Marel Q1 2024 Investor Presentation from May 8, 2024
Outlook 2011 presentation
1. Global Bio-Pharmaceutical
OUTLOOK 2011
! ! B/203, Alkapuri Arcade, R.C.Dutt Road, Vadodara-390007, INDIA.
Phone: +1|212| 343-6096, +91|265| 232-7096, E-mail: mp@mpadvisor.com
!
2. Rising Star
What is Going Right For the sector?
What Are the Challenges?
Is investment in innovative therapeutics warranted? Which innovative therapeutics
has or will make an impact on the quality of our lives in the next two to three years?
What therapy areas present investment opportunities?
What events in the sector will win thumbs down or be an outright –ve?
Value creation: Our portfolio and top pick recommendations
3. What Is Going “Right”?
• Moving beyond the “wait and watch” for Proof-of-Concept (PoC), Big pharma are giving
importance to Proof-of-Relevance *-Paradigm shift in Partnering Deals: Tap Them Young
• While the HC Reform bill served a blow to profitable Pharma and Biotech companies in US,
it has boosted the Spirit of Research for the non-profitable biotech/ biopharma companies,
Rising stars (RS). R&D may turn the corner as Obama has increased the R&D tax credit by
20% and made it permanent..
• Drug approval in 09 and 2010 was not depressing and some novel approaches have made it
to the market- Provenge (Prostate cancer vaccine) Prolia (PM, osteoporosis), Gileniya (oral
MS drug). The report discusses important upcoming regulatory and clinical milestones
*Proof-of-Relevance: To identify the indisputable clinical and commercial value of early stages compounds.
4. What Are the Challenges?
• Regulatory Pathway and Reimbursements- Our Focused Sector Report discusses
these in depth
• Biosimilars and Patent Expiry- How Close and Real is the “Bio-generic Era”?
• Safety continues to be the key factor in approval of drugs
• Will Lupus, Obesity, Melanoma etc, See a New Drug?- Analysis and Our Take on
the Outcome of the regulatory events.
• Binary Events- Another Intermune like Debacle in 2011? Select milestones in 2011
which could make or break a Company are included in the Report.
5. Therapy Areas Offering Investment Opportunities
• HCV- Protease Inhibitors to The Rescue - Will sweep the HCV market, as they did in the
case of AIDS. At least two compounds will be approved (telaprevir, boceprevir) before
2012. Analysis of the therapy Area and Leading Companies- Vertex, Pharmasset. Market
Dynamics and unmet Need.
• Autoimmune/ Inflammation diseases have seen the best outcome –both in targeting unmet
needs and better patient friendly treatment options. Oral drug (INCB28050, R788,
RDEA594, Gilenya) options are likely to make way for many diseases, such as, RA, MS;
where injectables and biologics are the only options. Lupus and Gout will finally see
approval of safer and more efficacious products (RDEA594, Benlysta, Epratuzumab) by
2011-14.
• Rare Genetic - Orphan diseases continue to be pursued as a preferred area by Innovators -
premium pricing, low regulatory bar, etc. are incentives. Besides ERT (Enzyme Replacement
Therapy), drugs for MPN (Myeloproliferative Neoplasms), IPF, HoFH (Homozygous
Hypercholesterolemia) should be approved by 2011-14.
• Melanoma – MAbs may finally deliver –With 120,000 diagnosis of melanoma annually,
and 300 agents investigated thus far, it is amazing that effective products for melanoma
remain elusive. Benlysta Approval???
6. Mature Biotech
Resembling Global Pharmas and Specialty Pharmas of last decade
“Is the age of the biotech monopoly about to end ?”
7. Mature Biotech – Issues
CY 2010 affected all Pharma companies by “Obamanisation and Implementation of
the Health Care Reforms (HC)” wiping off their market value significantly in the
first half of 2010.
• Drying new product launches, thin pipeline and intensifying competition
• New Drugs Approved, but will they boost the sales or is the wait going to be
longer?
• Patent Expiry Impact is Modest and Built into the Current Price; However outcome
of Para IV Filing from Global Generic Players can surprise and will remain a
“Hanging Sword” for the innovator. Report includes the patent expiry, sales table of
major biologics and regulatory pathway being framed in US and for mAB in EU.
• Life cycle management approach by making better biologics, me toos. Report
highlights the 2nd generation tools and technologies for making better biologics,
mAB based drugs.
•
8. Mature Biotech – Issues
• Discounted pricing for patented follow-on drug launches could become a norm
• Re-imbursement issues:
• CMS support to MCOs and PBMs for price negotiations should limit pricing
flexibility
• Off label re-imbursement cuts
• German/ EU reference pricing, NICE & Japanese health reforms seeking stringent
cost control
• FOB or Biosimilars:
• Coming closer to reality as guidelines already placed in EU and in the works in US.
• Lack of products to make up for the biosimilar erosion and sales loss.
• M&A and In-licensing remains key for future growth
• Compete with cash rich Global Pharmas
• Fewer opportunities with inflated valuation
9. Silver Lining
• Mature Biotech Can still afford to choose good products in the making…
• Outsourcing is the Mantra for Fueling the Pipeline
• Healthy cash position and depressed valuations = opportunity to buy back
shares and improve valuations.
10. Valuation 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
12. Dawn of the Biologics/Bio-Generics Era
• Worldwide sales of all biologic drugs, including therapeutic proteins, vaccines, and mAbs,
reached ~$130 billion (2009 IMS)
• Evolving pharma landscape: Gradual strengthening of the biologic drug portfolio in
preparation of the patent cliff as well as improving the profitability
• We predict a shift towards more R&D and higher valued M&A in biologics over the next
few years, as the regulatory pathway for approvals of “Me Toos, Biosimilars” including
mAbs comes into effect
• Potential market for biosimilars: >$30b in the second half of the decade as multiple
patents expire
• Affordability to accelerate the demand
• Over time, we expect Affordable Biosimilars to take a significant market share and/or force
Innovators to cut prices significantly
12
13. Maturing Technology Platforms For Better Biologics
• Second Generation Monoclonal Antibodies
• Antibody Drug conjugation (ADC)
• Protein Engineering: Humaneering, Glyco-engineering, Half-Life Extension
technologies etc.
13
15. Global Pharmaceuticals – 2011 Outlook
Opportunities - Emerging Markets and Innovation - Taking longer to
deliver
Challenges - Patent Expiry and Regulatory pressures - Imminent
Global Pharma’s Cutting Cost to Manage the Gap
15
16. Highlights for 2011 – Global Pharma’s Nearing the Patent
Cliff
Global pharmaceuticals – Emerging Market Strategy
Outcome from Major Clinical Studies/Events expected to reshape Competitive
Dynamics across several therapy classes
New Drug Approvals for 2011 and their potential
Healthcare Reforms
How will patent expiry impact margins for Global Pharma companies
16
17. Global Pharma - Emerging Market Strategy
Who is doing it’s best in Emerging Markets?
Who will emerge eventually in Emerging Markets?
Pricing Mantra – Who has got it Right?
Branded Generics Strategy – Will it Deliver?
China – Growing Prominence
Notable Launches from Global Giants
17
18. Outcome from Major Clinical Studies/Events expected to reshape
Competitive Dynamics across several therapy classes
Dyslipidemia
Stroke Prevention in Atrial Fibrillation
Acute Coronary Syndrome
Hypertension
Diabetes
Metastatic Melanoma
Wet Age AMD
18
21. Health Care Reform: Doughnut Hole Discounts –
Impact on Therapy Class
Share Of Part D Enrollees Who Reached Doughnut Hole And Catastrophic Coverage
% that reached gap but Companies likely to bear
% that reached % of Part D enrollees
Therapy Class not catastrophic the brunt because of major
catastrophic coverage who use the drug
coverage presence
For Alzheimer's 49 15 4 Pfizer
Oral anti-diabetics 41 10 12 Merck, Astrazeneca, BMY
Proton-pump inhibitors 40 11 18 Astrazeneca, JNJ
Antidepressants 35 10 18 Lilly, Pfizer, Astrazeneca
Angiotensin receptor Novartis, Sanofi,
35 7 17
blockers Astrazeneca
Statins 33 6 40 Astrazeneca
Osteoporosis drugs 32 7 15 Roche, GSK, Novartis
ACE inhibitors 30 5 28 Sanofi Aventis
Source: MP Advisors, Company reports, Georgetown University/ IMS health LRX database 2007
21
23. Emerging Markets : Will Take Longer To Deliver
Size Of Emerging And Developed Markets
GDP ($b)
Per Capita Population in
Country Mkt Size ($b)
Income $ million Prescription drugs Prescription spending as %
(Nominal) Spending per Capita of Per capita income
DEVELOPING COUNTRIES
China 15 4,327 3,241 1335 18 0.55%
India 5 1,206 1,026 1175 6 0.57%
Russia 5 1,676 11,887 141 49 0.41%
Brazil 12 1,572 8,188 192 44 0.54%
Turkey 9 729 10,268 71 124 1.21%
South Africa 9 276 5,633 49 39 0.70%
DEVELOPED COUNTRIES
US 281.6 14,441 47,039 307 1141 2.43%
Japan 57.2 4,910 38,661 127 448 1.16%
Germany 34.4 3,673 44,793 82 756 1.69%
UK 22.6 2,680 43,934 61 311 0.71%
France 37.2 2,866 44,781 64 796 1.78%
Canada 16.6 1,499 45,424 33 1000 2.20%
Source: MP Advisors, Company Reports
23
25. Para IVs – The New India Advantage
Snapshot of Indian Cos. Para IV Challenges
No. of Para IVs where 30 No. of products
No. of Para No. of FTF
Indian cos. mths stay will expire in 12 settled / won /
IVs claimed
mths unlitigated
Sun Pharma 19 13 6 3
Dr Reddy's 17 16 5 6
Lupin 14 5 4 3
Ranbaxy 13 13 8 5
Wockhardt 8 5 3 Nil
Glenmark 6 3 3 2
Aurobindo 5 3 2 Nil
Torrent 5 4 1 3
Orchid 4 3 Nil 2
Cadila 3 2 Nil Nil
Source: MP Advisors, Company Reports
Indian Pharma companies are involved in 50% of the ongoing Para IV litigations!
25
26. Para IVs – The New India Advantage
Rank Drug Name Innovator Sales '08 $m Cos. as FTFs
1 Lipitor Pfizer 12401 Ranbaxy
2 Plavix Bristol Myers 9004 Apotex
6 Diovan Novartis 5740 Ranbaxy
8 Nexium AstraZeneca 5200 Ranbaxy
10 Zyprexa Eli-Lilly 4697 Dr Reddy’s
15 Seroquel AstraZeneca 4452 Teva
16 Singulair Merck 4336 Teva
17 Actos Takeda 3958 Ranbaxy
18 Effexor XR Wyeth 3928 Teva
Sandoz / Teva /
19 Atacand AstraZeneca 3702 Mylan
20 Gleevec/Glivec Novartis 3670 Sun Pharma
Source: MP Advisors
Indian cos. have 180-day exclusivity in 6 of the top 11 products under litigation
26
27. Domestic Formulations – Growth Guaranteed
20
16 → GMP guidelines in July '05
8
→ Excise duty on MRP in Jan. '05 8
12
1 8 7
1
8
%
1
10 9 9 8 9 1
4 9
4 5
0 0
0 1
(1)
(3) (2)
(1)
(1)
-4
8% 5% 7% 9% 18% 13% 13% 17%
-8
2002 2003 2004 2005 2006 2007 2008 2009
Volume Value New Products
Source: IMS
GMP norms earlier and GLP norms now to help consolidation of a highly fragmented
market
27
28. Contract Manufacturing – Generics Gain The Most
Why manufacturing alliances happen only with generic cos. and not with contract
manufacturer?
• Generic cos. are present in various manufacturing technologies with competitive cost efficiencies as against a
contract manufacturer that is limited to a handful of technologies.
• Generic cos. are anyways selling the manufactured product to one or the other generic market and thus have well
oiled manufacturing operations. As against this, a contract manufacturer will have to go through a lengthy validation
procedure.
• For a generic company, most of the time, contract manufacturing would be a way to leverage spare capacity and thus
can offer much more competitive pricing as against a contract manufacturer that has to recover entire overheads
from the contract manufacturing deal.
• Most of the facilities of generic manufacturers are already validated by regulated market’s authorities – something
that is not so easily found with a pure play contract manufacturer.
Gain For Generics is Loss for Contract Manufacturer
28
29. Acquisitions – Can One More Big One Happen?
Why are Global companies interested in Indian Pharma?
• Manufacturing cost efficiency
• Chemistry skills
• Growing India pharma market
• Indian cos. presence in critical emerging markets like Russia, Africa.
29
30. Japan Pharma 2011
日本の製薬会社
Top Picks : Daiichi Sankyo, Takeda, Shionogi
and Torii
!
30
! !
31. Summary
• In 2009 and 2010, our thesis for Japan Pharma Inc was based on drive to reduce healthcare
cost in Japan thru government lead incentives for genericization.
• The Generics thesis has played out for now and spotlight for next 18 months will be on the
clinical & regulatory outcome from Innovators.
• Hybrid Pharma will start from 2011. We believe that the new business model will start
showing its tangible and significant numbers from FY/12. Daiichi Sankyo is the only company
in Japan in Hybrid Pharma.
• Consolidation in Japan Generic may Start: Foreign/ non-generic companies have started
taking Japan generic as one of the growth drivers.
• Early Stage Pipeline of Japanese Companies shows that cancer is priority: Japanese majors
have focused on acquiring companies or in-licensing compounds in Onco therapy. Takeda,
Astellas, Daiichi-Sankyo, Eisai, Chugai and Kyowa Hakko Kirin – each of them possess decent
number of cancer compounds.
• Japanese Companies have Lost Their ‘Cash Rich’ Status: Except Takeda and Chugai, none of
the Japanese companies carry >20% of their market-value in form of cash.
2011-12, Innovation milestones will drive the valuation of stocks
31
32. Segments Specific ‘Key Success Factors’
Segment Key Success Factors Top Picks
Innovators
Domestic focused Low % sale coming from long listed products
Late stage R&D – own as well as in-licensed.
Torii
Internationalization capabilities
Willingness to consolidate
Strong marketing abilities in Japan such that it improves the chances of licensing-in
good products
Global Higher overseas exposure
Lower long listed drugs contribution Daiichi Sankyo,
Takeda, Shionogi
Rich PhIII pipeline
Generics
GP1/DP2 Strong marketing infrastructure with sales force and rapport with GP / DP
Oral formulations etc.
DPC3 Distribution capabilities
Injectable facilities, availability of all strengths of drug
Cost effectiveness, stable supply
1. General Practitioner; 2. Dispensing Pharmacy; 3. Diagnostic Procedure Combination
JP Specific Drivers Continue To determine Success
32
33. Large Pharma – Rich Pipeline
PhI PhII PhIII
candiid candid candid
Company ates ates ates Major Focus Comments
Takeda 19 9 13 Cancer Novel, varied targets for cancer
Cancer & R&D portfolio w ith some novel first in class targets,
Astellas 20 15 8
metabolic like survivin suppressant, GPR119 agonist
Neurology & Antibody against folate receptor alpha, taregting
Eisai 0 10 7
cancer cancer, can be a useful anticancer agent
Diabetes,
Neurology,
Mitsubishi Tanabe 11 10 5 Good novel targets in different therapeutic class
Cardio &
immunology
Cancer &
R&D porfolio consisting of antibodies for cancer, w ith
Daiichi Sankyo 7 10 5 infectious
some good target like PPARY
diseases
Metabolic &
Neuropeptide Y Y5 receptor, a very attractive target
Shionogi 8 9 4 infectious
for obesity, but success rate low
diseases
Has tw o first in class targets, Chemokine receptor 4
Kyow a Hakko Kirin 13 6 2 Cancer
antagonist & A33 for cancer
Novel validated targets for cancer, w orking on
Chugai 9 10 1 Cancer
Raf/MEK pathw ay
Diabetes &
First in class targets like TLR7 & PPARα/Y can be
Dainippon Sumitom 7 4 0 immunological
attractive
disorders
Source: MP Advisors; Company Reports
Japanese Companies show that cancer is a priority
33
34. Cost Cutting : Japan vs. Other Sectors
GPM SG&A R&D OP M NP M
% of Sales (% of Sales) % of sales of Sales of Sales
% %
Takeda 80.02 31.50 19.95 28.57 18.96
Astellas 70.17 33.48 21.55 15.13 9.83
Daiichi Sankyo 70.84 39.13 20.17 11.53 5.55
Eisai 78.73 46.42 21.73 10.58 5.50
Mitsubishi Tanabe 63.66 28.21 20.76 15.47 7.75
Kyorin 62.50 37.17 11.92 13.41 8.92
Dainippon Sumitomo 67.33 40.41 17.84 9.08 5.19
Kyowa Hakko 43.47 23.09 10.43 9.95 5.44
Shionogi 73.29 34.84 18.61 19.84 12.72
JAPAN AVG 67.78 34.92 18.11 14.84 8.87
US Global 77.44 28.16 18.77 30.09 22.84
EU Global 74.65 30.90 17.03 31.99 22.01
M. Biotech 82.15 22.21 17.65 40.92 33.52
India 60.59 25.41 4.91 21.78 19.72
Diff vs. US-Global -12.48% 24.01% -3.53% -50.69% -61.14%
Diff vs. EU Global -9.21% 13.01% 6.30% -53.61% -59.68%
Diff vs. M. Biotech -17% 57% 3% -64% -74%
Diff vs. Indian 12% 37% 269% -32% -55%
*Average of three y ears (2010-2012)
Source: MP Advisors; Company Reports
Low Margin Business = Better Room for Improvement
34
36. Cash Position of Japanese Pharma Cos
Net
Marketed Total Total Net Cash
Cash cash
Company Securitie Cash Liabilities M Cap as % of
(1) (1+2)-
s (2) (1+2) (3) M Cap
3
Takeda 280.5 616.5 897.0 0.0 897.0 3074.6 29.2%
Chugai 120.9 52.2 173.1 0.0 173.1 819.9 21.1%
Kyorin 16.0 5.0 21.0 6.2 14.8 101.7 14.5%
Astellas 184.0 22.2 206.2 30.0 176.2 1419.4 12.4%
Mitsubishi tanabe 29.2 77.6 106.9 36.0 70.9 738.8 9.6%
Kyowa Hakko NA NA 46.7 13.3 33.4 488.3 6.8%
Daiichi Sankyo 101.1 281.5 362.3 293.6 68.7 1289.7 5.3%
Shionogi 42.3 72.1 114.4 99.0 15.4 516.4 3.0%
Eisai 116.1 88.0 204.1 349.8 -145.7 816.9 NA
D Sumitomo 14.7 74.4 89.1 168.2 -79.0 291.3 NA
Source: MP Advisors; Company Reports
Japanese Companies have Lost Their ‘Cash Rich’ Status
36
37. Domestic Cos Confronting Several Fronts
Mar-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 48.14 50.16 50.21 46.17 43.61 38.35
Astellas
Overseas Sales % 46.77 45.77 43.49 42.08 40.02 42.89 44.15 46.30 48.29 51.21
Long L As % of DO Sales 32.12 26.80 18.51 21.82 19.44 23.17 26.82 19.66 18.12 16.65
Chugai
Overseas Sales % 9.72 9.70 6.25 7.05 8.00 9.41 9.51 9.54 9.27 9.36
Long L As % of DO Sales 28.98 31.81 47.26 56.14 52.37 48.59 45.79 44.46 43.43
Daiichi Sankyo
Overseas Sales % 38.6 44.7 50.4 50.9 52.0 54.8 54.2 57.5 58.0
Long L As % of DO Sales 16.68 41.04 71.73 70.01 67.55 61.51 57.91 59.96 55.51 51.37
Dainippon Sumitomo
Overseas Sales % 7.31 7.99 7.27 17.80 36.41 34.62 35.18 32.09 30.15 25.26
Long L As % of DO Sales 28.02 26.21 28.69 27.95 45.27 78.57 75.68 74.64 71.40 62.18
Eisai
Overseas Sales % 57.30 58.53 64.26 61.58 59.42 55.99 58.49 58.00 60.03 65.13
Long L As % of DO Sales 41.40 39.32 32.81 29.71 28.07 27.14 25.63 24.32 23.09 21.91
Kyorin
Overseas Sales % 4.15 3.70 2.75 2.36 2.12 1.93 1.78 1.74 1.61 1.49
Long L As % of DO Sales 23.72 21.15 23.86 34.96 33.04 31.33 32.16 36.53 34.89 33.32
Kyowa Hakko Kirin
Overseas Sales % 3.44 4.16 6.69 4.89 5.16 5.05 5.00 5.04 5.08 5.11
Long L As % of DO Sales 65.11 60.68 60.93 59.41 61.62 57.29 52.71 49.21 59.85 57.77
Mitsubishi Tanabe
Overseas Sales % 5.81 6.10 5.65 5.20 4.94 4.73 4.46 4.18 3.95 3.83
Long L As % of DO Sales 44.85 39.67 49.65 42.22 37.66 32.24 26.95 22.17 18.37 15.74
Shionogi
Overseas Sales % 14.44 15.81 24.65 36.33 38.50 39.18 40.05 39.28 39.08 38.26
Long L As % of DO Sales 14.93 19.31 19.51 23.00 28.91 27.97 27.37 45.31 44.43 43.64
Takeda
Overseas Sales % 33.82 49.69 54.80 53.16 50.51 52.38 45.27 46.43 47.23 49.68
Source: MP Advisors; Company Reports
High Dependence on Domestic Markets + Long Listed Products
Makes Do. Cos Vulnerable to Healthcare Reforms
37
38. Revised Incentives For Pharmacies and GE Usage Rate
Rate of GE (%) Rate of GE (%)
(on prescription basis)
GE usage rate (o n volume basis)
Relative Cumulative
Relative number Cumulative Total
Until March, 2010 Since April, 2010 number Total
Standard for 9.7 9.7 65％≦ 0.1 0.2
calculation on prescription basis Incentive points (¥) 4.3 14 60％≦ 65％ 0.2 0.4
5.5 19.6 55％≦ 60％ 0.3 0.7
GE drug 30％≦ 4 points + 13 points 17 points (170yen)
7.4 27 50％≦ 55％ 0.5 1.2
usage rate 25％≦ 0 points ＋13 points 13 points (130 yen) 9.9 36.9 45％≦ 50％ 1.0 2.2
20％≦ 0 points ＋6 points 6 points (60 yen) 13.3 50.3 40％≦ 45％ 1.5 3.7
20％＞ 0 points ±0 points 0 points 16.5 66.7 35％≦ 40％ 2.4 6
15.3 82 30％≦ 35％ 4.0 10.1
Source: MP Advisors; Company Reports
8.1 90.1 25％≦ 30％ 7.3 17.4
5.1 95.2 20％≦ 25％ 13.3 30.6
2.6 97.8 15％≦ 20％ 25.5 56.1
1.3 99.1 10％≦ 15％ 30.7 86.8
0.6 99.7 5％≦ 10％ 11.5 98.3
0.3 100 0％≦ 5％ 1.7 100
42.6 Average rate 18.2
40.1 Median rate 16.0
Generics Investment Thesis:
• Increase in incentives for pharmacies has led to a spur in generic sales (~50% increase in 1Q FY 03/11)
• Growth will not continue as number of pharmacies (~82% of total) have now reached the ‘bracket’ that gets the maximum benefit of
‘Rx incentive for generics
Incentives for Pharmacies are playing out their maximum impact 38
39. Generic Cos at a Glance
Sawai Towa Nippon Chemi
03/10 03/11 03/12 03/13 03/14 03/10 03/11 03/12 03/1 03/14 03/10 03/11 03/12 03/13 03/14
¥b A E E E E A E E 3E E A E E E E
Sales 50.1 61.6 72.3 82.6 90.5 39.0 44.2 49.5 56.2 63.0 24.0 28.6 30.9 33.7 36.1
% Change YoY 13.1 23.0 17.4 14.3 9.5 8.7 13.2 12.1 13.4 12.2 7.5 19.3 7.9 9.1 7.1
COGS 26.3 32.6 38.3 44.2 48.2 18.8 21.3 23.7 26.8 30.0 11.4 14.7 15.8 17.3 18.6
SG&A 11.7 12.8 15.2 17.5 19.1 9.9 11.0 12.3 14.2 16.0 11.8 12.8 13.7 15.0 15.9
% of sales 23.3 20.8 21.0 21.2 21.1 25.5 25.0 24.8 25.3 25.3 47.8 44.8 44.3 44.6 44.1
R&D 3.6 4.2 5.0 5.6 6.4 2.6 3.1 3.4 4.0 4.5
% of sales 7.2 6.8 6.9 6.8 7.1 6.6 7.1 7.0 7.1 7.2
OP 8.5 12.0 13.8 15.3 16.8 7.8 8.8 10.1 11.2 12.5 0.8 1.1 1.4 1.4 1.6
% Margin 17.0 19.4 19.2 18.6 18.6 19.9 19.8 20.4 19.9 19.9 3.2 3.9 4.6 4.0 4.5
NP 5.0 6.6 8.2 9.1 10.0 4.6 5.3 6.1 6.5 7.3 0.3 0.5 0.7 0.7 0.9
% Margin 10.0 10.7 11.4 11.0 11.0 11.8 12.0 12.3 11.5 11.5 1.1 1.9 2.4 2.1 2.4
Source: MP Advisors; Company Reports
Generics Investment Thesis:
• Broadly generic market is divided into two segments: GP/Dispensing market and DPC market
• Companies focusing on the GP/Dispensing market: Companies ability to offer better margins remains the key success factor. Growth in
dispensing Pharma market due to increase in incentive of pharmacies. Companies like Towa and Sawai focus on these segments.
• Companies focusing on the DPC market : Number of DPC hospitals are >1500 and likely to grow further. Stable supply, availability of
formulations at different strengths, and a strong distribution channel with wholesalers are key growth drivers. Companies like Nippon
Chemiphar, Eisai’s and Kyorin’s generic divisions etc. focus on this segment.
• We expect generics penetration to reach ~8% (by value) by 2012 (Government’s target is 15%. The new patent expiries of ~900b yen in
next three years will help generic companies maintain current pace of growth.
39
