ANAYLYST BRIEFING JAN-JUNE2018 PERFORMANCE Why Invest in AGP - - PowerPoint PPT Presentation

ANAYLYST BRIEFING –JAN-JUNE2018 PERFORMANCE

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Why Invest in AGP Limited

Part of OBS Group, the

10th largest

pharmaceutical group in Pakistan

Highest Gross/Net Margins of 55%/24%

compared to the industry average of 43%/14%

Launch of Breast-Cancer

drug - Hetraz of Mylan in

in Jul-18. Intention to launch more products in

• ncology segment

Shariah-Compliant

Company with strong governance - E&Y as

Company Auditors

Top Brands (Ceclor, Rigix, Osnate) to contribute USD 10mn

each to Revenue in the

next 3 years Targeting a healthy Sales growth of 19% /

annum for the next 5

years Entered

nutraceuticals segment in 2016 and

now setting-up a

new plant

Exclusive Partnership with Mylan –

World’s 2nd largest

generic drug manufacturer

5 New product

launches in CY16 and 8 new launches in CY17

7 new products

launched till Jul-18 Distribution agreement with

Largest distributor

• f Pakistan –

Muller & Phipps

First Pharmaceutical sector OFS in Pakistan

after a gap of 22 years enhancing Sector free- float by 19%

The Sponsors have a vision to make OBS Group Pakistan’s largest pharmaceutical group through organic growth and strategic acquisition There is also a possibility of partnering with other foreign companies to introduce their branded products

Targeting launch of

6 new products

every year going forward Renowned shareholders, including

USAID, Muller & Phipps and Banks Drug registration for export to Sri

Lanka, Kenya and Tajikistan is underway Partnerships with

Fortune 500

Pharmaceutical companies Pakistan’s per capita pharma spending at

• nly USD 15/annum

compared to regional average of USD 35/annum

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OBS Group Acquisitions & Partnerships

• Dedicated for Organon legacy products
• Formerly a subsidiary of NV Organon, the Netherlands

2006 OBS Healthcare

• Incorporation of OBS Pharma (Pvt.) Ltd, a sister concern focusing on branded generic and

consumer health products

2007 OBS Pharma

• Dedicated for MSD legacy products
• Formerly a subsidiary of Merck & Co. Inc. USA

2008 OBS Pakistan

• A strategic alliance with Merck & Co. Inc. USA to acquire part of their portfolio for Sri Lanka

Operations

2009 Sri Lanka

• Dedicated for Schering Plough legacy products
• Formerly a subsidiary of Schering Plough USA

2010 Schering Plough Pakistan

• Acquisition of AGP (Pvt.) Limited and AGP Healthcare (Pvt.) Limited through an SPV (Appollo Limited)
• The three companies were subsequently merged in 2015 and renamed AGP Limited

2014 AGP

• Acquisition of Janssen Brands and Johnson & Johnson Pakistan Facility in June 2015

2015 Aspin Pharma

• A strategic alliance with Mylan USA to promote their complete portfolio in Pakistan
• Launched in April 2016

2015 Mylan

• A strategic alliance with Santen (a global ophthalmic company) to represent them in Pakistan

2016 Santen Pharma, Japan

• A strategic alliance with Vifor Pharma for launch of their drugs in Pakistan

2017 Vifor

• AGP was listed on PSX in Mar-18

2018 Listing on PSX

AGP Limited

4 GYNAE A Gynae / Orthopedic / Antibiotic Products GYNAE B Gynae / Pain management / Complimenting Drugs PAEDS Antibiotics for children/Anti-asthmatic INTERNAL MEDICINE A General GP/ Gastro – Enterology Products INTERNAL MEDICINE B Broad-Spectrum Antibiotics & Antiallergens ANTI VIRAL Hepatitis treatment (Mylan USA licensed products)

• AGP limited (“AGPL”) comprises of two plants, which previously
• perated as two separate companies namely AGP (Private) Limited

(“AGPPL”) and AGP HealthCare (Private) Limited (“AGPHC”).

• These companies were acquired by a consortium led by OBS

Pakistan (Private) Limited through an SPV namely Appollo Pharma Limited (“APL”) in July 2014.

• AGPPL and AGPHC were merged with and into APL in December

2015 and APL was subsequently renamed to AGP Limited.

• AGPPL was originally Pakistan Vitamin Products (Private) Limited

(“PVPPL”) which was incorporated on December 12, 1957. The company was initially engaged in the manufacturing of multi vitamins and started its pharmaceutical manufacturing business in

• 1989. The name of the company was subsequently changed to Ali

Gohar Pharmaceutical (Private) Limited on September 2, 1991 and was later changed to AGP (Private) Limited on January 2, 2003.

• AGPHC was originally incorporated as Sima Laboratories Limited on

January 15, 1951 and was subsequently renamed to Eli Lilly Gohar (Private) Limited on February 10, 1986. The company was later renamed to AGP Healthcare (Private) Limited on February 23, 2012.

Revenue Growth (PKR mn) Business Units

Revenue Growth 22.3% 23.6% 23.2% Net Profit Margin Return on Equity

• 1,000.00

2,000.00 3,000.00 4,000.00 5,000.00 2014 2015 2016 2017 1H 2018 Jan-Jun Sales Jul-Dec Sales

• AGPL has grown steadily through manufacturing and marketing of

products under licensing arrangements with many companies of international repute and simultaneously through manufacturing and marketing its own brands.

• Today, it is amongst the largest pharmaceutical companies in

Pakistan, providing a broad range of pharmaceutical services.

• The product portfolio of AGPL is a blend of its own range of

branded generics and products licensed from principals of international repute. It has exclusive licensing agreements/ supply arrangements with multiple foreign partners.

• The operations of AGPL include manufacturing, marketing and sales
• f pharmaceuticals and healthcare products in the domestic and

export market.

• The delivery of AGPL’s products, across the country, is managed by

Muller & Phipps, one of the largest and state of art pharmaceutical distribution setups in Pakistan.

AGP Limited

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Entity Rating: Long-Term A Short-Term A1 Outlook Stable

“The ratings reflect AGPL's strong business fundamentals. The pharmaceutical industry has witnessed a higher rate of sustained growth over the years. While product pricing has been a challenge, the new CPI-linked pricing criteria has allowed an increase in prices with respect to inflation, indicating a positive sign. At the same time, AGP's core profitability is strong; any downward revision in margins must remain range-bound.” Extract from PACRA’s Rating Report dated May 2018 Key Highlights of AGPL’s Performance Post Acquisition

• Revenue has increased from PKR 3.1bn, the year before

acquisition, to PKR 4.7bn in 2017, showing a solid growth of over 51%. AGP revenue has grown by 22% in 1H2018 to 2.87bn

• Launched 8 new products in 2017, and 7 new products YTD Jan-

Jul 2018.

• Formed a strategic partnership with Mylan (USA), one of the

world’s largest generic drug manufacturers

• Commenced sales of Hepatitis-C drugs A breast cancer drug,

Hertraz, launched in July 2018 with a new dedicated oncology team

Entity Rating Sharia Compliance

Meezan Bank Limited have reviewed the accounts of AGPL and found them to be in compliance with Karachi Meezan Islamic Index – 30 Criteria set out by Pakistan Stock Exchange

Product Portfolio

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Anti-Gout Anti-infective Antidiarrheal Anti-inflammatory enzyme Antiallergics Antiasthmatics Antibiotics Antibiotics Antibiotics Antibiotics Antibiotics Antibiotics Antibiotics Antidepressant Antidiabetic Antidiabetic Antidiabetic Antidiabetic Antidiabetic Antidiarrheal Supplement Antifibrinolytic Antihaemorrhoidals Antimalarial Antiobesity Antispasmodics Antispasmodics Antiviral Antiviral Bile therapy & cholagogue Calcium preparation Expectorant Iron preparations Antihaemorrhoidals Calcium preparation Medical food supplement Muscle relaxant Narcotic analgesic Non-narcotic analgesics NSAIDS NSAIDS NSAIDS Nutritional supplement for urinary tract Proton pump inhibitor Tonic Urinary antispasmodics Venotropic agent Vitamin B12 Vitamin D Plain Iron Preparation Antiasthmatics Antispasmodics Iron Preparation Muscle relaxants

Overview of Core Products

7 AGPL’s Portfolio consists of over

55 different products including 8 star products 8 new products launched in

2017

AGPL has an aggressive product launch planned in Oncology and Anti-viral products from Mylan. Branded generics in Gynae, Anti-infectives, Gastroenterology and Nutraceutical products are also in the pipeline. 7 new launches in CY18 with

addition of 2 specialized teams Top 10 products account for

77% sales and 78% of GPM

and 82% of operating profit

Top Products by Revenue (2017)

Product Jan-June2018 Sales (in '000s) Ceclor 431,586 Rigix 397,350 Osnate / Osnate-D 352,605 MyHep 229,267 Anafortan 198,401 MyDekla 191,401 Spasler 138,082 Chymoral 102,606 Keflex 95,681 Rubi Range 67,808 2,204,787

Rigix 22% Ceclor 21% Osnate / Osnate-D 17% Anafortan 11% MyHep 7% Chymoral Forte 6% Keflex 5% Spasler P 5% Navidoxine 3% Rubifer 3%

Top Products by Revenue (1st Half 2018)

Ceclor 20% Rigix 18% Osnate / Osnate-D 16% MyHep 10% Anafortan 9% MyDekla 9% Spasler 6% Chymoral 5% Keflex 4% Rubi 3%

Exclusive Partnership with Mylan – World’s 2nd Largest Generic Drug Manufacturer

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• Mylan (USA) is one of the largest generics and

specialty pharmaceutical companies in the world.

• AGPL has recently partnered with Mylan for

marketing Mylan products in Pakistan & Afghanistan.

• AGPL and Mylan have recently launched

MyHep All tablets (Sofosvubir + Velpatasvir) for the treatment of Hepatitis-C. MyHep, MyDekla were launched in Pakistan previously with net sales of PKR 246mn in 2017 and PKR 414mn in 1H 2018.

• AGPL and Mylan have plans to grow Mylan’s

business to reach net sales of around PKR 2,000mn in the next 5 years.

• Plan to aggressively register and launch

Mylan products in important therapeutic areas including Hepatitis, Cancers, HIV, Women Health, Cardio Vascular and Diabetes. Altogether, these areas represent about USD 460 mn of sales, amounting to 18% of Pakistan Pharmaceutical market.

Source: IMS Report 2016 and Mylan Annual Report 2016

World’s 2nd Largest Generic Drug Manufacturer Presence in over 145

Countries

Manufacturers and Markets over 7,500 different products

• Approx. 50% of the

people being treated by HIV/AIDS in developing nations depend on Mylan Products One of the licensed partners of Gilead Sciences for Sofosbuvir Revenue of USD

11.90bn in 2017

Over 40 manufacturing sites across 4 continents Mylan sales through AGP in Pakistan is expected to exceed

PKR 2bn in the next

5 years

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• Pharmaceutical industry - the backbone of public

health service in any country

• The total sale of pharmaceuticals in Pakistan, as

given by Intercontinental Marketing Services (IMS 2Q18), is PKR 373 bn at the pharmacy level

• The industry is fulfilling approximately 70% to 80%
• f the country’s demand of finished medicine, and

has been growing at a 5 year CAGR of 13%

• Share of local manufacturers in Pakistan is 68%
• Top-10 companies enjoy 45% of the market in

terms of turnover

• Pharmaceutical spend of the country stands at USD

15 per capita, which is quite low compared to our International counterparts – with Regional average

• f USD 35 per capita
• The local pharmaceutical sector has constantly
• utperformed

the KSE-100 Index, thereby generating Alpha on a consistent basis.

Sector Overview

7.1% 6.9% 5.6% 4.7% 4.7% 4.0% 3.5% 2.9% 2.8% 2.6% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Vietnam Iran China Philippines India Thailand Sri Lanka Indonesia Bangladesh Pakistan

Total Healthcare Expenditure (% of GDP)

Source: IMS Report Q2 2018 and World Health Organization 2014

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AGP Limited – Share Price Multiples

* Multiples are calculated based on prices on 3rd Aug 2018 and respective annual or semi annual financial statements of Dec-17

Price / Earnings Multiple Price/Sales Multiple Price / Book Multiple

16.31 17.12 10.52 15.74 19.89 19.11

• 5.00

10.00 15.00 20.00 25.00

Abbott GSK Sanofi Highnoon Searle AGP

4.68 3.66 2.44 4.68 6.26 4.43

• 1.00

2.00 3.00 4.00 5.00 6.00 7.00 ABBOTT GSK SANOFI HIGHNOON SEARLE AGP 2.58 1.50 0.81 1.59 3.88 4.51

• 0.50

1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 ABBOTT GSK SANOFI HIGHNOON SEARLE AGP

Sector Snapshot

11 Gross Margins Operating Margins Net Margins

• Most of AGPL’s brands are generics rather than licensed brands. As licensees usually charge higher rates for their products,

AGPL is able to prepare drugs at relatively lower cost.

• Superior globally-researched brands, such as Ceclor, Keflex and Rigix were acquired from multinational companies thus

saving cost that would have been incurred in licensing and royalties.

• AGPL has stringent policies, cost controls and strong internal systems in place which ensured efficient utilization of

resources employed.

• Since AGPL’s gross margins are the highest among its peers (55% higher than the industry average) it is trading at a premium

*Margins are of Annual or Semi Annual accounts (as applicable) as on 31st December 2017

38.7% 26.5% 35.6% 47.8% 52.7% 55.2% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 16.1% 8.5% 8.1% 10.2% 18.0% 23.6% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 22.4% 15.3% 12.7% 15.4% 26.4% 31.2% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

Financial Performance

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Amount in PKR '000 Dec-16 Dec-17 Jun-18 Income Statement Revenue 4,205,750 4,724,990 2,866,287 Gross Profit 2,460,112 2,874,392 1,580,792 EBITDA 1,634,426 1,718,688 942,959 Operating Profit 1,528,879 1,610,235 895,551 Profit After Tax 1,087,081 1,233,904 676,477 Balance Sheet Non Current Assets 6,804,379 6,874,933 7,061,396 Current Assets 1,708,624 1,651,904 1,808,144 Total Assets 8,513,004 8,526,836 8,869,540 Share Capital 2,800,000 2,800,000 2,800,000 Total Equity 4,277,031 5,510,935 5,837,413 Non Current Liabilities 2,257,643 1,713,826 1,471,987 Current Liabilities 1,978,330 1,302,075 1,560,141 Ratios Gross Margin 58.49% 60.83% 55.15% EBITDA Margin 38.86% 36.37% 32.90% Net Margin 25.85% 26.11% 23.60% Earnings Per Share 3.88 4.41 2.42 Dividend Per Share

• 1.25

Breakup Value Per Share 15.28 19.68 20.85 Current Ratio 0.86 1.27 1.16 Debt Equity Ratio 0.79 0.39 0.39 Return on Assets 12.90% 14.48% 15.55% Return on Equity 29.12% 25.21% 23.20%

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Major Changes in Drug Pricing Policy 2018

• The Drug Pricing Policy was amended effective from Jun-18 and has addressed concerns of the

pharmaceutical industry to some extent; salient changes summarized as under: Amended List

• An amended product list the ‘National Essential Medicine List-[NEML]’ (previously Controlled or

Scheduled products) has been introduced which has reduced most of the anomalies present in earlier classification. Annual Price Increase

• Pharmaceuticals may, without requirement of prior approval from DRAP, increase the prices of

NEML products by 70% of CPI (with a cap of 7%) and 100% of CPI (with a cap of 10%) for all

• ther products by giving a 30 days notice to DRAP.

Hardship Cases

• The basis for hardship price calculation has been revised from a fixed rate of 8% (once in 3

years) to factors of prime costs (2.40 to 3.55) linked with various dosage forms for locally manufactured drugs and landed cost +45% markup for imported drugs

• All hardship cases will be dealt within 180 days of case filing by the company. Prices may be

increased by a maximum of 10% if DRAP does not resolve in 180 days. Moreover, the price may be increased as per policy if matter is not disposed within 270 days from date of application

Policy link: http://www.dra.gov.pk/userfiles1/file/Drug%20Pricing%20Policy%202018_new.pdf

Thank You