Founded in 1954, Ferozsons Laboratories was one of the first pharmaceutical manufacturers in a fledgling Pakistan, and the first pharma company to list itself on the KSE. It offers a wide range of branded generics and in-licensed products.
Ferozsons is the marketing and distribution partner for the Boston Scientific Corporation, USA for its cardiac and peripheral products. It also has a highly successful joint venture with the Bagó Group of Argentina called BF Biosciences Limited. Through this, the company has achieved a leadership position in the oncology and hepatology markets. More importantly though, Ferozsons recently joined hands with Gilead Sciences Inc to market a number of its products in Pakistan.
A RISE IN THE STOCK PRICE Ferozsons' stock started its upward journey in September 2014, after the company reported its first-quarter results for FY15. The share price then fell a bit, but spiked to a peak of Rs 675 in early December. The monumental rise is attributed to Drug Regulatory Authority of Pakistan's (DRAP) nod in favour of Gilead's blockbuster Hepatitis C drug, Sovaldi, in Pakistan.
Ferozsons received DRAP approval for the sale of Gilead's Sovaldi in November. The price of the drug, however, is substantially lower than what it's worth in the US; DRAP fixed the price at Rs 55,000 per bottle of 28 tablets - a 98 percent discount to the $1,000 per tablet in the US. All that's left now is for the federal government to give final approval.
Recently, Ferozsons announced on March 5 that it is voluntarily reducing the drug's maximum retail price from Rs 55,000 to Rs 38,000. This will greatly benefit the public at large, and will make the already discounted drug even more affordable. Those concerned with the impact of the low price on Ferozsons' financials need not worry, as Ferozsons will continue reaping a pre-specified margin from Gilead.
FEROZSONS' PRIOR PERFORMANCE Ferozsons, much like other pharma players, hasn't been entirely immune to the pressures of the Pakistani pharma industry. While the company's top line has been increasing steadily over the years, its bottom line tells a different story.
As is evident, the bottom line of the company has not been following the same uptrend as the revenue; net profits fell in FY11 due to increased selling & distribution expenses. After that, the bottom line has been constant and growth has remained bottlenecked.
FEROZSONS 1HFY15 The company's revenues for the six months ended December 2014 improved 31 percent year-on-year. But again, the increase in cost of sales (37 percent) outpaced the revenue growth, and gross margins ended up declining by 250 basis points.
This time, the decline in gross margins is attributed to Ferozsons' growth in those divisions that carry lower margins. Moreover, tenders for the purchase of medical devices as well as medicines were largely deferred, negatively impacting the company's medical device division and institutional sales of its subsidiary - BF Biosciences Limited. This hurt both the top line as well as the bottom line growth.
OUTLOOK Despite the industry's dreary zeitgeist, things aren't looking too bad for Ferozsons. One step closer to gaining approval for sales of Gilead's drugs, the company is looking at bright prospects for years to come. Sovaldi is, after all, a breakthrough in Hepatitis C treatment, and Pakistan just happens to be one of the regions most affected by it.
There are some who are concerned that the longer the approval takes, the greater the risk of generic rivals springing up and eating up Sovaldi's market share. But in truth, generics aren't always effective, and there have been cases where people had to revert back to the original. So, at the end of the day, Ferozsons' long-term prospects are more or less golden.
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Ferozsons Laboratories Results
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Rs (mn) 1HFY15 1HFY14 YoY change
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Revenue 1,495 1,144 31%
Cost of Sales 757 552 37%
Gross Profit 737 592 24%
Gross Margin 49.3% 51.7% 250 bps
Administrative 92 75 23%
Selling & Distribution 347 264 31%
Finance Cost 11 7 57%
Other expenses 26 23 13%
Other income 45 41 10%
Profit before tax 306 264 16%
Tax 85 75 13%
Profit after tax 221 188 18%
EPS 9.46 7.88 20%
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