Ferozsons Laboratories Limited

About the Company

One of the country's leading pharmaceuticals, Ferozsons Laboratories Limited (PSX: FEROZ) was established in 1956 as one of the first pharmaceutical manufacturing companies in Pakistan. In 1960, it became the first Pakistani pharmaceutical company to be listed on the Karachi Stock Exchange. The company is a multiple-time recipient of the KSE Top 25 Companies Award. Its market capitalisation is north of Rs 26 billion.

Ferozsons is the only company in Pakistan to maintain exclusive agreements with numerous international partners for distribution, selling, and co-manufacturing of products, including the Bagó Group in Argentina; BioGaia of Sweden; Biofreeze of Hygenic Corp; PanTheryx, Boston Scientific, and Gilead Sciences, Inc in the US. Through a range of branded generics and in-licensed products, Ferozsons has established a leading presence in the areas of cardiology, gastroenterology, hepatology, oncology, dermatology and anti-infective treatments.

Prior Performance

Ferozsons has grown exponentially, particularly over the past two fiscals. The company boasts unprecedented five-year sales CAGR of 54.7 percent. However, gross margins have tumbled a bit due to the shift in the product mix, but the net margins have been maintained.

Ferozsons' reports its sales under one segment, and its products include pharmaceuticals as well medical devices. The company has never really had much of an international presence, with exports at most accounting for seven percent of top line. This figure would later reduce to just one percent as of FY16, thanks to the Gilead agreement and new focus of the company.

In the initial years, the company's growth was largely fuelled by its branded pharmaceuticals portfolio and the medical devices business. However, FY15 was the year when things really took off due to the agreement with Gilead.

Gilead Sciences & Sovaldi

Much of Ferozsons' later success is attributed to Sovaldi. During FY14, Ferozsons entered into a landmark agreement with American biopharma giant Gilead Sciences, Inc, to be its exclusive branded medicines business partner for Pakistan. It obtained rights for, among other things, the sale and marketing of the blockbuster Hepatitis C (HCV) drug, Sovaldi.

The drug was introduced under Gilead's Special Access Program to patients in Pakistan at a fraction of the international price. This proved to be a watershed for Ferozsons, and the top line tells the story. Recently, the company also received the go-ahead to manufacture and sale of a licensed generic of Sovaldi as well - Savera - which was launched in July 2016.

However, the company's gross margins took a small hit due to the lower margins from Sovaldi. Moreover, sales of Ferozsons' subsidiary BF Biosciences went down in FY16 due to Sovaldi, which has significantly impacted the sales of its portfolio of inject-able products being used for treatment of HCV.

Recent Performance

For the full-year ended June 2016, the company's top line and gross profit saw triple-digit growth. The bottom line growth was an awesome 181 percent year-on-year, and investors were rewarded with a dividend of Rs 12 per share.

As mentioned, Ferozsons' unstoppable journey is being propelled by its portfolio of imported products, particularly Sovaldi. Despite the lower gross profit margin from Sovaldi, the net margin actually expanded by 380 bps year-on-year, as the according increase in SG&A expenses wasn't nearly enough to catch up with the voluminous gross profit. Higher other income in the period also helped prop up the net margins nicely.

Outlook

There's a lot more to expect from Ferozsons going forward; the company has been working with Gilead Science's for registration for Harvoni, another innovative treatment for patients of Genotype I Hepatitis C - estimated to prevail in over one million HCV patients in Pakistan. Gilead's Epclusa, a "pan-genotypic agent with a shorter duration of treatment," is also in the pipeline for regulatory filing, as per the FY16 Director's Report. Pakistan is home to one of the highest incidences of HCV anywhere in the world, with around 10 million patients, and Ferozsons is working hard to dominate this space.

During FY16, the company invested Rs 511 million for balancing and modernisation of its manufacturing facilities. The company also entered into an agreement with GE Healthcare at the start of FY17 to market the latter's medical equipment in Pakistan. Ferozsons' Savera, the first licensed generic from Gilead Sciences to be produced in Pakistan, will also be reflected in coming quarters. The company has also planned a number of new launches in the areas of cardiology, diabetes care, and gastroenterology.