Laboratorios Farmacéuticos ROVI — Outperforming the market

Laboratorios Farmacéuticos ROVI (SP: ROVI)

Last close As at 21/12/2024

48.00

0.00 (0.00%)

Market capitalisation

2,692m

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Research: Healthcare

Laboratorios Farmacéuticos ROVI — Outperforming the market

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.

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Healthcare

Laboratorios Farmacéuticos ROVI

Outperforming the market

H119 results

Pharma & biotech

1 August 2019

Price

€20.9

Market cap

€1,172m

$1.11/€

Net cash (€m) at 30 June 2019

19.1

Shares in issue

56.1m

Free float

32.1%

Code

ROVI

Primary exchange

MADRID

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.0

13.6

29.4

Rel (local)

6.6

21.2

42.4

52-week high/low

€21.10

€14.80

Business description

Laboratorios Farmacéuticos ROVI is a fully integrated Spanish speciality pharmaceutical company involved in developing, in-licensing, manufacturing and marketing small molecule and speciality biologic drugs, with particular expertise in low molecular weight heparin.

Next events

DORIA NDA/MAA filings with the US FDA and the EMA

2020

LISA-1 and European approvals/launches.

2020/21

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Sean Conroy

+44 (0)20 3681 2534

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**
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

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).

Exhibit 1: LMWH franchise quarterly performance

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.


General disclaimer and copyright

This report has been commissioned by Laboratorios Farmacéuticos ROVI and prepared and issued by Edison, in consideration of a fee payable by Laboratorios Farmacéuticos ROVI. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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

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

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General disclaimer and copyright

This report has been commissioned by Laboratorios Farmacéuticos ROVI and prepared and issued by Edison, in consideration of a fee payable by Laboratorios Farmacéuticos ROVI. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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

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

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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