Alembic & Alembic Pharma


(Nityanand) #312

Met a key person of Alembic last month. during the informal discussion he said below points
a. The exclusivity for the drug is for 6 months when the company gets the ANDA approval
b. After getting the approval if the price is say $100 then after the patent expiration it becomes $50 and after the exclusivity it suddenly drops to $10 or nearby that level depending on the competition. So the price erosion depends on how much competition is there for that particular molecule which depends on number of players who has got the approval for that particular molecule
c. When any pharmaceutical company gets approval suppose say Alembic has got approval on 29Apr 2015 then it has to be in the market i.e. the supply of that drug should start from that day itself
d. if there is any kind of delay from that company in getting the product to the market then it erodes significant portion from their revenue as competitor may eat their share
e. This requires really good amount of skill from the Management side to execute the delivery in timely manner

So for Abilify I can see there were few players available but for other approvals there was stiff competition.

Disc: Still joining various dots in the Pharma space. Correct me if I am wrong.


(Ranjan) #313

Alembic posted an EPS of 38/- in FY16. However, analysts are predicting an EPS of just 22/- for FY17. Does our valuespickr members believe that such a profit erosion will happen due to more competition in Abilify? If such is the case there is no point buying now at 30 P/E. Please suggest.

Disclosure: Not invested and tracking


(Nishant Kandoi) #314

I think 22 eps is a reasonable estimate for FY17 by analysts, given the margins pressure coming in from higher R&D cost. But pre R&D expenses, the EBIDTA margins is on the rise for Alembic on FY15 base. See, recent concall transcript for more info.

I think we should not really focus too much on price erosion of a single molecule ie gAbilify.
There has been a lot of erosion already done. Let’s take a different point of view.

How much did it cost to alembic to develop and file ANDA for gAbilify?
Possibly some higher single digit crores.
How much did the molecule give returns back to Alembic (till now)?
Several hundreds of crores. Thus, the payoff from this molecule in such a short span has been 50-100x. (I might be wrong with the numbers but you get the gist of it right?)

Now one may think that Alembic got lucky because several other companies did not get approval for it. This is absolutely true. This windfall was an extreme low probability event.
However, if Alembic had not even filed an ANDA for gAbilify, there would have been Zero probability of this happening. There is huge huge difference between low probability and Zero probability events.

Why?
Because, its not low probability which matters. Its probability multiplied by payoffs which matters. (Read Antifragile by Taleb for more intutition)

Mathematically speaking:

0.05*100x = 5x
0*100x = 0x

So what crucial lesson did Alembic learn from this?
You have to expose yourself much much more to these extremely rare but still possible events.

How do you do so?
Its obvious. By filing many more ANDAs with potentially huge payoffs, the company gets more exposed to such rare events happening. Thus, alembic is investing heavily into R&D projects. Each project cost might be peanuts compared to the potential payoffs which you can possibly get from it.

Normally, we expect that there would be competition from day 1 of launch as several companies get approval for a molecule at the same time. But as Nityanand has mentioned previously, some companies might end up getting exclusivity for 6 months where there is not much price erosion. Rare events, but still possible.

Now there are many more facets apart from just filing ANDAs and getting approval. Some of them has been mentioned by Nityanand about supply chain execution. Also, one needs to have Manufacturing capacities to produce in huge amounts, should the opportunity arise.

I personally think of filing ANDAs as Making Dices which the pharma company gets to roll once. If you roll and you get “6”, you get a windfall. If you roll the dice and get “4” or “5”, you get a reasonable amount. If you roll the dice and get “1” or “2” or “3”, you get nothing. The more dices you manufacture, the more number of times which you can possibly roll. There is a role of luck, but for that to happen you have to have a dice in your hand. And possibly as many dices as you can.

Abilify was one of the dices which alembic rolled and luckily got a “6”. With the money from this, Alembic is now manufacturing many more dices . We don’t know which dice in future would be a jackpot, but what we know is that Alembic is surely producing many more dices to roll in future.

PS: Invested


(Sandeep Patel) #315

Alembic Pharma… Some data to chew… A sign of things to come…

Source: ARs and Investor presentations.


(Rohit Ojha) #316

Great compilation Sandeep. It really helps to put numbers at one place to connect the dots. I had done a similar kind of work to compile numbers for Torrent and Alembic. It had some blank entries and then forgot about it. Your post reminded me to complete it. :slight_smile: Thanks!


(MHS) #317

One query on the data: No of R&D Projects increased 4 times where as the no. Of scientists increase is around 20% only. Any expert comments/info on this how they handle the projects typically??


(Finrahul9) #318

S.No.
Name
CMP
Rs.
P/E
EBITDA
%
ROIC
%
iv
Rs.Cr.
taxrate
%
EBITDIVIV
%
roiv
%
EPA
epasales
capitalturn

  1. Sun Pharma.Inds. 779.25 29.91 27.98 21.03 41970.96 15.68 21.38 18.03 1271.64 4.27 0.71
  2. Aurobindo Pharma 783.25 21.47 23.7 28.51 11407.52 27.87 26.43 19.07 463.78 3.24 1.25
  3. Alembic Pharma 618.2 15.47 31.06 61.49 1688.82 24.78 58.47 43.98 489.42 14.92 1.94

(Chirag) #319

Can you please reformat your post to make it more readable? Thanks!


(Finrahul9) #320

I was copying it from screener, but not happening. If you know a way , let me know the process. Important observations where I want everybody’s views and comments

  1. EPA -Highest for Sun pharma.
  2. EPA to Sales -Highest for Alembic Pharma
  3. Capital Turnover- Highest for Alembic Pharma
  4. Return on INVESTED capital -HIGHEST for Alembic Pharma.
  5. Invested Capital-Highest for Sun pharma, in comparison alembic pharma invested capital is very small.

(narender) #321

although very old and on strategy (not sure, why title is on lupin), seems more relevant for alembic now!

@finrahul9 what is an epa?


(Finrahul9) #322

@narender EPA =Economic profit Added .This was contributed by @Donald -Sir ji in the blog of Art of Valuation.


(pradip) #323

I did a quick comparison of some of the popular pharma threads in VPickr. I looked at the metrics which I presume are of utmost importance. Based on the comparison, Alembic looks a ‘Strong’ buy to me! Couple of more points -
1.The current valuations is in line with historic valuation. Hence value for money.
2.The current price is slightly depressed due to short term R&D factor. Time to be greedy :slight_smile:


(Finrahul9) #324

@pradip @narender

Few observations

  1. IN 2014 the P/E was approx 32 and the stock was quoting at 410 , today it is quoting at 630 and P/E is approx 17 times. Mainly because of the earning growth.

  2. The cash flow from operations was 180 crores in 2015, and for the year 2016 it is all most 847 crores. This is a big jump. I found that this was basically due to the exports getting double. I still need to check, the sales of which product has doubled.

  3. Based on the average capital deployed for the past 5 years and the profit margin for the past year, the return on capital employed is coming to approx 80%.


(ANANT JAIN) #325

Please go through the thread there is ample information. The last year profits were one off due to the Abilify launch and now after significant price erosion the earnings may come down. Last year earnings cannot be used as base.


(narender) #326

agreed @anant

@finrahul9 read about abilify above…i m very new to pharma (almost illiterate) but what impresses me about this company is their focus on R&D (that’s the only way to grow in this industry with each new molecule and facility requiring approval); and geography (US) and divisions (Specialty division in India).

They know what they want to do and that is a good start (the story has been consistent over a couple of years)…They have a good pipeline under filing, which would improve with higher R&D (and thats why i think is positive). Also, i like these guys historical average return ratios, its pretty decent…

lastly, i m not an expert on fair or intrinsic value; but over last one and a half years, the stock is consolidating in this 500ish range; possibly limiting big downfall…

link to a recently published ic below (be careful, their RnD projections are off the mark):
http://content.icicidirect.com/mailimages/IDirect_AlembicPharma_IC.pdf


(butun) #327

Take out the impact of Abilify and see how the valuation lines up. Thanks Butun


(ramanhp) #328

The degrowth in coming quarters has been frankly spelled out by the management. This comes at a time when R&D expenses have ballooned. Overall the company seems to be doing the right things for future but there can be pain for a foreseeable future.


(Finrahul9) #329

My observations

  1. I read somewhere that even if the margins come down , and you have a high capital turnover, it still gives you a good return on capital. Alembic Pharma has a good capital turnover.

  2. The abilify sales and revenues have not impacted the stock price too much , as I see that in the past 1 year the market cap has gone down .

  3. As mentioned in this thread , that the company has a probability of scaling up due to the number of products in the pipeline.

Disc:Invested.


(Nishant Kandoi) #330

The abilify news was announced to the investor community before its revenues started getting accounted for in the P&L sheet. So the market discounted for that much before it. So, its not really the fact that abilify did not impact the stock price.

And going by your enthusiasm, I would suggest you go through each post of this thread in detail, rather than just surfing through. Believe me, you will get immense knowledge about the company.


(pradip) #331

Butun, if you factor in Abilify erosion and additional R&D expenses in the coming quarters, Alembic will for sure see lower EPS than the last couple of quarters. And hence PE may move to the north of ~25 (compared to ~17 currently). Having said that, the company is all geared for 6-8 new launches this year. Here again, the results will probably be not as good as Abilify. So, overall, the company IMHO will continue to grow. What I like additionally about the company is -

1.High RoE (~30% +)
2.Negligible debt on balance sheet
3.Honest management commentary
4.Zero promoter share pledge
5. @hitesh2710 sir is positive about the company :slight_smile:

And who knows (given the huge ANDA pipeline the company has), there will be many more Abilifys in the future :slight_smile: