Panacea Biotec - Vaccines For Growth

Panacea Biotec (PBL) is the first Indian pharmaceutical company to launch innovative branded combination vaccines such as Ecovac, Easyfour and Easyfive. The market for combination vaccines is still at a nascent stage as there are only four companies globally who have the required WHO pre-qualification to supply the pentavalent vaccine that covers five diseases to the UN agencies. PBL has entered into a very lucrative agreement with the UNICEF to supply 75 million doses of the pentavalent vaccine Easyfive. The order will generate close to USD 222 million cumulative sales for the company from CY10-12. Easyfive is an extremely low competition product with only four players (Panacea, GSK, Berna Biotec and Shantha Biotec) having WHO pre-qualification globally. Also, the company’s new facility in Baddi should be operational by Q1FY12 which will benefit the company as it will be able to sell combination vaccines to private practitioners apart from UN agencies.

The company has received an order for 130 million doses of the Bivalent Oral Polio Vaccine (BOPV) this year. The overall sales generated are believed to be close to USD 20 million in FY11. The EBIDTA margin in the BOPV space is also significantly higher and its sales are expected to go up as it has been found to be a better product than TOPV and MOPV. It is believed that the BOPV vaccine will be used significantly by the Indian government as a single drop protects against two deadly strains of polio i.e. P1 and P3. PBL is also the only second Indian company after Cadila to have launched the swine flu vaccine. The company has a capacity of producing 45 million doses. PBL has an SBU-based domestic formulation business model with a clear focus on only niche segments like organ transplant, pain management, oncology, diabetes, CVS, osteoporosis and gastro – diseases that are growing at a much higher rate than the overall domestic pharma growth due to the lifestyle changes in India. The company has a strong field force of 1,485 with fresh sales employees added during the year to expand its reach into newer regions in India. The Baddi facility has received USFDA approval and is expecting product launches to happen in the USA and Germany from Q2FY12 onwards. This will shoot up its formulation exports significantly.

For the recently concluded 9MFY11 period the company has witnessed better performance in terms of both topline and bottomline. Its topline witnessed a growth of 26 per cent on a YoY basis for 9MFY11 and was Rs 807 crore as against Rs 581 crore. The bottomline witnessed a significant jump as it has improved from Rs 22.50 crore in 9MFY10 to Rs 92 crore for 9MFY11.

The operating and net profit margins were 25 per cent and 11 per cent respectively for 9MFY11 as against 20 per cent and 5 per cent during the same period last year. The company discounts its trailing 12-month earnings by 7.30 times and its EV/EBITDA stands at 7.85 times. We believe that the company is an ideal candidate to find place in one’s portfolio with an expected return of 10 - 15 per cent from the present levels for a one year time horizon.