Torrent Pharma Ltd


(Vishnu Ch) #126

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.

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• Draft Guidance on Conjugated Estrogens (CE) Tablets (Dec 2014)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.


(Vishnu Ch) #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.

MEAT - Most Economically Advantageous Tender

Tender systems for outpatient pharmaceuticals in the European Union


(Rajesh_R) #128

Great write up. Any idea what is the timeline for implementation of GDUFA?


(Vishnu Ch) #129

Thanks for feedback.

GDUFA is an ongoing implementation which was planned for 2013-2017.

Infact, they have started public meetings/negotiations with stakeholders on GDUFA II to handle the next phase from 2018.

GDUFA was a result of the huge ANDA backlogs and the necessity to upgrade the approval process/systems by FDA.
Now that, significant progress has been made on that front, FDA wants to step it up to the next level.


(Divi) #130

Why it is hammered today…is it sector rotation…I mean in to GST stocks…


(Hitesh Patel) #131

Looks like some re balancing in msci index. (could be small and midcap index re jig)

charts of maruti, ccl, cadila, torrent are similar with lots of volumes.

upticks with high vols in some textile stocks like indocount, welspun, himatsingka etc.


(JKS) #132

here is the link for Nov additions and deletions


(JKS) #133

cadila was not in the list of deletion but still got a downtick today…and several in the inclusion list, like Can Fin and TVS Srichakra did not have an uptick either…the fall in Torrent was heady indeed and it sank to 1403 briefly


(Hitesh Patel) #134

thanks.

In the list i see a name called risa intl. no idea about company but its price crashed from around 350-400 in nov 2014 to currently around 5-6…

So much for the msci list. :joy:


(JKS) #135

Its a lot of sentimental value and supposed to provide an instant access to the FIIs but I guess any sensible FII will not merely look at this list alone before investing…my 2 cents - like many things - this too will pass…


(Srinivasan Sundaram) #136

Dr Reddy’s pain may bring gains for Torrent & Cipla

By Jwalit Vyas, ET Bureau | 2 Dec, 2015, 02.03AM IST

ET Intelligence Group: In a weird twist in the pharma land, Dr Reddy’s Laboratories’ loss due to the delayed launch of a generic drug may in fact benefit the investors of Torrent Pharmaceuticals and Cipla in the short term. The drug in focus is the generic version of Nexium, a heartburn pill, which has earned over $5.5 billion for the owner AstraZeneca so far.

Dr Reddy’s pain may bring gains for Torrent & Cipla Torrent Pharma got an approval to sell the drug’s generic version last month. Cipla, too, will benefit since it is supplying ingredients to Teva, another foreign pharma company, which is selling the generic version.

Dr Reddy’s launched Nexium’s generic version in September end. The move was immediately challenged by AstraZeneca because Dr Reddy’s version came in purple, which was starkly similar to the patented drug. This resulted in a temporary restraining order on Dr Reddy’s Lab.

Recent appeal by Dr Reddy’s has also been turned down last week by the Delaware Federal judge. Some analysts believe that the recent observations at Dr Reddy’s plants would need a side transfer which could further delay the re-launch of Nexium. A side transfer is manufacturing the drug at some other plant and may need plant approvals by the USFDA. The benefit to other pharma players may not be necessarily in market share gain. “The operating margins of such drugs are around 80% and a new entrant can really create price erosion,” said Nimish Mehta of Research Delta Advisors, a pharma focussed research firm.

According to the US healthcare information provider IMS Health, Nexium’s branded and generic sales put together amounted to around $5.2 billion or `35,000 crore in the end of July.


(Rohit Ojha) #137

Teva divesting $1 billion in assets to clear Allergan deal

The assets that Teva is divesting span the United States, Europe and the Middle East, and will be sold in a series of processes that are expected to be completed in early 2016, the sources said. Teva expects to complete its US divestitures by January, and has received offers from a number of generic pharmaceutical companies, one of the sources added.

Read more at: http://www.moneycontrol.com/news/world-news/teva-divesting-361-bnassets-to-clear-allergan-deal_4457341.html?utm_source=ref_article

This asset sale is in addition to the following news
Teva needs to sell a range of overlapping generic drugs in order to gain antitrust approval for its $40.5 billion purchase of Allergan Plc’s generics business. The portfolio contains about 35 generic products for the US market, including oral solids, capsules, soft gels and hormones, one of the people said.

So if I understood it correctly, there is a drug portfolio as well as assets up for sale.
Torrent is in a sweet spot to benefit from any good opportunity that comes along.


(Srinivasan Sundaram) #138

Will it have any impact on Torrent?

Pfizer Enters Into Agreement With Catalent

Mon, 12/07/2015 - 10:23am by Northern Exposure

Catalent Pharma Solutions announced that it has entered into an exclusive long term supply agreement to produce Pfizer Inc.’s leading over-the-counter (OTC) heartburn treatment, Nexium® 24HR (esomeprazole), also marketed as Nexium Control® outside the United States.

Under the agreement, Catalent’s Winchester, Kentucky, facility will formulate and manufacture the 20 mg Proton Pump Inhibitor drug into enteric coated, delayed release pellets using fluid bed technology. Catalent will also encapsulate these pellets into two-piece, hard-shell capsules, where the company has invested extensively in capsule banding technology required for OTC products.

Pfizer secured the exclusive global rights to market Nexium for the approved over-the-counter indications from AstraZeneca in 2012. Nexium 24HR is now the number one OTC heartburn brand in the US. AstraZeneca continues to manufacture and sell the prescription product.

“Nexium is one of the leading global OTC medicines and its manufacture is well suited to our recently expanded Winchester facility, where we have both the capacity and flexibility to accommodate programs of this scale,” commented Barry Littlejohns, Catalent’s President of Advanced Delivery Technologies. “We are proud to partner with Pfizer on delivering this important product to patients worldwide.”


(Hitesh Patel) #139

The agreement is for making the drug for Pfizer on a contract basis. And that will be sold outside the US.

As far as I can make out it has no impact on Torrent Pharma.


(Srinivasan Sundaram) #140

Thanks for your immediate response


(Sathya N) #141

Dear Hitesh Bhai,

I am fairly new here and want to understand what would be the reasons behind why Torrent the stock is not reflecting all the good results / news which have emerged over the last few months.

What is the usual trigger that pushes a stock like this suddenly into orbit? I would have imagined that usually the steep upward movement comes when funds / institutional investors move in and start accumulating in a big way.

If that is the case i would have thought, a stock like this with reasonable coverage and positive news / result flows and especially with a much lower pe ratio compared to its peers would have come into the radar by now. Especially in a time like this where the valuations of usual favourites appear stretched and the funds are looking to find value elsewhere to park all those new cash that the mutual funds have received in the last 12 months.

Or is it an indication of something amiss in the narrative? For example I read that Satyam was always traded at lower valuations compared to the other big 3 for years before the scandal broke out. So has the market or the big movers in the market had known that something is missing in Satyam even though they were not able to point out exactly what the problem is.

I am by no means suggesting that there is anything wrong with this script. I am just trying to understand how and why the trigger comes.

Thank you for your contributions to this thread and to VP overall! It is much appreciated!


(Hitesh Patel) #142

Stock price movement is a function of the collective wisdom of markets. And its difficult to make out what moves the stock price.

But over a longish period of time say more than 6-12 months time frame, stock prices do tend to follow earnings.

In case of torrent market concerns may be related to the perceived lack of blockbuster molecules post these abilify, detrol and nexium. (I am not too sure what kind of concerns may be there in marketmen’s thoughts)

But as I have written somewhere else, I am not too bothered about these temporary gyrations in stock prices especially when I am not on the lookout to raise funds by selling the stocks. :grinning:

Usually the triggers for stock price rise esp sustained rise is sustained rise in earnings and high dividend payouts.

Both these triggers are still some time away.

Many a times its the positive surprise that moves stock prices. e.g better than expected earnings or order booking or any other kind of surprise that seems to be good news for the company


(ANANT JAIN) #143

Just to add to Hitesh Bhai’s point: Currently the pharma sector (large caps) are going through some kind of re-rating. People have seen what USFDA issues have done to IPCA, Dr. Reddy’s and Sun Pharma. Most of the time market tends to overplay the negative/positive news. In case of Torrent multiple factors such as the sectoral derating, perceived absence of long term pipeline combined with the overall decline in equities is playing out. FDIs have pulled out massive money from the markets and Pharma was their sector. At the same time torrent with a market cap of nearly 25000 crores is actually a large mid-cap and it will not move into a different orbit without institutional interest unlike the sub 2000 crore market cap companies.

I have found a strange kind of herd mentality in how funds behave, they are fine being collectively wrong instead of taking a risk of standing out and being right. As far as numbers are concerned, for torrent it is relatively easy to work out (rough idea of marketshare of various formulation their prices the taxes paid etc.) As Hitesh Bhai said a rise in earnings will be followed by a rise in money paid out to investors and sustained performance and other superior business parameters will force the market to notice it. The same funds which shun companies come around again with a different set of reasons. I would advise you to go through their conf calls where they talk of their dividend payout ratio and upcoming surprises. Finally quoting Buffet “In the short run the markets are a voting machine but in the longer run they are a weighing machine”. Go through the story, build your own conviction, assess the risks anxd take a call.

DIsclosure: Invested. Forms more than 10% of my portfolio.


(Rupesh Tatiya) #144

I don’t even come remotely close to being an expert on Pharma but IMHO Torrent Pharma is not cheap.

Let me quote Graham’s advise on EPS:
“Don’t take a single year’s earnings seriously. The second is: if you do pay attention to short-term earnings, look out for booby traps in the per-share earnings figures”.

TTM EPS for Torrent is 73.
Given the blockbuster sales of abilify and nexium and problem for competitors, we can annualise half year EPS for FY16 - which comes to upwards of 110.
That makes the stock look cheap on P/E metric.

But question we have to ask is is this earnings sustainable? Based on my limited understanding, it might not be. So if we aggressively assume 30% EPS growth rate for FY15 earnings, sustainable EPS might comes to 55 (FY16), 72 (FY17), 93 (FY18).
Assuming 20 P/E ratio for FY17 earnings, stock has fully priced that in.

So one can say only an enterprising investor who has intricate understanding of the Torrent business can invest at these levels.

Disc: Invested at current levels, 3% of portfolio, not looking to add more unless something changes significantly


(Raj) #145

Different opinion makes the market and a stock is cheap for some reason. Let me start with this.
I have some counterargument to the points you made.

US/Other Generic Business:

  1. The talk of one time gain is over hyped in my view. After a windfall gain the prices will stabilize at much lower level(1-3% of the innovator’s price as per management). The key is to have a good generic pipeline which seems to be a concern for market. However, management has clearly told that they will be filing 15-20 ANDA every year from FY17. So this will be taken care in due course.
  2. The windfall gain can be used to clear 2400cr. debt or acquire another company/brands which will go very well for company’s earnings.
  3. Management is on records that they will have the US business at $500million by 2020. This is more than 4 times of FY15 US sales.
  4. Their Brazil and Europe(Germany, UK primarily) will also stabilize in due course which is facing currency issues.
  5. The new facility at Dahej will take care of the growing export needs.

Domestic Business

  1. This also is expected to grow around 15% compounded for next few years. The acquisition of brands from elder is really helping the company and two of them are in 100cr+ sales league.

Overall, I feel Torrent will do very well for next 4-5 years and market men will jump only when the earning consistency fear goes off.

Disc: Invested with more than 10% of portfolio.