitions & disposals net |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other investing activities |
|
1.7 |
0.7 |
0.1 |
1.0 |
0.8 |
Cash used in investing activities (CFIA) |
|
(16.3) |
(19.2) |
(26.2) |
(31.5) |
(18.7) |
Net proceeds from issue of shares |
|
(0.5) |
0.5 |
88.0 |
0.0 |
0.0 |
Movements in debt |
|
(9.7) |
9.0 |
(9.2) |
(0.3) |
(19.4) |
Other financing activities |
|
(6.9) |
(9.0) |
(6.3) |
(6.5) |
(7.3) |
Cash from financing activities (CFF) |
|
(17.1) |
0.5 |
72.5 |
(6.8) |
(26.7) |
Cash and equivalents at beginning of period |
|
29.3 |
41.4 |
40.7 |
95.5 |
76.7 |
Increase/(decrease) in cash and equivalents |
|
12.1 |
(0.7) |
54.8 |
(18.8) |
(28.3) |
Cash and equivalents at end of period |
|
41.4 |
40.7 |
95.5 |
76.7 |
48.4 |
Source: Laboratorios Farmacéuticos ROVI accounts, Edison Investment Research. Note: We have updated our financial model to include the new IFRS 16 accounting rules, which mean operating leases are recognised on the balance sheet as financial liabilities.
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Research: TMT
XP’s performance in H119 was subdued by trade tariffs and the continued downturn in the semiconductor market, which masked the strong demand seen from industrial, healthcare and technology customers. Management is taking action to minimise the effect of trade tariffs and reduce manufacturing costs while ensuring it has access to key components and is preparing for Brexit. Despite short-term pressures, the company is confident that broad-based design wins position it well for future growth.