84
GLOBAL BIOPHARMA GLOBAL BIOPHARMA OUTLOOK 2012 OUTLOOK 2012
| Date post: | 28-Nov-2014 |
| Category: |
Health & Medicine |
| Upload: | mpadvisors |
| View: | 2,042 times |
| Download: | 0 times |
GLOBAL BIOPHARMA GLOBAL BIOPHARMA OUTLOOK 2012OUTLOOK 2012
LARGE-CAP PHARMAVishal Manchanda, B.E., MBA [email protected] Mehta, B.Pharm, MBA [email protected], PhD [email protected]
+1.646.657.3787
3MP Advisors
Outlook Outlook -- 20122012• Patent Cliff - ~ $50b of patented sales to be genericised – AZN, PFE,
NVS, SAN, BMY, LLY to bear the pain
• Innovation to foster growth in several therapeutic areas– HCV– Metastatic Melanoma– New Generation Oral Anti-coagulants– Alzheimers– Multiple Sclerosis – GLP-1’s therapy areas
• Patent Expiry and Pricing Pressures will intensify M&A activity
• LLY, AZN, and BMY would go for deals to fuel their topline
4MP Advisors
Patent Expiry Pressures will be at its PeakPatent Expiry Pressures will be at its Peak
2011 2012 2013 2014 2015 2016 CompanyCumulati ve Sales Erosion 11-16 ($b)
Cumulati ve Sales Erosion 11-16 as % of 2011 Revenues
LLY 22,225 4,637 6,345 1,069 302 LLY 12,353 56%NOVO 11,831 3,842 914 NOVO 4,756 40%AZN 31,711 1,191 5,725 995 7,538 6,539 AZN 21,988 69%PFE 57,522 13,556 4,317 1,171 2,877 1,268 350 PFE 23,539 41%BMY 21,398 8,200 1,434 3,908 689 BMY 14,231 67%SAN 38,286 264 6,845 232 5,632 637 SAN 13,610 36%NVS 48,565 923 8,188 2,703 922 5,665 NVS 18,401 38%MRK 41,018 6,295 1,368 1,670 1,905 407 MRK 11,645 28%GSK 43,328 9,154 589 1,179 GSK 10,922 25%ROG 44,735 1,485 747 649 ROG 2,881 6%Total ($) 360619 22056 49471 14837 23550 16125 8287 134326 37%
CompanySales in $m
(2011)
2011 Products Sales going off patent
With growth in Western Markets Crumbling to Patent Expiry Pressures, Will Emerging Markets offer some respite??
5MP Advisors
Emerging Market Emerging Market –– An Oasis or just a An Oasis or just a Mirage?Mirage?
• China, so far has been the pillar of Emerging Market Growth for LargePharma, but it is also giving away to policy pressures
– The EDL is expected to double in size, putting pressure on MNC
growth
– Reimbursement norms to be tightened
– Price cuts
• Global recessionary pressures have put Emerging market growth forecasts down and should impact the pace of healthcare spending
A Select few Large Cap Companies are immune to these pressures and also offer the promise for growth
6MP Advisors
Our Top and Bottom Picks in the Large Cap Our Top and Bottom Picks in the Large Cap Space for 2012Space for 2012
Top Picks• Roche • GlaxoSmithKline
Bottom Pick• Bristol-Myers Squibb
7MP Advisors
Strong double digit EPS growth together with +Strong double digit EPS growth together with +veve newsnews--flow on flow on late stage pipeline will put Roche back in flavorlate stage pipeline will put Roche back in flavor
Positive clinical data on T-DM1 and approval of Pertuzumab will ease concerns related to patent expiry
HERA study exploring 2 year adjuvant use of Herceptin versus 1 year Adjuvant use
Interim Analysis from DAL-OUTCOME Study, if positive will lead to a run up in the stock price much above our PT of CHF 180
Avastin may add a couple of more indications – Ovarian Cancer, while we will see pivotal data on first line Glioblastoma multiforme, triple negative breast cancer and Treatment through multiple lines in colorectal cancer. The late stage trials are supported by clinical evidence
Head to Head study comparing Actemra to Humira – Cross trial comparison suggests non-inferior outcome
8MP Advisors
GlaxoSmithKline GlaxoSmithKline –– Upgrade to OutperformUpgrade to OutperformWe anticipate positive data on its Oncology and Respiratory pipeline, which should lead to a revision in long term growth forecasts for GlaxoSmithKline
On Tykerb, ALTTO study exploring Tykerb in combination with Herceptin in Adjuvant use in breast cancer will report data and we expect a positive outcome –The indication will add £1b pound in peak sales
GSK’s melanoma pipeline (BRAF inhibitor, MEK inhibitor) is best in class and we will see PhIII data
On the respiratory pipeline, we expect a positive outcome from a host of studies exploring Relovair and LABA/LAMA FDC in PhIII trials
In the rare disease Pipeline Migalastat for Fabry disease is promising and looks better than available treatment options (Repligal and Fabrazyme). Head to head study comparing Migalastat with Repligal and Fabrazyme should also reveal data
9MP Advisors
BristolBristol--Myers Myers –– Bottom PickBottom PickValuations are rich, patent expiry pressures are peaking and pipeline expectations build in more than a bull case
We see restricted uptake of Eliquis as we believe Eliquis label in SPAF will be no better than other approved anticoagulants. Patients adequately controlled on warfarin are unlikely to switch as twice daily dosing will be a dampener
Yeryoy ramp up has been impressive, but the sales will soon plateau as competitors will enter and physician will be discouraged to use Yer yoy owing to serious side effects and very low response rate. European uptake will be very slow due to reimbursement hurdles
10MP Advisors
Japan Pharma 2012Japan Pharma 2012日本の製薬会社日本の製薬会社
Summary Of Japan Section From Summary Of Japan Section From ‘‘Global BioGlobal Bio--Pharmaceutical OutlookPharmaceutical Outlook--20122012’’
Top Picks : Chugai, Daiichi Sankyo, Torii, Towa Top Picks : Chugai, Daiichi Sankyo, Torii, Towa Pos. Invest. Alert: Dainippon SumitomoPos. Invest. Alert: Dainippon Sumitomo
Bottom Pick : EisaiBottom Pick : Eisai
!
!
Vrunda Shah, CFA, MS (Fin) [email protected]
+1.646.657.1016
Devesh Singh, Pharmacist, [email protected]+1.646.657.1016
11MP Advisors
Key Take AwayKey Take Away
• Drivers to promote generics are likely to intensify generics pick up from April 2012.
• 2012 price cuts least affecting foreign cos, while Japanese cos are more exposed largely due higher contribution of long-listed drugs and variation in innovations premium.
• Generic growth is inevitable; even after rapid penetration, huge untapped opportunity exists for generic companies.
• Innovation will continue to drive growth of Japanese majors while only a few promise positive news flow in next 1-2 years.
• Major Japanese's innovators are not targeting generic opportunities – their focus remains on – innovation & going global. But this trend could change in near future.
• Hybrid pharma began from 2010; and will start playing major role in reshaping Japanese pharma soon. Daiichi Sankyo currently is the only company in Japan in hybrid pharma.
• Consolidation activities in Japan generic will spur: foreign/ non-generic companies have started taking japan generic as one of the growth drivers.
• Japanese majors have poured massive ~$50b in acquiring innovation – next 2-3 years will unfold their success potential.
• Majority of Japanese pharma cos still struggling with patent expiries; in next 3 years more than ¥900b drugs going to expire.
• Despite several odds, Japan pharma offers opportunities for both long & short term investors.
12MP Advisors
Opportunities Exist For Both Long & Short Term InvestorsOpportunities Exist For Both Long & Short Term Investors
Price as on 23rd March, 2012Source: MP Advisors; Company Reports
Company Rating Price SOSMarket
Cap. ( ¥b)
EV-12EPS 4yr CAGR
(11-15)
ROE 03/12
ROCE 03/12 P/E-12
EV/EBITDA TP
Daiichi Sankyo Outperform 1562 709.0 1107.5 1089.1 4.9 2.3% 10.3% 16.0 5.3 1850Dainippon Sumitomo
Pos. Inv Alert 1141 335.1 382.3 346.8 5.8 7.0% 9.1% 16.5 6.4 1050
Eisai Underperform 870 397.9 346.2 341.3 5.5 6.3% 6.6% 32.2 5.2 950Takeda Market Perform 3365 285.1 959.4 1033.3 (9.1) 11.6% 11.5% 17.1 6.7 2500Astellas Market Perform 3770 789.4 2975.9 3345.7 (11.0) 5.8% 8.8% 23.5 7.5 3500Shionogi Market Perform 3435 470.0 1614.5 1373.1 8.4 7.1% 11.6% 22.9 6.6 3200Global 6.7% 9.6% 21.4 6.3Chugai Outperform 1474 544.8 803.0 625.4 11.2 10.8% 15.1% 15.6 6.2 1700Mitsubishi Tanabe Market Perform 1152 561.4 646.7 511.5 5.4 5.4% 8.5% 16.4 5.6 1350Kyowa Hakko Market Perform 882 576.5 508.5 428.5 3.5 5.0% 7.7% 16.9 5.3 950Kyorin Market Perform 1570 74.9 117.6 90.4 0.5 8.7% 12.0% 11.1 4.9 1500Domestic 7% 11% 15.0 5.5Towa Outperform 3790 17.2 65.1 71.1 5.4 12.6% 14.7% 10.7 5.5 4100Sawai Market Perform 8660 15.7 136.0 143.7 10.9 14.1% 14.9% 14.0 7.9 8200Nichi-Iko Market Perform 1832 30.9 56.6 68.5 12.6 17.2% 22.5% 10.6 6.1 NANippon Chemiphar Market Perform 495 38.2 18.9 25.7 36.0 7.9% 10.6% 12.9 7.4 320Generic 13% 16% 12.1 6.7Average 9.0% 12.0% 16.1 6.2
Coverage & TopCoverage & Top--PicksPicks
13MP Advisors
Cost effectiveness, stable supply
Injectable facilities, availability of all strengths of drug
Distribution capabilitiesDPC3
Oral formulations etc.
Strong marketing infrastructure with sales force and rapport with GP / DP GP1/DP2
Towa
Generics
Rich PhIII pipeline
Lower long listed drugs contribution
Higher overseas exposureGlobal
Willingness to consolidate Strong marketing abilities in Japan such that it improves the chances of licensing-in good products
Internationalization capabilities
Late stage R&D – own as well as in-licensed.
Low % sale coming from long listed productsDomestic focused
Chugai, Torii
Daiichi Sankyo,Eisai
Innovators
Top/Bottom PicksKey Success FactorsSegment
1. General Practitioner; 2. Dispensing Pharmacy; 3. Diagnostic Procedure CombinationSource: MP Advisors
JP Specific Drivers Will Continue To determine Success
Segments Specific Segments Specific ‘‘Key Success FactorsKey Success Factors’’
14MP Advisors
Japan Pharma – Market Model
Despite Rapid Penetration, Huge Untapped Opportunity Exists for Generic Companies
Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20Total Rx Market 7,802 8,036 8,277 8,526 8,781 9,045 9,316 9,596 9,883 10,180 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%New pt Exp. (¥b) 294.0 387.5 331.9 341.7 195.0 466.0 443.0 522.0 400.0 450.0Total Long Listed Products Price Adj 3,358.6 3,712.5 3,970.1 4,272.1 4,125.4 4,550.1 4,629.1 5,104.8 5,096.4 5,495.5Long Listed drugas as % of Total DO Market 43% 46% 48% 50% 47% 50% 50% 53% 52% 54%TOTAL Market Available for Generics 3,359 3,713 3,970 4,272 4,125 4,550 4,629 5,105 5,096 5,495Hospital Market (DPC Affiliates )No of DPC Hospitals 1393 1452 1496 1525 1556 1587 1619 1651 1684 1718 # of beds in DPC hospt. In Japan ('000) 494 504 514 524 534 545 556 567 578 590 Total # of beds in Japan ('000) 913 913 913 913 913 913 913 913 913 913 % of total beds in Japan 54% 55% 56% 57% 59% 60% 61% 62% 63% 65%% of total beds in Japan 47% 48% 49% 49% 50% 50% 51% 51% 52% 52% % Change 2% 2% 2% 1% 1% 1% 1% 1% 1% 1%Total NRx generated as % of Total Market 37% 38% 38% 39% 39% 39% 40% 40% 41% 41%Total DPC Market size (available for generics) 1235 1393 1519 1651 1611 1794 1844 2053 2070 2255Drivers of Generics use Cost saving measures 10% 10% 13% 14% 17% 17% 20% 20% 23% 25% Due to Co-payment 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% Others factors 2% 2% 3% 2% 6% 6% 7% 5% 7% 4%Consolidate impact of all Drivers 15% 15% 19% 19% 26% 26% 30% 28% 33% 32%Total Generics Sales at DPC Hospitals 185.3 208.9 288.7 313.8 418.8 466.5 553.1 574.9 683.3 721.6 % Change 10% 13% 38% 9% 33% 11% 19% 4% 19% 6%DPC Hospt Generics Sales as % of Total sales 2.4% 2.6% 3.5% 3.7% 4.8% 5.2% 5.9% 6.0% 6.9% 7.1%
15% 15% 19% 19% 26% 26% 30% 28% 33% 32%Non-DPC MarketTotal Non-DPC Market (GPs/Clinics/small hopt/ 2,123 2,320 2,451 2,621 2,515 2,756 2,786 3,051 3,026 3,241Total GP's/dipensing/clinics Market 516.6 598.0 717.6 803.7 932.3 1034.9 1210.8 1356.1 1559.5 1715.5 % Change due to Reforms/ Drivers 22.5% 15.8% 20.0% 12.0% 16.0% 11.0% 17.0% 12% 15% 10% % of total Non-DPC generic market 24% 26% 29% 31% 37% 38% 43% 44% 52% 53% % of Total Rx market 6.6% 7.4% 8.7% 9.4% 10.6% 11.4% 13.0% 14.1% 15.8% 16.9% Years from FY 03/12 0 1 2 3 4 5 6 7 8Total Generic market (by value in ¥b) 702.0 807.0 1006.3 1117.5 1351.1 1501.4 1763.9 1931.1 2242.8 2437.1 % change 19.0% 15.0% 24.7% 11.0% 20.9% 11.1% 17.5% 9.5% 16.1% 8.7%Generics as % of Total Market 9.0% 10.0% 12.2% 13.1% 15.4% 16.6% 18.9% 20.1% 22.7% 23.9%
15GP/DP to DPC Market Share Ratio 1.7 1.7 1.6 1.6 1.6 1.5 1.5 1.5 1.5 1.4
Every year new patent expiries keep on increasing potential target market for generic cos. This leads to higher generic opportunity despite robust generic growth.
Increase in DPC hospitals will be a largest Generic growth catalyst in future.
Various growth catalyst together boost Generics penetration.
Despite high growth, penetration will remain as low as <12% (by val) in GP/DP market by 2016.
15MP Advisors
Massive Money Poured Overseas Remain Questionable For Most Massive Money Poured Overseas Remain Questionable For Most --Takeda Biggest Looser!Takeda Biggest Looser!
CompanyAcquired Company
Acquisition date
Cash paid ($b)
Premium to 3m. Avg
price. (%)Takeda Nycomed 19-May-11 13.50 NA
Takeda Millennium 10-Apr-08 11.00 71.00
Daiichi Sankyo Ranbaxy 11-Jun-08 4.60 50.00
Astellas OSI 17-May-10 4.00 55.00
Eisai MGI 10-Dec-07 3.90 37.48
Dainippon Sumitomo Sepracor 3-Sep-09 2.60 37.86
Shionogi Sciele 1-Sep-08 1.42 57.55
Daiichi Sankyo Plexxikon 28-Feb-11 0.80 NA
Hisamitsu Noven 14-Jul-09 0.43 43.00
Taisho Pharma BMY’s Units 16-Sep-09 0.31 NA
Eisai AkaRx Inc 18-Dec-09 0.26 NA
Nipro Pharma Home Diag. 17-Mar-10 0.18 NA
Total Cash Paid 43.00
Source: MP Advisors; Company Reports
Major Japanese M&A in Last 4 YrsMajor Japanese M&A in Last 4 Yrs
16MP Advisors
Source: MP Advisors; MHLW
Average Price Cuts And Reforms 2012Average Price Cuts And Reforms 2012
Price Cuts Came As Expected:
• ~6% overall and Additional price cut for off-patent brands
• Premium for New Drug Development will continue in 2012 reforms
• Lower price cuts for Original Drugs
• High Yakka-sa for Vasodolators (11.6%), Peptic ulcer drugs (10.8%) and Anti-allergic drugs (10.5%)
• Foreign cons are least affacted while Eisai is most affacted with >11% price cuts
Yakka-Sa vs. Price Cuts
6.6 6.84.4
9.7
7.0 6.34.2
5.2 5.8
23.1
17.8
14.513.1
9.5
7.1 6.3 6.98.46.7
6.26.5
8.4
0.0
5.0
10.0
15.0
20.0
25.0
1992
A
1994
A
1996
A
1998
A
2000
A
2002
A
2004
A
2006
A
2008
A
2010
A
2012
E
Year%
Val
ue
Price Cuts Yakka Sa
17MP Advisors Foreign Cos are least affected while Eisai is most affected co.Foreign Cos are least affected while Eisai is most affected co.Source: MP Advisors; MHLW
Average Price Cuts in 2012Average Price Cuts in 2012
18MP Advisors
Global Cos Increasing Dependence on Domestic Markets + Long Listed Products
Makes them Vulnerable to Healthcare Reforms
Long Listed Exposure vs. Overseas SalesLong Listed Exposure vs. Overseas SalesMar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Company
Long L As % of DO Sales 43.51 38.61 38.39 34.63 47.79 53.24 52.54 46.83 42.63 35.14Overseas Sales % 46.77 45.77 43.49 42.08 39.14 39.66 38.70 39.96 41.93 44.40Long L As % of DO Sales 32.12 26.80 18.51 22.11 23.93 19.41 16.01 13.34 11.11 9.39Overseas Sales % 9.72 9.70 6.25 7.99 10.92 13.49 14.02 14.16 13.83 13.91Long L As % of DO Sales 28.98 31.81 47.26 52.22 46.35 41.66 37.43 35.14 33.19Overseas Sales % 38.6 44.7 50.4 49.4 46.1 49.7 48.2 51.6 53.1Long L As % of DO Sales 43.13 41.04 71.73 70.01 63.92 61.47 57.93 61.98 58.83 55.54Overseas Sales % 7.31 7.99 7.27 17.80 40.11 36.04 36.38 33.98 29.44 29.35Long L As % of DO Sales 28.02 26.21 28.69 27.95 42.81 72.55 67.69 65.62 60.16 55.53Overseas Sales % 57.30 58.53 64.26 61.56 54.4 44.7 48.1 47.4 49.7 52.0Long L As % of DO Sales 41.40 39.32 32.81 29.93 29.09 28.15 26.61 25.27 24.01 22.80Overseas Sales % 4.15 3.70 2.75 2.38 2.19 2.00 1.85 1.80 1.67 1.55Long L As % of DO Sales 68.05 65.11 64.89 71.78 42.79 35.69 38.53 49.22 73.68 46.28Overseas Sales % 3.44 4.16 6.32 4.89 5.8 9.4 12.8 13.2 13.6 14.0Long L As % of DO Sales 65.11 60.68 60.93 58.27 60.03 56.58 55.15 52.34 66.31 67.45Overseas Sales % 5.81 6.10 5.65 5.20 5.29 5.87 6.32 6.65 6.80 6.57Long L As % of DO Sales 44.85 39.67 49.65 42.22 38.13 33.38 29.55 25.97 26.68 23.55Overseas Sales % 14.44 15.81 24.65 36.33 36.5 31.0 27.2 25.0 25.0 26.0Long L As % of DO Sales 14.93 19.31 19.55 23.00 32.91 30.44 37.65 36.43 53.33 52.08Overseas Sales % 33.82 49.69 54.86 53.24 49.17 51.26 50.60 50.24 51.04 53.36
Astellas
Chugai
Takeda
Kyorin
Dainippon Sumitomo
Daiichi Sankyo
Kyowa Hakko Kirin
Mitsubishi Tanabe
Eisai
Shionogi
Source: MP Advisors; Company Reports
19MP Advisors
• Incentive To Pharmacies For Generics Drugs Availability • Mandatory Approval Of All Strengths
• Free Pricing For Generic Drug • Incentive To Physicians
• DPC For Out-patients • DPC Expansion
• Freedom To Stock One Generic Brand • Prescription Using Generic Name
• Patients Co-payment • Higher Dispensing Fee
Long term impact (>2yrs+)Near term impact (0-2 years)
Reforms That Will Increase The Use Of Generic Drugs
• Free pricing of all drugs
• No Price Cuts During Patent Period • Better Clinical Trials Infrastructure & Support
• Cost Based Pricing • Increased Number Of Reviewers
Reforms That Will Foster Innovation
Long term impact (>2yrs+)Near term impact (0-2 years)
Reforms That Will Foster Innovation
Reforms Promoting Both Generic Penetration and Reforms Promoting Both Generic Penetration and InnovationInnovation
Source: MP Advisors; MHLW
20MP Advisors
Reforms to be Implemented From April 2012Reforms to be Implemented From April 2012
Source: MP Advisors; MHLWAll generic companies
Impact negatively to the sales of newly listed generic drugs
The abolition of the extra two points awarded to pharmacies for dispensing generic drugs and the 15 points for providing drug information
Abolition of premium for GE dispensing and GE information provision fee
All generic companies
More Rx on generic drugs to generatePoints awarded to pharmacies for providing drug history management and guidance will rise to 41 points, from 30 points at present
Increase in management and guidance fee
All generic companies
Increase generic substitution at pharmacyRemoval of ‘no substitution permitted’ column from current Rx format and compulsory writing the generic name of the drug.
Change in Rx-format
Towa, Sawai, Nichi-Iko
Reducing the gap at lower end will make generic dugs more competitive to long listed as well as among generic drugs.
Currently there is huge price difference between the two brands of generics.
Reducing the difference in price of Generic drugs
All generic companies
Increasing discount will make generic drugs more competitive against long listed drugs
First generic version set to be min 40% discount to branded drug instead of current 30% discount.
Higher discount to new generic launch
Sawai, Nichi-Iko
More Rx on generic drugs to generate to get more bonus points
Awarding higher bonus point to hospitals using atleast30% generics (35 points); Hospital using atleast 20% awarded points reduced from 30 to 28 points.
Higher bonus points to Hospitals for more usage of generics
Sawai, Towa, Nichi-Iko
Higher generic substitution at dispensing pharmacyFurther increase in incentive for pharmacist; likely to be in pocket of those who dispensed more than 30% of generic
Premium for generics dispensing
Biggest Beneficiary Companies
ImpactDescriptionReform
21MP Advisors
Revised Incentives Will Boost Generics Uptake To New Level
Revised Incentives For PharmaciesRevised Incentives For Pharmacies
• Increase in incentives for pharmacies has led to a spur in generic sales (~22% increase in FY 03/11)
• Pharmacies which currently falls under 25%-29% slab will be encourage to boost their generic uptake to at least 30% to avail higher bonus points.
Source: MP Advisors; Company Reports
¥20¥20¥10Difference
¥190¥150¥50NAIncentives for Pharmacy / Patient
>=35%30%-34%22%-29%0% - 21%Generic Rx by VolumeNew Effective from (April 2012)
¥170¥130¥60NAFrom April 2010
¥40NANANAIncentives for Pharmacy / Patient
Before April 2010
>=30%25%-29%20%-24%0% - 19%Generic Rx by VolumeOld
Revised Incentive for Pharmacies
Generics Investment Thesis:
22MP Advisors
• All generic companies position themselves into two broad segments and distribution channels
• For Generics, Marketing/Branding capabilities in GP/Dispensing pharma market, and distribution capabilities into DPC/large hospitals segment will determine success.
• Near term opportunity lies in GP/Dispensing Pharma segments, and Towa & Sawai appeared best positioned to leverage benefits from pro-generic reforms.
Positioning of Japanese generics Cos**Illustrative only
Source: MP Advisors, Company Reports
Segment Specific ‘Key Success Factors’
NichiIko
Nippon
Chemiphar
Towa
Sawai
Self/Agencies
M. Tanabe
Elmed
Meiji
N. Kayaku
Kyorin
DPCGP/Dispensing
Pharma
DSE
Lupin
Wholesalers
23MP Advisors
Approaching Generic Opportunities in Next Approaching Generic Opportunities in Next 3 Years3 Years
Source: MP Advisors
FY 03/11 Salesin ¥b
Leuplin leuprorelin acetate Takeda 64.3Nu-lotan losartan MSD 40.08Paxil Paroxetine GSK 39.35TS-1 NA Taiho 38.31Myslee Zolpidem Astellas 31.69Allelock olopatadine hydrochlorid Kyowa Hakko Kirin 29.23Seroquel quetiapine Astellas 25.7Gasmotin mosapride citrate Dainippon Sumitomo 20.06Arimidex anastrozole AstraZeneca 19.23Norditropin somatropin(genetical recoNovo Nordisk 17.66Lantus INSULIN GLARGINE Sanofi Aventis 12.17Humalog Insulin Lispro Eli Lilly 12.15Funguard micafungin sodium Astellas 12.11
362.03
Diovan valsartan Novartis 110.59Remicade infliximab Mitsubishi Tanabe 63.25Livalo Pitavastatin Kowa 31.54Loxonin Tape loxoprofen Daiichi Sankyo 22.02Valtrex Valaciclovir GSK 19.37Ceredist taltireline Mitsubishi Tanabe 18Zithromac azithromycin Pfizer 15.29Taxol paclitaxel Bristol 13.88Flolan Epoprostenol GSK 11.11
305.06
Blopress Candesartan Takeda 119.93Allegra fexofenadine Sanofi Aventis 48.66Glivec imatinib Novartis 38.09Rituxan Rituxicimab Chugai 24.69BI�Sifrol NA Boehringer 13.1Oxarol maxacalcitol Chugai 13.06Mearubik measles & rubella vaccineMitsubishi Tanabe 12.46Claritin Loratadine Shionogi 10.16
280.14947.23
Product Generic name Marketed by2012
Total Key Products Expiry in 20122013
Total Key Products Expiry in 20132014
Total Key Products Expiry in 2014Total Key Products Expiries in next three years
24MP Advisors
Foreign Companies Entry In Japan Generic Market
Source: MP Advisors, Company Reports
Expect More Consolidation Activities in Coming Days!
Foreign Company
Domestic Company Year Comment
Sandoz Nippon Hexal 2006 First to launch generic recombinant in 2009Hospira Taiya Yakuhin 2006 Developed injectable genericsLupin Kyowa Pharma 2007 Lupin acquired majority stake in Kyowa
pharmaceuticals industries Zydus Nippon Universal
Pharma2007 Launched Zydus Pharma Inc. in 2006 and stared
operation with acquisition of Nippon Universal Pharma in 2007
Mylan – 2008 Acquired generic business of MerckRanbaxy Daiichi Sankyo 2008 Daiichi acquired RanbaxyTeva Kowa Pharma 2009 Established joint ventureGSK JCR Pharma 2009 Signed agreement with GSK for manufacturing
Bio-similar, launched generic EPO in Japan
Actavis Aska Pharma 2009 Established joint venturePharmaForce Luitpold (Daiichi Sankyo) 2010 Daiichi Sankyo subsidiary acquired PharmaForce,
a generic injectable maker in US
Sanofi-Aventis Nichi-Iko Pharma 2010 Established joint ventureTeva Taiho Pharma 2011 Teva acquired majority stake in Taiho PharmaDr. Reddy’s Fuji Film 2011 JV announced. Fuji is new in pharma businessLupin India I’rome 2011 Acquired. I’rome has Injectables facility
25MP Advisors
Investment Ideas Investment Ideas --20122012Outperforms : Outperforms :
ChugaiDaiichi-Sankyo
ToriiTowa
PIA:PIA:Dainippon Sumitomo
Underperform:Underperform:Eisai
26MP Advisors
CHUGAI (4519, ¥1,237) – Outperform2012 Going to Be Happening!
Investment Thesis:
2012 will unfold a number of important catalysts and bring upside to this ‘least risk carrying company’ of Japan – these are –
1. Data that will claim Actemra’s label expansion and its likely filing for 1st line RA in the US2. Positive news flow from Roche’s multinational studies, especially around its growing breast cancer franchise i.e. pertuzumab and T-DM1
and their filings in Japan 3. Safe domestic business and sales ramp up of newly launched products in Japan - Mircera (approved April-11, peak sales pot. ¥40b) and
Edirol (launch April-11, peak sales pot. ¥15b), and 4. A likely increase of Roche’s stake in Chugai as the basic agreement that prevented Roche from increasing its stake will expire in Oct-12.
Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x)
2010 A 379.5 (11.5) 57.20 66.2 (19.7) 17.4 6.0 41.4 75.9 (26.1) 16.4 (11.8) (105)2011 E 394.2 3.9 57.98 71.9 8.7 18.2 5.6 43.6 80.0 5.4 15.5 111.8 11.1 2012 E 416.6 5.7 58.65 82.2 14.4 19.7 4.9 51.6 94.7 18.4 13.1 76.3 16.3 2013 E 430.9 3.4 59.22 88.2 7.3 20.5 4.6 55.5 102.0 7.6 12.2 89.9 13.8 2014 E 449.2 4.2 60.10 100.0 13.4 22.3 4.1 63.2 116.0 13.8 10.7 101.5 12.2
2015 E 471.4 4.9 61.22 115.6 15.6 24.5 3.6 73.3 134.5 15.9 9.2 117.6 10.6
2016 E 498.1 5.7 62.56 135.6 17.3 27.2 3.2 86.1 158.0 17.5 7.9 138.4 9.0
SOS (m): 544.8 Dividend: 40.0 Cash + Inv (¥b): 160.9 4 yr EPS CAGR (12/10-12/14): 11.2Mkt Val (¥ b): 677.2 Yield (%): 3.22 LT Debt (¥ b): 0.0 4 yr EPS CAGR (12/11-12/15): 13.9Mkt Val ($ b): 7.96 forex ¥ /$: 80.0 PEG (2011/2011-2015) 1.41 12 Month Target (¥): ¥ 1,500
27MP Advisors
Upcoming MilestonesPrice
Impact
Drug Event Description
Peri
od
Yea
r
If Positive
If Negativ
e
Expectation
Actemra Clinical data
Head to Head study vs. Humira (ADACTA study) 1Q 2012 High Med Positive
T-DM1 Clinical data
PhIII data from overseas EMILIA study 2nd line HER 2+ BC
1H 2012 Low Low Neutral
T-DM1 US filing Metastatic breast cancer HER 2+ second-line based on EMILIA study
1H 2012 High Low Neutral
NA Corporate event
Roche may increase its stake in Chugai Oct 2012 High Low Positive
Pertuzumab US approval
US approval in mBC HER2+ firstline based on PFS data with Herceptin
2H 2012 High Low Positive
Pertuzumab JP Filing As adjuvant to Herceptin 2H 2012 Med High Positive Actemra US filing DMARD IR first line filing 2H 2012 Low low positive Actemra US filing For SC formulations 2H 2012 High High Positive Tarceva JP Filing Filing for 1st line NSCLC 2H 2012 Med Med Positive
Actemra Clinical data
SC vs. IV (SUMMACTA PhIII study)
Any time 2012 Low Low Positive
T-DM1 JP Filing JP filing 1H 2013 Med Med Positive Source: MP Advisors, Company Reports
28MP Advisors
DAIICHI SANKYO (4568, ¥1,466) – Outperform
Investment Thesis:• R&D attractiveness – Pipeline is full of late stage candidates which will fetch attention in 2012. Edoxaban (Ph III, factor Xa inhibitor, AF), ARQ 197
(Ph III, c-met inhibitor, NSCLC), Denosumab (Approved in JP in 2012, bone metastatase), Vemurafenib (US approval in Aug-11, Approved in EU in 2012, BRAF inhibitor, meladnoma) and CS-8958 (approved in JP, Ph III for prophylaxis anti-influenza) remain growth drivers.
• RBXY’s Solid Growth Prospects Beyond Near Term Concerns: 2012-14 brings a number of First-to-File (FTF) opportunities for RBXY, together they translate into $1.2b opportunity and a number of Para IV milestones will again bring RBXY in forefront in 2012. We find that near term concerns are overly built regarding compromised Lipitor generic opportunity and probable FDA penalty (DS made provision of $500m).
• Ability to exploit Japanese generic growth – with Daiichi Sankyo Espha, it is the only Japanese major well positioned to encash Japan generic opportunity
• Geographic diversity and Revenue Sustainability – DS has major geographic presence which is likely to increase with time; DS is able to maintain ~90% of its current revenue base thru FY 03/17 i.e. excluding R&D pipeline contribution - a feature that most of JP peers lack.
• Upside From Onetime Cash Flow: Coming quarters may unfold some agreements with global giants on its PhII onco candidates, global rights of Edoxaban etc.
Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF(¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x)
MAR-11 A 967.5 1.6 70.9 122.3 28.1 12.6 5.4 70.3 99.2 68.0 14.8 158.6 9.2 MAR-12 E 945.4 (2.3) 71.1 114.8 (6.1) 12.1 5.4 20.5 29.0 -70.8 50.6 19.5 75.3MAR-13 E 1,009.4 6.8 70.6 127.6 11.2 12.6 5.0 69.1 97.4 236.5 15.0 74.0 19.8
MAR-14 E 1,095.2 8.5 70.8 141.7 11.1 12.9 4.7 80.8 114.0 17.0 12.9 126.7 11.6
MAR-15 E 1,133.9 3.5 70.7 150.2 5.9 13.2 4.6 85.1 120.0 5.3 12.2 146.8 10.0MAR-16 E 1,190.5 5.0 70.9 161.2 7.4 13.5 4.4 90.6 127.9 6.5 11.5 150.1 9.8 MAR-17 E 1,198.0 0.6 70.8 162.2 0.6 13.5 4.3 90.2 127.2 -0.5 11.5 171.4 8.6
SOS (m): 709.0 Dividend: 60.0 Cash + Inv (¥b): 287.95 4 yr EPS CAGR (3/11-3/15): 4.9Mkt Val (¥ b): 1,039.4 Yield (%): 4.09 LT Debt (¥ b): 227.53 4 yr EPS CAGR (3/51-3/16): 45.0Mkt Val ($ b): 12.92 forex ¥ /$: 80.0 PEG (3/11 / 3/11-3/15): 3.03 12 Month Target (¥): ¥1,850
‘Hybrid Tree’ Is Ready to Give Fruits!
29MP Advisors
Key Pipeline CandidatesDevelopment
code Drug Class Indications Market Stage Origin
BRAF inhibitor Melanoma EU Approved PlexxikonPLX4032 US Approved
Anti-RANKL antibody
Bone metastases of cancer
JP Approved Amgen
Osteoporosis JP Filed
AMG-162
RA JP PhI Anti-platelet agent
Acute coronary syndrome-MM
US/EU P3 CS-747 Prasugrel Acute coronary
syndrome-PCI JP P3
In-house
Factor Xa inhibitor
Atrial fibrillation US/EU/JP P3 DU-176b Venous
thromboembolism US/EU/JP P3 In-house
ARQ-197 c-Met inhibitor anti-cancer US/EU P3 ArQule Neuraminidase inhibitor
Anti-Influenza US/EU P1 CS-8958 JP Approved
In-house
CS-1008 Anti-DR5 antibody
Target tumor cells US/EU/JP P2 In-house
PPAR gamma activator
NSCLC US/EU P2 CS-7017 JP P1
In-house
U3-1287 Anti-HER3 antibody
US/EU P2 U3 Pharma
PLX3397 Fms/Kit/Flt3-ITD inhibitor
US P2 Plexxikon
DE-766 Anti EGFR JP P2 CIMYM
Bioscience
SUN 13834 Chymase inhibitor
Atopic Dermatitis US P2 Asubio Pharma
Source: MP Advisors; Company Reports
30MP Advisors
TOWA (4553, ¥3,395) – Outperform
Investment Thesis:Mid-Term Plan (MTP) announced on Nov-11 projects single digit revenue growth vis. a vis. larger increase in R&D and depreciation. Our analysis suggests that management has negated key positive components in its MTP and see several reasons why actual results will exceed these projections
• In its Assumptions, Towa Does not Expect Any ‘New Major Reform’ Enhancing Generics Uptake In Next 3-Years – our take is that there would be a few ‘major changes’ in April-12 and April-14.
• MTP Assumes No Fundamental Reform On NHI Pricing System: Chuikyo’s chemist survey results came after Towa MTP find that current Yakka-sais ~8.4%. Early signals suggest that general price cuts would be ~6% while there may be additional price cuts on long listed drugs.
• Investment Plans – Capex plans indicate good capicity to meet demand in future. • Towa Has always exceeded its MTP: management has been conservative unlike its peers • Besides the above, we find the following catalysts to also support valuation:
1. Acquisition Target2. Relative Standing vs. Peers on Valuation 3. Healthcare Reforms in April-12: Incentive to Pharmacies, Change in Generic Pricing Policy etc.
Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF (¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x)
03/11 A 46.1 18.2 53.7 9.7 24.6 20.9 4.5 5.8 339.3 26.7 9.8 (271.2) (12.3)03/12 E 50.2 8.8 53.7 9.9 2.5 19.7 4.4 5.9 342.5 0.9 9.7 (12.3) (270.5)
03/13 E 56.7 12.9 52.5 10.3 3.8 18.1 3.9 6.1 355.5 3.8 9.4 (512.2) (6.5) 03/14 E 61.9 9.1 52.6 11.2 9.1 18.1 3.6 5.9 388.3 9.2 8.6 196.1 17.0 03/15 E 66.4 7.4 52.7 12.1 8.0 18.2 3.4 6.7 419.5 8.0 8.0 459.6 7.3 03/16 E 71.1 7.1 52.8 13.1 8.2 18.4 3.2 7.2 454.3 8.3 7.3 501.9 6.6
SOS (m): 17.2 Dividend: 65.0 Cash + Inv (¥b): 9.5 4 yr EPS CAGR (3/11-3/15): 5.4Mkt Val (¥ b): 58.3 Yield (%): 1.91 LT Debt (¥ b): 10.4 4 yr EPS CAGR (3/12-3/16): 7.3Mkt Val ($ b): 0.686 forex ¥ /$: 80.0 PEG (3/11 / 3/11-3/15): 1.35 12 Month Target (¥): ¥ 4,100
Performance Will Outcast New ‘Mid Term Plan’
31MP Advisors
Reforms to be Implemented in AprilReforms to be Implemented in April--2012 and 2012 and ImplicationsImplications
Source: MP Advisors; MHLW
All genericcompanies
Impct negatively to the sales of newly listed generic drugs
The abolition of the extra two points awarded to pharmacies for dispensing generic drugs and the 15 points for providing drug information
Abolition of Premium for GE Dispensing and GE information provision fee
All generic companies
More Rx on generic drugs to generatePoints awarded to pharmacies for providing drug history management and guidance will rise to 41 points, from 30 points at present
Increase in management and guidance fee
All generic companies
Increase generic substitution at pharmacyRemoval of ‘no substitution permitted’column from current Rx format and compulsory writing the generic name of the drug.
Change in prescription format
Towa, Sawai, Nichi-Iko
Reducing the gap at lower end will make generic dugs more competitive to long listed as well as among generic drugs.
Currently there is huge price difference between the two brands of generics.
Reducing the difference in price of Generic drugs
All genericcompanies
Increasing discount will make generic drugs more competitive against long listed drugs
First generic version set to be min 40% discount to branded drug instead of current 30% discount.
Higher discount to new generic launch
Sawai, Nichi-Iko
More Rx on generic drugs to generate to get more bonus points
Awarding higher bonus point to hospitals using atleast 30% generics (35 points); Hospital using atleast 20% awarded points reduced from 30 to 28 points.
Higher bonus points to Hospitals for more usage of generics
Sawai, Towa, Nichi-Iko
Higher generic substitution at dispensing pharmacy
Further increase in incentive for pharmacist; likely to be in pocket of those who dispensed more than 30% of generic
Premium for generics dispensing
Biggest Beneficiary Companies
ImpactDescriptionReform
32MP Advisors
TORII PHARMA (4551, ¥1,462) – Outperform
Investment Thesis:
Our Outperform rating is largely based on gain from expected positive news flow on dalcetrapib (JTT- 705, PhIII -US, CETP modulator, dyslipidemia). It is a Japan Tobacco Inc. (JTT) candidate which is partnered with Roche for global rights (Ex-JP) and aspiring for ‘first in class’ drug for increasing HDL, and carries a multi-billion global potential. Torii being the marketing partner of JTT for pharma in Japan will be selling it and is a natural beneficiary of the dalcetrapib success. It is currently under PhII trials in Japan.
Elvitegravir (JTK 303, filed for combination therapy and PhIII for mono-therapy in US/EU, integrase inhibitor, partnered with Gilead, HIV) is next such candidate which will be commercialized in Japan thru Torii (Preparing for registration in Japan).
Fiscal Year Total % % Gross Op. % % Op. EV/ Net EPS % PE CFPS PCF(¥ b) Rev. Chg. Mgn Profit Chg. Mgn EBITDA Profit (¥) Chg. (x) (¥) (x)
MAR-11 A 45.34 6.9 59% 1.85 (69.8) 4% 9.4 0.93 33.0 (74.3) 44.3 8.7 167.1MAR-12 E 49.26 8.7 59% 1.68 (9.3) 3% 9.2 1.10 38.8 17.5 37.7 28.4 51.6MAR-13 E 51.66 4.9 59% 2.63 56.9 5% 7.5 1.65 58.3 50.4 25.1 38.7 37.8MAR-14 E 53.39 3.3 60% 3.32 26.3 6% 6.6 2.05 72.5 24.3 20.2 45.4 32.2MAR-15 E 59.84 12.1 60% 5.24 57.8 9% 4.7 3.17 111.9 54.3 13.1 78.7 18.6MAR-16 E 70.64 18.0 61% 6.90 31.7 10% 3.8 4.13 145.9 30.4 10.0 107.8 13.6MAR-17 E 85.42 20.9 61% 9.53 38.0 11% 2.8 5.65 199.7 36.9 7.3 157.5 9.3
FD SOS (m): 28.3 Dividend: 40.0 Cash + Inv (¥ b): 12.3 5-yr EPS CAGR (11-16): 27.6Mkt Val (¥ b): 41.1 Yield (%): 2.74 LT Debt (¥ b): 0.1 4-yr EPS CAGR (11-15): 39.3Mkt Val ($ m): 517.2 forex ¥ / $: 80.0 PEG (11/11-15): 1.6 12-month Target Price (¥): 2,400
A Bet That Offers Only Upside!
33MP Advisors
CETP Inhibitors at A Glance
34MP Advisors
CETP Inhibitors at A Glance
35MP Advisors
DAINIPPON SUMITOMO (4506, ¥820) – PIA
Investment Thesis:A number of approaching milestones for its sole catalyst Latuda will unfold positive in the next 6-months and bring additional upside that was built following its US approval in Feb-11 and satisfactory Rx uptake thereafter.
• Latuda Rx share since launch indicates its acceptability at psychiatrists’ level that faces limitations with the available anti-schizophrenia drugs. With its manageable extra-paramedical SEs, impressive metabolic SE profile along with its comparable efficacy to leading drugs Zyprexa (Lilly, FY11e US sales ~$2.0b, US pt. ex. Oct-11) and Seroquel (AZN, FY11 WW sales ~$5.7b) is establishing itself as an unavoidable switch option for managing schizophrenia. Latuda’s NRx pick up vs. recently launched anti-schizophrenia drugs also indicate its better acceptability.
• Our PIA now looks ahead to positive outcomes from ‘Bi-polar disorder’ trials, where the opportunity is huge (~1.5x to Schizophrenia in value and 2x in growth, chart 2). A number of trials will unfold with their detailed or interim data thru mid-12 and fetch attention.
Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF(¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x)
03/11 A 379.5 28.1 71.0 30.9 (13.2) 8.1 3.1 16.7 42.0 (20.1) 19.5 (47.0) (17.5)
03/12 E 355.6 (6.3) 71.1 23.3 (24.7) 6.5 4.9 13.6 34.2 (18.6) 24.0 (15.4) (53.3)
03/13 E 353.8 (0.5) 70.6 34.2 47.1 9.7 4.2 19.2 48.3 41.1 17.0 95.1 8.6 03/14 E 343.2 (3.0) 71.6 30.3 (11.3) 8.8 4.6 16.8 42.2 (12.5) 19.4 99.4 8.3 03/15 E 321.5 (6.3) 71.7 34.5 13.8 10.7 5.7 19.3 48.5 14.9 16.9 81.1 10.1
03/16 E 324.1 0.8 71.5 50.4 45.9 15.5 4.4 28.8 72.3 49.0 11.4 77.4 10.6
03/17 E 331.1 2.2 71.6 48.5 (3.8) 14.6 4.5 27.7 69.2 (4.2) 11.9 80.3 10.2
SOS (m): 397.9 Dividend: 18.0 Cash + Inv (¥b): 112.2 4 yr EPS CAGR (3/11-3/15): 3.7Mkt Val (¥ b): 326.7 Yield (%): 2.19 LT Debt (¥ b): 133.0 4 yr EPS CAGR (3/12-3/16): 20.6Mkt Val ($ b): 4.1 forex ¥ /$: 80.0 PEG (3/10 / 3/10-3/14): 5.3 12 Month Target (¥): 950.0
Latuda Story Is Not Over Yet!
36MP Advisors
LATUDA : Ongoing Clinical Studies
37MP Advisors
EISAI (4523, ¥3,060) – Underperform
Management’s Mid Term Strategic Plan ‘HAYABUSHA’ embarked from April-11, aims to achieve ¥800b sales and ¥200b OP in 03/16 (Annexure 1) – which we find too optimistic. We doubt management’s projections of ~20% ROE and find their expectations from Aricept’s line extension and new products unrealistic. Eisai revenue is slated to drop following key products patent expiry i.e. Aricept and Aciphex (Pt. exp in Nov-10 and May-13 respectively); together they contributed ~¥427b (or ~56% of revenue in FY 03/11). This will lead Eisai’s EPS to fall by ~8% CAGR in 03/11-03/15. Though pipeline looks decent and can bring positive surprises, when seen in contrast to expected value built in current price Eisai does not appear to be a stock offering good risk-return profile.
• Pipeline Potential Overly Built: One of its key candidate, Halaven (eribulin, microtubule growth inhibitor, 3rd line metastasis breast cancer) received FDA approval in Nov-10. Following this, Eisai has three late stage candidates – E-2007/ perampanel (Filed, AMPA receptor antagonist, epilepsy), E7080/ lenvatinib (PhIII, VEGF receptor, Thyroid cancer) and MORAb-003/ farletuzumab (PhIII, Humanised IgG1 mAb, Ovarian cancer) ) –None of these will have enough potential to nullify the loss of Aricept and Aciphex even in their best case scenarios.
• Domestic Challenges will Surface Soon: 75%+ FY03/12 revenue is long listed and exposed to price cuts and generics threats. A proposed reform for April-12, suggests that premium given for new products developments on some products will be returned, hits Aricept.
Fiscal Year Total % Gross Op. % Op. EV/ Net EPS % PE CFPS PCF(¥ b) Rev. Chg. Margin Profit Chg. Margin EBITDA Profit (¥) Chg. (x) (¥) (x)
03/11 A 768.9 (4.2) 78.2 113.1 31.4 14.7 5.7 67.4 236.5 68.1 12.9 527.9 5.8
03/12 E 658.9 (14.3) 73.7 99.6 (12.0) 15.1 6.1 63.5 222.7 (5.8) 13.7 397.0 7.7
03/13 E 647.9 (1.7) 74.2 91.4 (8.2) 14.1 6.3 58.1 203.8 (8.5) 14.9 522.8 5.8 03/14 E 595.9 (8.0) 73.7 74.0 (19.1) 12.4 7.0 46.6 163.3 (19.9) 18.6 116.1 26.2 03/15 E 595.3 (0.1) 74.7 76.3 3.1 12.8 6.8 48.1 168.7 3.3 18.0 213.5 14.3 03/16 E 602.1 1.1 74.3 74.7 (2.0) 12.4 6.7 47.1 165.1 (2.1) 18.4 193.8 15.703/17 E 611.5 1.6 74.5 77.1 3.2 12.6 6.4 48.7 170.7 3.4 17.8 204.0 14.9
SOS (m): 285.1 Dividend: 150.0 Cash + Inv (¥b): 180.1 4 yr EPS CAGR (3/11-3/15): (8.1)Mkt Val (¥ b): 868.2 Yield (%): 4.93 LT Debt (¥ b): 399.9 4 yr EPS CAGR (3/12-3/16): (7.2)Mkt Val ($ b): 10.85 forex ¥ /$: 80.0 PEG (3/11 / 3/11-3/15): (1.6) 12 Month Target (¥): 2,500
Investment Thesis:
‘HAYABUSHA’ Is Difficult To Achieve!
38MP Advisors
Key Pipeline Candidates
2016PhIIUSPancreatic cancerHumanised IgG1 mAbMORAb-009
2016PhIIUS/EU/JPACSThrombin receptor antagonistE5555
2015PhIIUSIdiopathic thrombocytopenic purpura
Thrombopoietin receptor agonistE5501/AKR-501
2015PhIIIUS/EUSevere sepsisEndotoxin antagonistE5564 (eritoran)
2015PhIII / IIUS/EUSarcoma & NSCLCMicrotubule growth suppressorHalaven (E7389)
2014PhIIIUS/EU/JPThyroid cancerVEGF receptorE7080
2013PhIIIUS/EU/JPOvarian cancerHumanised IgG1 mAbMORAb-003
2013PhIIJP
2012Filed (May-11)EU
2012Filed (2012)US
EpilepsyAMPA receptor antagonistE2007 (perampanel)
Exp. Launch StageMarketIndicationMoAProduct
39MP Advisors
RISING STARS RISING STARS -- OUTLOOK 2012OUTLOOK 2012
Subita Srimal, Ph.D Khyati Thkrar, M.Sc., PGDBM Sanjeev Mishra, [email protected] [email protected] [email protected]+1.646.657.3794 +1.646.657.3787 +1.646.434.7588
40MP Advisors
• What is Going Right For the sector?
• What Are the Challenges?
• Therapy Areas- Witnessing a Turn Around
• Value creation: Recommendations
RISING STARS RISING STARS -- INNOVATIVE RESEARCH DRIVEN INNOVATIVE RESEARCH DRIVEN UNPROFITABLE COMPANIESUNPROFITABLE COMPANIES
41MP Advisors
““RIGHTRIGHT”” IN 2011IN 2011• INCIVEK/ VICTRELIS – HCV - First Protease Inhibitors • Benlysta- Lupus- First Drug after more than two decades –Unmet Need• Yervoy and Zelboraf- mMelanoma- First Drug after more than two
decades –Unmet Need• Xa Inhibitors- Bleeding, Cardio- Eliquis, Brilinta, Pradaxa, Xarelto- ACS,
DVT – Better Options than Warfarin (old drug)• Soliris - aHUS - Unmet Need• Jakafi- MPN- first time unmet need• Xalkori- NSCLC- ALK+ve - first personalized drug and diagnostic
approved together• Adcetris- HL, ALCL - Better Option - More Potent
2011 Was a Tribute to Innovation 2011 Was a Tribute to Innovation -- New drugs for Unmet Needs/ New drugs for Unmet Needs/ FirstFirst--inin--Class were ApprovedClass were Approved
42MP Advisors
Will The Trend Continue in 2012?Will The Trend Continue in 2012?
• Drug Launch in Select Therapy Areas• Oral RA• Genetic Diseases• Anti-obesity• Cancer • Gout• Dyslipidemia
43MP Advisors
SELECT DRUG LAUNCHES: 2012SELECT DRUG LAUNCHES: 2012Expected Drug Launch From Rising Star CompaniesExpected Drug Launch From Rising Star Companies
8-Aug-12 (T)Sarcoma/ OsteosarcomaAriad / MerckRidaforolimus
30-Jul-12GoutRegeneronArcalyst
17-Apr-12ObesityVivusQnexa
1-May-12Gaucher diseaseProtalix / PfizerUPLYSO
2H12Ho FHISIS/SanofiKynamro
2H12Medullary thyroid CExelixiscabozantinib
26-July-2012 (T)MARINE - High AmarinAMR-101
1H12Pri immunodeficiencyHalozyme/ BaxterHyQ (rHuPH20+ Ig)
1H12Gouty arthritisNovartis/ REGNIlaris
27-June-12ObesityArena / EisaiLorcaserin
1Q12ObesityOrexigen / TakedaContrave
18-Apr-2012Cystic FibrosisVertex PharmaKALYDECO
27-Mar-12Anemia in CKD Affymax/ TakedaPeginesatide
8-Mar-12advanced BCCRoche/ CurisVismodegib
28-Jan-12Diabetes type IIAmylinBydureon
Approval/ PDUFA DateIndicationCompanyDrug
The Impact Will not Be as Great as in 2011The Impact Will not Be as Great as in 2011
MP Advisors
ButBut……
Better Drugs For The Patients is not = to the Best Future For the Innovators!
45MP Advisors
The Challenges?The Challenges?
• SALES • REIMBURSEMENTS• PRICING PRESSURE• BETTER DRUGS IN THE MAKING
Patent Are Essential But do not Guarantee Longevity or Cash Flow
46MP Advisors
Innovators Suffered Innovators Suffered ……
• Devastating in some cases- VRTX, HGSI, DNDN, etc.• Reasons were different for each co.- In some cases it was better data
= shorter life span of innovation- IP may give no protection!• Others- High price or ???• Most cases – the drop followed approval- Investors are uncertain
about sales and betting more on “hope” than “reality”?• Testing times ahead in 2012 for INCY, REGN, VRTX, AMRN,
SGEN, HGSI, DNDN etc.• So…….?
47MP Advisors
Multiple Options AheadMultiple Options Ahead
• Choosing between a shining star and profitability!• Paradigm shift in investing pattern-: Tap Them Young Or mid-late stage • Selective Targeting vs. Pan Drugs – A Dollar ($) war • Hope Delivered but Reality bites- GARAGE SALE= Opportunity?• Technology Platforms will continue to attract
48MP Advisors
Score CardScore Card-- 20112011Companies TP
(LC) YoY
chg (%) Rating Hit / Miss/ Ok Comments
Pharmasset NA 441% NA H Initially on robust data in HCV and partnering and later on acquisition
Regeneron $70 84% OP H
Current price presents a good investment opportunity as catalysts- uptake of Eylea and clinical data of its pipeline products will keep the momentum in 2012.
Vertex $34 62% OP H
Approval of INCIVEK for HCV and unexpected positive data from KALYDECO in cystic fibrosis were the highlights for 1H11. Data from various competitive drugs in HCV lead to decline in latter part of 2011.
Anthera $12 30% OP H Drug targets high risk ACS pts and data and safety so far favors high risk reward opportunity
*Micromet $8 23% OP H Targets niche indication, pivotal trial ongoing. Value of tech platform not realised.
AVEO Pharma $18 19% MP Ok Clinically impressive but may not meet commercial success due to competition.
Morphosys €23 0% OP Ok
Lack of milestone in 2011. Balanced business model of partnered programs and positive cash flow service segment. Value of tech platform and pipeline should unfold in 2012-13.
ArQule $7 -1% OP Ok Lack of milestones and macro condition pulled the stock down.
Rigel $8 -3% MP Ok Solely dependent on the success of fostamatinib and no milestones in near term.
Incyte $18 -6% OP Ok Approval of Jakafi for MF did not please the investors as concerns on reimbursement, commercial success remain.
Immunomedics $6 -8% OP Ok Slow but steady development. Couple of program reached into PhIII.
* Price as on the day when we initiated the coverage after Outlook'11; PoC = Proof-of-ConceptDark Red indicates 2011 top picks; Bold are our 2012 Top PicksSource: MP Advisors, Company Reports
…………………….continued.continued
49MP Advisors
Score CardScore Card-- 2011 2011 ……continuedcontinued
* Price as on the day when we initiated the coverage after Outlook'11; PoC = Proof-of-ConceptDark Red indicates 2011 top picks; Bold are our 2012 Top PicksSource: MP Advisors, Company Reports
Companies TP (LC)
YoY chg (%) Rating
Hit / Miss/ Ok
Comments
Galapagos €8 -12% MP Ok Pipeline lacks critical mass or catalysts which could move the stock. Return of compounds by GSK
Ardea Biosci. $28 -20% OP Ok Promising PhIIb data but the delays in start of PhIII and no partnership announcement lead to decline in 2H11.
ISIS $8 -27% MP M No milestones or new prog to drive the company.
*Amarin $8 -55% MP M Question over the patent life of key drug overshadows the advantages of marketed options.
*Medivir SEK59 -49% MP M Though PhIIb of HCV compounds data were positive, change in management, increasing competition in HCV lead to the decline.
MXUS0HC 4.6% MSCI USA/Health Care MXUS0PB -0.4% MSCI US Pharma & Biotech
50MP Advisors
RSRS-- Recommendations for 2012Recommendations for 2012
• MITI (acq. By AMGN)• INCY• VRTX• REGN
51MP Advisors
Focus on Therapy Areas in 2012Focus on Therapy Areas in 2012• Last year was most eventful for HCV, Melanoma, Lupus and Anti Coagulants. • Exciting Data, Approvals, Spectacular Launch and Astounding Acquisitions! GILD-VRUS• This Year Also Started with a Bang for HCV- BMS-INHIBITEX acquisition• Data in HCV “oral IFN free combinations” will decide the wisdom of the “Premium Paid”.• 2012- A year to Remember for Alzheimer's – Key PhIII drug data –Make or Break• More oral options in MS and First in RA• Cancer Vaccines- DNDN rose from the graves in 2012 with good sales. Data from other Cancer
vaccines will decide whether its “Hope or Hype”• Anti obesity drugs may finally see the light – though with a Narrow Label.• Biosimilars/Better Biologics- Regulatory Pathway- an Evergreen area of interest.
52MP Advisors
Garage SaleGarage Sale--Tech FocusTech Focus• ALNY• ABLX• ICLL• IMMU• DVAX• IDRA• VNDA
Many Trading Close at Their Cash Value!
53MP Advisors
MATURE BIOTECH MATURE BIOTECH ––WATCH OUT WATCH OUT FORFOR……..
• VALUATIONS• SALES/EARNINGS EXPECTATIONS • GENERIC THREAT
“Only Green – No Red” – Entering 2012 with High Expectations
54MP Advisors
Score CardScore Card-- 20112011
Did not perform as expected due to maturing sales growth from HIV franchise and lately announcement of VRUS’ acquisition news; however, we see it as a perfect move to gain the leadership position in HCV market using its vast experience in anti-viral therapy.
Ok6%$45Gilead Sci.
Share repurchases, dividend payments and denosumab ramp-up hedges the sales decline of ESA franchise- and blankness of pipeline. H9%$63Amgen Inc
Revlimid’s malignancy related issue and generic threat from Natco Pharmaoverweigh the sales ramp up + Japan launch of Revlimid and positive pipeline news flow.
H9%$72Celgene
Settlement with Bayer for regorafenib and acquisition rumor. FDA decision of not granting priority review in Dec ‘11 for Carfilzomib’s hampered the positive sentiment of investors.
H32%$35Onyx Pharma
Increased focus on MS therapy area. Volume growth of Tysabri and sales growth of Avonex (due to price increase) along with unexpected positive PhIIIdata from BG-12, an oral MS drug, took the stock to a new high
H69%$60Biogen Idec
World wide sales growth of Soliris in PNH and label expansion. Focus on orphan and rare diseases make it most eligible of an acquisition target after Genzyme.
H74%$75Alexion
CommentsHit / Miss/ OkYoY chg. (%)Target PriceCompanies
Bold are MP’s 2012 Top Picks
55MP Advisors
VALUATION SNAPSHOTVALUATION SNAPSHOT
Company
NPV of Mkt
Products (Part A)*
NPV of Late Stage
Pipeline (Part B)*
Value of Intangibles (Part C)*
Cash & Other Cash
Flows*
Price** ($)
Part A to
Price**(%)
Mkt Cap ($m)
Part A+B+C+
Net Cash to Mkt Cap
Gilead# 44.6 10.2 6.7 (13.0) 40.2 111% 31,286 121% Celgene 60.0 6.3 9.8 (3.7) 61.3 98% 28,174 118% Biogen Idec 96.1 16.3 21.6 (4.1) 111.8 86% 27,429 116%
Alexion 51.7 9.7 17.3 (3.4) 65.1 79% 12,622 116% Amgen 70.3 1.4 2.0 (11.7) 57.5 122% 47,668 108% Onyx 15.2 22.2 9.2 (2.8) 44.0 34% 2,796 100%
* $/share; ** as on 12/05/2011; # including impact of Pharmasset acquisition; Bold are MP’s 2012 Top PicksSource: MP Advisors, Company Reports
56MP Advisors
VALUATION MULTIPLES VALUATION MULTIPLES BASED ON PROJECTIONS THRU 2015BASED ON PROJECTIONS THRU 2015
Company Sales
growth %
EPS Growth
%
PE '10 PEG
Mkt Cap/ Sales
ROCE EV/ EBITDA
Amgen 3.4 11.1 10.5 0.9 1.8 9.7 7.2 Gilead# 8.0 14.7 9.9 0.7 4.7 10.0 9.0 Biogen Idec 7.4 15.4 20.8 1.4 4.4 21.5 11.9
Celgene 10.6 16.1 16.2 1.0 3.6 18.4 11.9 Alexion 36.5 47.2 50.1 1.1 12.8 47.2 41.7
# including impact of Pharmasset acquisition: Bold are MP’s 2012 Top Picks Source: MP Advisors, Company Reports
57MP Advisors
Valuation MethodologyValuation Methodology• MP Advisors’ Proprietary Sum-of-The-Parts Valuation enables us to quantify the difference
between the current equity value and the value arrived using our valuation method comprising three parts, i.e., Part A, Part B, and Part C as described below:
• Value the marketed products till their respective patent expiries (Part A);• Value the late stage pipeline as of today (Part B) (Consider only the late stage PhIII and registered
products). • Value the management’s ability to convert early stage R&D activities into mainstream products and
company’s strategic approach- historical and visionary, by giving a premium to their future cumulative R&D investment (Part C).
• The difference between the current equity value and Part A plus cash and other income value represents the gap that needs to be met through the company’s late stage R&D pipeline (Part B) and other strategic efforts (Part C) and drives our recommendations
58MP Advisors
Silver LiningSilver Lining-- Debt is Not a BurdenDebt is Not a Burden
• Mature Biotech Can still afford to choose good products in the making.• Though, net cash of MB sector has turned negative, Cash in hand is better than
Global Pharma. • Approved drugs have longer term patent, and cash flow enables them to meet the
debt liabilities at future date leaving current cash available for the acquisitions and in-licensing of better molecules …
Growth To Come From Boosting of Pipeline and outsourcing Growth To Come From Boosting of Pipeline and outsourcing ……
59MP Advisors
Generic ThreatGeneric Threat-- ModestModest• Outcome of Para IV Filing from Global Generic Players can surprise
and will remain a “Hanging Sword” for the innovator (Table 5):• FDA expects to receive only one or two biosimilar marketing
applications through the beginning of 2014, Theresa Mullin, director of FDA's Office of Planning and Informatics, in a Meeting.
• FDA expects to issue draft biosimilars guidance documents soon, however biotech companies are not letting any stones unturned. Amgen partnering with Watson (API) and BIIB’s JV with Samsung Group indicates; how these major companies are keen to apply itsexpertise in biologics manufacturing to biosimilars without diverting focus from its core business in innovative new medicines
Patent Expiry Impact is Built into the Current Price
60MP Advisors
Marketed ProductsMarketed Products-- CHALLENGESCHALLENGES
Para IV: NCE exclusivity expired in Dec 2010, no Para IV yet, due to ODE exclusivity expires in 2012 and 2014.30%29922920222022Onyx
Nexavar
1055%5594820182021Complera
-1%3,1273,17420182021Atripla
38%4,0022,90220182021Truvada
-1%76677420182017Viread
We expect GILD to dominate HIV therapy area with 2nd-generation single pill (FDC and Quad) despite emerging challenges. Para IV: Atripla/ Truvada: Teva has also challenged 2017 patent, if it wins the litigation, it will be able to launch before July 2017 (basic patent expiry) only if it able to invalidate the entire patent into litigation, However it can not launch before 2016.
-45%17030820152015GileadAmbrisentan
Para IV: Revlimid - The earliest expiring patent form those in issue expire in July 2016, therefore Natco cannot launch at least before July 2016! 30months stay is ongoing, no update Thalomid: Settled with Teva; however, exact terms were not disclosed, generics might come after March 2013.
38%5,9634,316Vidaza: 2018;
Thalomid: 2018; Revlimid: 2020
Vidaza: 2011;
Thalomid: 2018; Revlimid: 2020
Celgene
-14.0%8681,00920152009-12*Rituxan
62%1,7791,09920182017Tysabri BG-12, hedges the competitive loss of Avonex and Rituxan.
-22%2,0932,68820122013Biogen IdecAvonex
728%4,43953620202022Denosumab(PMO, Onco)
-10%3,3223,68620132012Enbrel
-48%1,2272,3482010-142010Aranesp
-18%4,2895,244Expired/20152013/2015Neupogen/ Neulasta Biosimilar entry in US is inevitable and AMGN could be better prepared by boosting its presence in emerging markets and fuelling its pipeline/cash flow with approved or late stage biologics (ALXN, GENZ, BMRN, UCB, Hospira, Lonza)
-41%1,1551,957Expired2012AmgenEpogen
5196%7791520192019Soliris (aHUS)
No impact of patent expiry and biosimilar pathway is not yet defined
259%2,01077620192019AlexionSoliris (PNH)
Comments% of 2011 sales lostby 2016
Sales ($m)
2016ESales ($m)
2011EEU Patent
Expiry/ Exclusivity
US Patent Expiry/
Exclusivity
Company/Product
61MP Advisors
A B CA B C……. . -- RecommendationsRecommendations
• A - AMGEN, ALEXION• B - BIOGEN IDEC, BMRN• C - CELGENE, CUBIST• G - GILEAD• O - ONYX• V - VRTX
GROWTH GROWTH -- BIIB , GILDBIIB , GILD
MP Advisors
India Market For Sustainability India Market For Sustainability & US Generics For Growth& US Generics For Growth
Nimish Mehta, CFA Vivek Agrawal Manushi [email protected] [email protected] [email protected]+1.646.657.3787 +1.480.263.9400 +1.480.263.9400
63MP Advisors
Domestic Market Domestic Market –– Growth StagesGrowth Stages
• Till 2005, growth was in single digit growth – despite robust economic growth. Growth remained largely driven by new product introductions.
• From 2006 onwards, growth went up to 13-15% growth till 2010. Growth driven by new products as well as volume increase in existing products.
• 2011 too is witnessing similar growth albeit slightly below the average so far.
Source: MP Advisors, IMS India Market Survey
Annual Growth of Indian Pharma Market in Value, Volume, and New Products
Growth Remained Healthy, But Will It Continue?Growth Remained Healthy, But Will It Continue?
-1-3 -2
0
9
4 5
9
1715
-1
-1
0 1
1
11
1
9 9
8
8 7
8
10 8
-8
-3
2
7
12
17
22
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Year%
Volume Value New Products
•GLP guidelines: July ‘05•Excise duty on MRP: Jan ‘05
64MP Advisors
Understanding Various Growth StagesUnderstanding Various Growth Stages
1. Analysis of Low Growth Stage Till 20052. Analysis of High Growth Stage Between 2006 to 20103. Analyzing and Anticipating Future Growth
Understanding Understanding ‘‘WhyWhy’’ is Critical To Anticipate Future Growthis Critical To Anticipate Future Growth
A historical cause-effect analysis is a must to understand the genesis of future growth.
65MP Advisors
Till 2005 Till 2005 –– Low Growth StageLow Growth Stage……..MktMkt CharacteristicsCharacteristics
• High fragmentation with ~8000 manufacturers. 90% of manufacturing units were very small individual owned firms with an average investment of not more than Rs.10m.
• Low single digit market growth was largely (and sometimes only) driven by new products.
• Despite reduction in the no. of products under government price control, net average price of existing pharma products continued to decline.
• Global perception about Indian quality was at its low. A WHO report mentioned that 35% of world production of spurious drugs happened in India. The report was proven incorrect later.
• High excise duty on pharma products at 16%. • Most of the big pharma companies marketed their products to less than
1/3rd of total registered medical doctors – the rest were considered “unviable”!
Weak Entry Barriers Led To Fragmentation Weak Entry Barriers Led To Fragmentation & Price Undercutting& Price Undercutting
66MP Advisors
Till 2005 Till 2005 –– Reasons For FragmentationReasons For FragmentationReason 1: Poor Regulatory Standards For Manufacturing and
Marketing• As per a small survey conducted by Mashelkar committee, 10% of drugs
in India were found to be either substandard or spurious. • Good Manufacturing Practice (GMP) guidelines almost absent for Indian
manufacturer.• Most of the SMEs’ (small manufacturing enterprises) cost of production
remained much lower than that of the bigger companies as they were not required to worry about quality.
• SMEs marketed their products by pushing through chemist and/or doctor. 10% of the market by value (and many fold more by volume) represented sales of products sold through either the doctor or the chemist (bypassing the prescription)!
Low Quality Requirement Allowed Low Quality Requirement Allowed SMEsSMEs To Compete Against Big To Compete Against Big Cos.Cos.
67MP Advisors
Till 2005 Till 2005 –– Reasons For Reasons For FragmentationFragmentation……..Cont..Cont’’dd
• Till January 2005, excise duty was levied on the cost of production. Excise duty was at a high 16% till mid 2006.
• SMEs had a benefit as their cost of production remained lower due to low quality adherence. This is on top of rampant excise duty evasion by the small players. Cost of production of small players thus was much lower than that of the bigger players.
• SMEs passed this difference to chemists and/or doctors to promote their products. This led to rampant price undercutting for the manufacturer.
Taxation Structure With Low Quality Taxation Structure With Low Quality StdsStds Helped Helped SMEsSMEs To ThriveTo Thrive
Reason 2: Excise Duty (Tax on Manufacturing) Structure and TradeMargin
68MP Advisors
Regulatory Reforms Post 2005Regulatory Reforms Post 2005• Stricter Manufacturing Norms: Introduction of “Schedule M” in the
‘Drug & Cosmetics Act’ that mandates all pharmaceutical units to comply to WHO GMP standards. This was strictly implemented from June 2005 despite several pleas by SMEs.
• As per the new manufacturing norm, the incremental average capital expenditure required was ~Rs.20-30m – significant for most of the SMEs. This also added to their operational costs.
• Changes in Excise Duty Structure: A new law in 2005 required, excise duty calculation on the retail price unlike the cost of production earlier. Further the excise duty was reduced to 8%.
• Setting up of Excise Free Zone: These reforms coincided with many states setting up excise free zones. Consequently, most of the big pharmacos. Shifted their manufacturing base to these zones.
• All these reforms leveled the cost of production between SMEs and big pharma cos.
Reforms Evened Out The Cost Differences Between Reforms Evened Out The Cost Differences Between Big and Small Cos.Big and Small Cos.
69MP Advisors
Impact of Reforms Post 2005 = Impact of Reforms Post 2005 = SMEsSMEsSufferingsSufferings
• Reforms took away the cost advantages (in the form of low quality and excise evasion) of SMEs.
• Most of the SMEs had to bear the additional capex of Rs.20-30m as they were GMP non-compliant. As against that, big cos. were mostly GMP compliant.
• Big cos. shifting manufacturing to excise-free zones gave them an edge over small cos. that could not shift due to family issues (being individual driven).
• CIPI (Confederation of Indian Pharma Industry) – an association of ~7000 SMEs wrote to the government of India in April 2007:
“Around 7000 SSI (small scale industry) units in non exempt states having 10 lakh workers face closure being rendered uncompetitive, handing their 40% of market share to large industry on a platter. Even if they migrate, they shall be unable to recover cost of their plants when excise is levied in 2010. It is not by accident that earlier they were burdened with schedule M whereby they are to rebuild factories to international standards at a huge cost. And finally central drug authority is being created to ensure closure of SSI by strict compliance.”
Reforms Led To Shutting Down of ~40% SME Owned Facilities!Reforms Led To Shutting Down of ~40% SME Owned Facilities!
70MP Advisors
20062006--2010: High Growth Stage2010: High Growth Stage
• Reforms led to consolidation within SME segment, offering their market share to the big pharma cos.
• Net average value growth became positive as price undercutting reduced. • Existing products’ volume too started growing. Rural market (~40% of
total market) growth too became robust with 20%+ growth.• Favorable Macro Economic Factors Too Aids Growth: All these on top
of favorable macro economic conditions like high GDP (6-9%) since many years, increasing disposable income, growth in insurance penetration.
Big Big PharmaPharma Gained At the Cost of Gained At the Cost of SMEsSMEs..
71MP Advisors
Post 2010 Post 2010 –– Reforms ContinueReforms Continue• New Laboratory Practice Norms Effective Nov 2010: Introduction of
GLP (Good Laboratory Practices) with effect from 1 Nov 2010.• Our talk with the chairman of CIPI (Confederation of Indian Pharma
Industry) – an SME pharma association suggested that the impact of GMP was immediate and long lasting with an incremental capex of Rs.20-30m
• GMP + GLP increases the operational expenditure by 5-7% on an average. • Bar Coding on Packaging Effective Oct 2011: With an intention to
improve the ‘Brand India’, govt. has made bar coding compulsory for all export items in a phased manner. From Oct 2011, it is made compulsory on Tertiary packing, from Jan 2012 on Secondary and from July 2012 on Primary packing.
• With ~50% of SMEs involved in exports, this will further escalate the overall operational costs making it even more uncompetitive.
Ongoing Reforms Further Adds To the Burden on Ongoing Reforms Further Adds To the Burden on SMEsSMEs
72MP Advisors
New Draft Drug Pricing Policy New Draft Drug Pricing Policy –– Neutral To Neutral To PositivePositive
• The new policy puts 60% of the drugs under price control, i.e. all the drugs listed under the National List of Essential Medicines (NLEM).
• Ceiling Price (CP) to be decided on weighted average price of top 3 selling medicines and to be revised annually as per Wholesale Price Index (WPI) of manufactured goods. Other than that, revision only once in 5 years.
• The Impact: By the government’s own admission 52% of highest priced brand in any category will have a price reduction of less than 5%. This too can be compensated in one year as WPI remains at an average 5%.
• There will be products that will likely witness increases due to the new method of setting the CP.
Market & WPI Based Pricing May Blunt Any Price ControlMarket & WPI Based Pricing May Blunt Any Price Control
73MP Advisors
US Generics US Generics –– Important Driver Despite The Important Driver Despite The CliffCliff
2 0 1 2 2 0 1 3 2 0 1 4
B ra n d N a m e S a le s B ra n d N a m e S a le s B ra n d N a m e S a le s
P la v ix 5 2 3 3 C ym b a l ta 2 5 5 2 N e x iu m 2 8 0 0S e r o q u e l 3 4 1 6 Z o m e ta 9 0 2 C e l e b r e x 1 6 9 7
A c to s 3 0 0 0 A c i p h e x 9 0 0 G l e e v e c 1 0 8 8S i n g u l a i r 1 5 0 0 L u n e s ta 6 0 0 E v i s ta 6 8 3
S i n g u l a i r G r a n u le 1 5 0 0 V a l c y te 6 0 0 T e m o d a r 3 9 1D io v a n 1 2 5 0 N i a s p a n 4 5 0 A v e l o x 3 4 3
D io v a n H C T 1 2 5 0 R e c la s t 2 5 4 L u m i g a n 1 0 0T r ic o r 1 2 0 0 O p a n a E R 2 4 0 M i c a r d i s H C T 5 0
L e x a p r o 1 0 0 0 V iv e l le D o t 2 4 0 L o e s tr i n 2 4 F e 5 0P r o v ig il 1 0 0 0 A d v i c o r 2 0 0 N a p r e l a n 5 0E l o x a t in 1 0 0 0 P r o p e c ia 1 4 8 M i c a r d i s 5 0G e o d o n 8 0 0 A r g a tr o b a n 1 1 1 N e x iu m I V 5 0
A ta c a n d 7 5 0H a l f l y t e l y a n d
B i s a c o d y l 5 0 S u p r a n e 5 0A ta c a n d H C T 7 5 0 O l e p tr o 5 0
A v a p r o 6 9 7 V a n o s 2 8B o n iv a 4 8 2
A c to p lu s M e t 4 5 9D e tr o l 4 0 5
D e tr o l L A 4 0 5
C l a r in e x D 2 4 H o u r 3 0 0S ta le v o 2 0 5C l a r in e x 1 5 0A v a li d e 1 0 0C o m ta n 8 2L e s c o l 7 7
L e s c o l X L 7 7K a p va y /J e n l o g a 5 0
D u e ta c t 5 0E v o x a c 5 0E v o x a c 5 0C u t i v a te 4 8
R e q u i p X L 3 2X o p e n e x 2 0
R y zo l t 1 5T o t a l 2 7 4 0 3 7 3 2 5 7 4 0 2
In 2012 Indian companies In 2012 Indian companies are likely to enjoy are likely to enjoy a 180a 180--day exclusivity in products day exclusivity in products worth ~$9.5b in patented worth ~$9.5b in patented size.size.
Expected Generics in 2012, ’13 & ’14
Source: MP Advisors, Company Reports
74MP Advisors
Para IV Para IV –– The New India AdvantageThe New India Advantage
IndianIndian cos. have 180cos. have 180--day exclusivity in 6 of the top 11 day exclusivity in 6 of the top 11 products under litigationproducts under litigation
Rank Drug Name Innovator Sales '08 $m Cos. as FTFs
1 Lipitor Pfizer 12401 Ranbaxy2 Plavix Bristol Myers 9004 Apotex6 Diovan Novartis 5740 Ranbaxy8 Nexium AstraZeneca 5200 Ranbaxy
10 Zyprexa Eli-Lilly 4697 Dr Reddy’s15 Seroquel AstraZeneca 4452 Teva16 Singulair Merck 4336 Teva17 Actos Takeda 3958 Ranbaxy18 Effexor XR Wyeth 3928 Teva
19 Atacand AstraZeneca 3702Sandoz / Teva /
Mylan
20 Gleevec/Glivec Novartis 3670 Sun PharmaSource: MP Advisors
75MP Advisors
Indian Cos. Comprehensive FTF ListIndian Cos. Comprehensive FTF ListLupin Sales Dr Reddy's Sales
Sun Pharma Sales Ranbaxy Sales Wockhardt Sales Orchid Sales
Zydus Cadila Sales Aurobindo Sales Torrent Sales
Cymbalta 2552 Antara 70 Gabitril 50 Actos 3000 Cambia 50 Azilect 108 Asacol HD 639 Crestor 2078 Requip XL 32
Lyrica 1300 Avelox 343Protonix
IV 200 Clarinex 150 Comtan 82 Clarinex 300 Clarinex 150 Cymbalta 2552
Namenda 1000 Clarinex 150 Prandin 125 Diovan 2500 Cymbalta 2552 Factive 20 Lialda 150 Strattera 445
Geodon 800Clarinex D 24 Hour 300 Lyrica 1300 Namenda 100 Lunesta 600 Lunesta 600 Strattera 445
Renvela 700 Dexilant 20 Ryzolt 15 Nexium 2800 Lyrica 1300 Namenda 1000
Lunesta 600 Geodon 800Stalevo
100mg & 205 Provigil 1000 Namenda 1000 Boniva 482
Prezista 400 Lunesta 600 Cymbalta 2552 Rapamune 220 Stalevo 205Ranexa 157 Namenda 1000 Clarinex 150 Solodyn 50
Clarinex 150 Propecia 148 Lunesta 600 Valcyte 600Trizivir 150 Strattera 445 Gleevec 1088
Cipro OS 100 Vimovo 15 Namenda 1000Fosrenol 90 Boniva 482 Crestor 2078
Loestrin 24 Fe 50 Nexium IV 25Zymaxid 50Welchol
Powder for OS 40
Requip XL 32Glumetza 10
Lo Seasonique 288209 4373 9388 10420 5789 2510 1384 5075 32
Source: MP Advisors Para IV PlusNote: Products highlighted are the ones where we expect significant contribution for the FTF holder with reasonable surety.
76MP Advisors
No. of No. of FTFsFTFs and Not Just Para IVs Drives The and Not Just Para IVs Drives The ValueValue
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
24000
26000
28000
Glenmark
Orchid
Torrent
Zydus
Cadila
Wockhard
tRan
baxy
LupinDr R
eddy's Sun
Company Names
Sale
s in
$ m
illio
n
Total Para IV SalesFTF Sales
•• The quality of The quality of pipeline is decided by pipeline is decided by the no. of FTF (Firstthe no. of FTF (First--toto--File) enjoyed by File) enjoyed by each company.each company.
•• Ranbaxy has the best Ranbaxy has the best quality Para IV quality Para IV pipeline. It is also pipeline. It is also worth noting that worth noting that Ranbaxy has the Ranbaxy has the highest no. of settled highest no. of settled Para IVs with the Para IVs with the largest valuelargest value. .
77MP Advisors
FTF Earned, Needs To Be Maintained Too!FTF Earned, Needs To Be Maintained Too!
• Table highlights those products where we expect the FTF holder to lose its exclusivity.
• Renvela, Comtan & Stalevao are the most prominent ones for the respective loser companies.
Product Beneficiary LoserLo Seasonique Watson Lupin
Renvela Impax, Sandoz, Watson LupinDetrol Ranbaxy TevaTricor Ranbaxy Teva
Comtan & Stalevo Sun Pharma WockhardtGeodon Lupin Dr Reddy's, Sandoz
Protonix IV All Generics Sun PharmaFosrenol Not Available Lupin & Mylan
Likely Forfeiture of Exclusivities Where Indian Cos are Involved
78MP Advisors
CompaniesCompanies
79MP Advisors
Sun Pharma Sun Pharma ––High Value & High Probability High Value & High Probability Para IVsPara IVs
Outperform• High probability and high value Para IV pipeline with (1) launch
of Comtan ($80m) and Stalevo ($200m) under settlement (and 180-day exclusivity) in FY12 (2) likely full blown sales from Caraco in FY13 (3) resumed launch of Eloxatin in FY13 and (4) Launch of Gleevac under confirmed 180-day exclusivity in FY16
• All these over a (1) likelihood of a 180-day exclusivity on Prandin($200m in US) in the near future. (2) Other 9 Para IVs that we have not ascribed any value to and which includes Para IV on Taxotere.
• 45% of sales coming from domestic pharma market – lowering downside earnings risk
• Full impact of Taro integration will improve margins of the basebusiness.
80MP Advisors
IpcaIpca –– Play On Indian MarketPlay On Indian Market
Outperform• Despite near term pressures on domestic formulation sales (~35% of total sales),
15-18% growth to continue based on doubling of sales force. • Sales of generic Co-artem expected to generate ~Rs.3b in annual sales, based on
orders in hand. • US generic business showing great traction. USFDA approval of Indore facility to
further add to this. • Margins to improve on the back of (1) improving sales force productivity (2)
improving sales mix in favor of formulations. Margin can further improve upon the USFDA approval of its Indore facility.
81MP Advisors
LupinLupin –– US Business is More Hope Than US Business is More Hope Than RealityReality
Underperform• Suprax (US branded generic) is exposed to genericization. Antara – a loss making
franchise is unlikely to compensate as the largest fenofibrate. • Oral contraceptives is an oligopolistic market with high entry barriers. If not a
failure, Lupin will take much more time to break into. • No more niche launch after Geodon in FY12 and many of there Para IVs are at a
preliminary stage. • Japan growth will happen only after shifting of production facility from Japan to
India.
82MP Advisors
DishmanDishman –– Business Model Gone BustBusiness Model Gone BustUnderperform• DISH is in a debt trap owing to continuous capex and negative free cash
flow since last four years with deteriorating fixed asset turnover from 1.4 in FY2005 to less than 1.0 now.
• The outlook continues to remain weak due to (1) API sales to Brilinta not happening before 2H FY2013. (2) Abbott contract renewal at lower price to pressurize margin (3) A loss making Chinese facility and (4) ~50% capacity utilization.
• INR depreciation will lead to robust increase in the interest cost as more than 90% of its Rs.9b debt is in foreign currency.
• While capex has been put to a halt, acquisition continues indicating that sustenance of business too will require capex (or acquisition).
• Growth is now expected from low value businesses like disinfectant and marketable molecules.
83MP Advisors
AurobindoAurobindo –– Challenges At Every LevelChallenges At Every Level
Underperform• Aurobindo is plagued by operational challenges (USFDA ban on its
facility), financial burden and macro economic pressure (of a declining INR).
• The worst productivity in the US generics business with sales of $1.8m per annum per ANDA.
• While we expect muted US performance, Pfizer’s declining contribution (the only growth driver) will pressurize sales. Margin erosion in ARV products add to pressure on profitability.
• INR depreciation will lead to robust increase in the interest cost as more than 90% of its Rs.30b debt is in foreign currency.
• Relentless capex even after incurring more than Rs.7b over last 3 years. Continuous negative cash flow for 9 years barring one year in between.
MP Advisors
Thank YouThank You
