Torrent Pharma Ltd

Stock Opportunities Not-so-Hidden Gems
106

I think the expectation of 2200 crores odd sales in q2 from torrent was a bit too much. Esp in view of increased competition and price erosion in abilify.

Domestic growth was lackslutre but it was a deliberate strategy by the management as oulined in concall post q2 results.

On positive side there are two news

First is that Dahej facility has started production in line with expectation and

Elimination (albeit for a short period) of DRL and Hetero from nexium opportunity.

Negative is that market itself is weak and pharma sector is hurt sentimentally by problems faced by DRL and Sun.

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107

My guess…it is all based on some excel formula. :grinning: i am sure that a quick validation check is done with the management but any management tends to be positive, so far out into the future

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109

Thanks Hitesh bhai.

I think the key trigger market is waiting for is some US based acquisition from Torrent. Given that they did not repatriate any cash from bumper US sales, and maintaining standalone debt indicates that management is keen on acquisitions.

Also, any inorganic growth would fill up the void from one off abilify sales in FY16. After Cipla and Lupin, Torrent might be next in line.

Data Source

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110

Rudra,

Its difficult to gauge what markets think in such a range bound markets. But usually once a price threshold is crossed, most of the concerns are forgotten and the mood and appetite for the stock suddenly changes.

Regarding acquisition, it might take a while for the company to narrow down a company which suits its purpose.

I feel even without acquisition, co seems on track.

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111

There have been phases in the Torrent journey (mostly pessimistic ones) for around 6 - 8 months. Most of the serious investors including sell side guys have been aware of Torrent’s thin product pipeline for US for quite a long time. But lets look at few of the issues over the past 4 - 5 months:

  • Pre-gAbilify Launch: It was expected that gAbilify is going to be a hyper competitive molecule with biggies like Sun & Cadila (they still have tentative approval) expected to launch on Day 1 along with smaller players like Torrent & Alembic apart from other generic companies like Teva and Hetero. However, Sun & Cadila have still not been able to launch (most probably due to 483 issue). Torrent as we all know has surprised even the biggest optimists in terms of revenue and profits generated from Abilify during Q1 and Q2. Till date, there are just six generic players in the market and Torrent has been able to retain market share of around 9% share (as per latest Bloomberg data). As per the last concall, the pricing has reduced but its still around 15 - 20% of the innovator price. Post the stellar results, brokerages have raised concern how FY17 is expected to pan out. Going forward in FY17, lets assume more players enter and prices decline further to 5 -6% of the innovator price and assuming 9 - 10% market share given company has been able to maintain relationship with the existing retail chains (as indicated in the last concall), we can still expect them to do around USD 40 - 50 million sales from Abilify sales in worst case scenario given its still an at risk launch. The good thing about Torrent is that they have been able to successfully milk this big opportunity till date and generated healthy cash flows from it.
  • Risk related to depreciation of Brazilian Real: This happened post the Q1 results post the downgrade in Brazil’s sovereign rating. As the company doesn’t disclose geography wise margins it is very difficult to gauge margins from Brazil business but as per few research reports they were pretty low every before the depreciation. The good thing, however, unlike their German business, is that it is still doing well on constant currency basis with 15 - 20% growth over the past few quarters.
  • Approval of gDetrol and gNexium: The company has got approval for these to molecules much before many of us expected (I was expecting them to get approval for Nexium in December - January). They have been successfully able to get good market share in gDetrol with around 11% market share as per Bloomberg data. gNexium is a big molecule with still not much competition. Both these molecules are expected to drive their FY17 sales in the US market.
  • Domestic market: The company is taking right steps in the domestic market like acquisition of Elder’s portfolio, rationalisation of the MRs and increasing their productivity, focussing on high growth segments etc. Their last concall post Q2 seem to be pretty bullish with the management targeting industry leader’s (Sun’s) margins. Although, such claims should be taken with lot of pinch of salt but it still shows management’s focus on improving margins.
  • Future pipeline: For FY17, at least in the US markets a lot will depend on one major molecule - gCrestor. Its still a growing molecule with market size of more than USD 5 billion but has 10 tentative approval for generic players till date and is expected to be competitive. Apart from these one time opportunities, their base business is also doing well with company being market leader in few of these molecules. One thing we should keep a tap is their ANDA filings - Zero filing in H1FY16 is a concern but management has indicated that they intent to file 15 - 20 ANDAs from FY17 onwards and we should start seeing a glimpse of that from Q1FY17. They have started hiring scientists for R&D and have increased their R&D spent which is a step in right direction.
  • Acquisition of ANDA portfolio/companies in domestic market or US: One thing became clear from the balance sheet as on September 30, 2015 and post the concall that company is building cash and not prepaying debt that they had taken for Elder acquisition. The management also indicated that they are evaluating various options in domestic as well as foreign markets (majorly US). There can be various opportunities which can crop up like few ANDAs post Teva - Allergan merger etc. The company had also acquired few molecules in the past post Sun - Ranbaxy merger. Management had indicated that they are pretty much prudent in terms of valuations and dont want to overpay.

I think as Hitesh bhai is saying we will need to show some patience here and give some time to management.

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112

Excellent Write - Up Ankit! Kudos to your efforts

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113

Excellent - thanks to Hitesh Bhai and Ankit Bhai…

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Can anybody help me in getting the list of B2B pharma and B2C pharma companies…
I have google but could not find it.

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Not sure. May be helpful

http://indianpharma.in/index.php

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divi,

Look up standalone API manufacturers who would be pure B2B players.

Some companies that immediately come to mind in the B2B space are

Smruthi Organics, Shilpa Medicare, Syngene, Divis labs, Indoco remedies (part of their business is b2b), etc

B2C are plenty… Ajanta, Alembic, Torrent, Lupin, Sun, Cadilla, just to name a few.

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117

Aren’t all the Motilal Oswal “could-be” 100 bagger companies from pharma space mentioned last year are or have majority business as B2B : Shilpa Medicare / Granules India / Suven / Aarti Drugs ?

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Normally B2B pharma companies should have less impact from USFDA…as FDA check get it done by their customer.

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Q2 investor update:

http://www.torrentpharma.com/pdf/Torrent-Investor-Update-Q2-2015.pdf

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121

thanks rajesh for the presentation link.

Torrent Pharma seems to be getting more savvy in its investor relation dept.

Most of the points covered are talked about in the q2 concall.

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I like the way management is focusing on key geographies and has good plan for each of them.

Since 18 to 20 ANDAs are to be filed in next 12 months, I am wondering how long does USFDA takes to approve an ANDA?

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3 to 12 months required for ANDA approval

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ANDA approval usually takes an average 3 to 4 years from the date of filing and can also extend further if USFDA wants some clarifications from the company. Also, the approval depends on exclusivity expiration of the innovator. The USFDA under the Generic Drug User Fee Agreement (GDUFA) has increased various fees like filing fees for DMFs and ANDA to recruit more manpower and clear the ANDA backlog and reduce the approval time for ANDA.

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125

http://www.tribuneindia.com/news/punjab/ima-chief-in-dock-for-taking-money-from-pharma-firms/162513.html

IMA chief potentially bribed by torrent?. The amounts seem to be small and the best they could have got is to have torrent products endorsed in conferences/meetings. What could be other motives?

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First off, huge thanks to @sharemarketgen_ for an engaging offline discussion on Torrent.

While reading through various FDA presentations, a picture of positive tailwinds was forming in my mind and it made me to have a relook at Torrent.

Future focus on the below 2 areas.
Complex generics
ANDA filings accelerated from Q1 2016-17

Big ramp–up in ANDA Approval timelines from 3 yrs (Y1-Y3) to proposed 10 months (Y4 and Y5) based on latest GDUFA updates from OGD, means the lack of ANDA submissions in FY15 and FY16 is not big impact.

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This is backed by the pace in progress of the CDER Platform which has become single point of source for information compared to earlier disjointed systems/architecture. (Will post detailed info on Ananth’s thread in the weekend)
Early signs are positive, but proof is in eating of the pudding!

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GDUFA is continuing to spend efforts and providing grants for research on finding methods to determine and define product equivalence of Complex Generics.

GDUFA Regulatory Science 2015 - Robert Lionberger, FDA
http://www.fda.gov/downloads/ForIndustry/UserFees/GenericDrugUserFees/UCM434325.pdf

Highlights of Work in Progress
• Complex Active Ingredients
– LMWH, peptides, complex mixtures, natural source products
– Multivariate data analysis for complex mixtures in collaboration with FDA labs
• Advancing In Vitro Equivalence Methods for Complex Formulations
– 7 grants on semi-solids for topical or ocular delivery
– 6 grants on liposomes/sustained release implants
• Complex Drug-Device Combinations – DPI, MDI, nasal spray, transdermal system
– Adhesion for transdermal systems

Results
• Draft Guidance on Conjugated Estrogens (CE) Tablets (Dec 2014)
• Outlines detailed recommendations on how to establish the pharmaceutical equivalence of the drug substance and the bioequivalence of a proposed generic CE product. This guidance is the product of many years of collaborative work across CDER.
• Other Complex Product Guidance
– Liposomal Injections: Verteporfin and Daunorubicin Citrate
– Sublingual Film: Buprenorphine hydrochloride; Naloxone hydrochloride
– Transdermal ER films: Buprenorphine and Estradiol
– IUD: Levonorgestrel
– Subq injection: Lanreotide acetate (nanomaterial injection)
– Sevelamer Carbonate: Recommended characterization

http://www.fda.gov/ForIndustry/UserFees/GenericDrugUserFees/ucm370952.htm

Recommend to review through the meeting presentations of the Fall Meetings for the next-gen research on Pharma.
Found papers such as “Nano-similars” and “Generics for Oral Inhaled Drugs: Knowledge Gaps for streamlining Bioequivalence approval?”

At the most simplistic level, somebody needs to replace DRL and Torrent looks a strong bet.

Disc: Sold of my low conviction/allocation pick in Rain Industries to buy Torrent last week.

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127

On UK generic approvals, I found the below information which indicates positive news for Torrent.

Which procedure to follow
You’ll need to follow a specific application procedure depending on the licence you need. You need to use the:
• decentralised procedure (DCP) if you want to market the medicine in the UK and other named EU countries
• mutual recognition procedure if you already have a national licence in 1 or more EU countries but want to market it in others
• national procedure if you want to market a medicine only in the UK
• centralised procedure to market certain types of medicines throughout the EU

From https://www.gov.uk/guidance/apply-for-a-licence-to-market-a-medicine-in-the-uk
Decentralised procedure (DCP)
You should use the decentralised procedure if you want to market the medicine in the UK and other named EU countries.
One state will lead the assessment of the application as reference member state (RMS). The other member states you apply to are called the ‘concerned member states’ (CMSs).
We will normally reply within 24 hours to confirm your booking and issue your product licence (PL) number and DCP number.
As the RMS, MHRA will lead the assessment of your application. The other member states you apply to are called the ‘concerned member states’ (CMSs).
The procedure takes up to 210 days, excluding time taken to provide further information or data required.
If the application is approved, the MHRA and each CMS will issue a national licence for the product within 30 days of the approval being granted.

Based on the below Snapshot, Torrent is using the DCP and not mutual recognition procedure.

EU DCP: International collaboration for the evaluation of generic drugs
Related information
• International activities
International Generic Drug Regulators Programme (IGDRP)

From https://www.tga.gov.au/media-release/update-2-eu-dcp-international-collaboration-evaluation-generic-drugs

This would imply that EU(Germany) Approved Generics need not be re-applied for UK, as per the EU DCP collaboration program.

Next question is the distribution in UK, which is tender based like in Germany.

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MEAT - Most Economically Advantageous Tender

Tender systems for outpatient pharmaceuticals in the European Union

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