Flash Report /
Egypt

Rameda Pharma: Analyst day highlights

    Al Ahly Pharos Securities Brokerage
    13 January 2020

    Overview & Key Highlights

    Market positioning: RMDA the fastest growing pharmaceutical company in Egypt recorded a revenue CAGR of 43% over the period 2016-2018 vs the market CAGR of 27% over the same period. The company is among the top 25 pharmaceutical companies in Egypt. RMDA has a portfolio of around 105 marketed products, selling generic pharmaceutical products both prescribed and over-the-counter. The company currently has 71 molecules in the market and has 219 molecules in its pipeline, amongst which 32 are registered and ready to launch. RMDA operates in 11 out of 16 therapeutic areas in Egypt.

    Upgrades and Expansions: RMDA invested around EGP250mn in years 2016-2018 to renovate and expand its production capacity. All the renovation and expansion works have been successfully completed in 2019 and commenced operations by November 2019, resulting in 20 production lines across 3 factories; among the newly installed lines are 1) 2 lyophilized production lines, a brand new addition to the company, 2) an additional blow-fill-seal production line and 3) an additional cephalosporin production line. The total capacity utilization currently stands at 34% with a new annual total capacity of 550mn units (63% increase compared to 2017).

    Product Pipeline is composed of 219 molecules, with chronic diseases making up around 50% of its pipeline and 50% acute diseases, up from a current 70% and 30%, respectively. Molecule acquisition has been a key growth strategy for the company over the last 8 years, with almost 9 molecules acquired over each of the last two years. RMDA acquired 30 molecules over 2013-2018, at EGP107 mn, with target GP payback of 3 years and target GPM of 50%. In addition, the company applies for the registration of c.4 new products per month, in order to reach molecule additions of around 12-15 per annum, up from the latest 9 per annum.

    Pricing Strategy: The company applies for MoH approvals of price increases for 15% of its products every year. The company adopts the strategy of the first mover in the market to benefit from both higher selling prices and market share. New molecule launches continue to contribute around 50% of group revenue (52% excluding toll manufacturing in 2018 and 48% in 2017) driving up the company’s ASP. The company’s current ASP stands at EGP29 per unit (pack) while the current market ASP is around EGP30, up from EGP6.5 and EGP14, respectively in 2011.

    Sales Mix: Domestic sales are generally sourced from tenders and private sales. Tenders have lower ASP and lower margin, and also longer cash conversion cycle. Going forward, management is targeting 75% private versus 25% tender sales from the current 70% and 30%, respectively.

    Toll Manufacturing is another revenue-generating segment, at 5% contribution and is expected to grow significantly on the back of the newly installed lines such as the lyophilized lines that will cater to the high demand owing to the scarcity of similar production lines in Egypt. RMDA has long term contracts with multinationals as Sanofi, Novartis and Hikma. Toll manufacturing not only contributes to the company’s revenues but is also utilized as a tool to market for the company’s products, and create brand equity and emphasize quality.

    New Export Markets: the upgrade and expansion works aid the company in abiding by the new international standards, in order to continue to export and tap new markets. RMDA as of 2019 used to export mainly to Iraq, Libya, Yemen. Starting in 2020, the company will export to 9 African markets and 3 of the Commonwealth of Independent States Countries (CIS).

    IPO proceeds to be directed not only towards new molecules acquisitions but towards strategic corporate acquisitions as well.


    9M19 Results

    • RMDA recorded revenue of EGP618.7mn, up 8.2%y/y, with a GPM of 42.3% in 9M19 vs 48.6% in 9M18. On quarterly basis, revenue came in at EGP234.8mn vs EGP196.7mn in 3Q18, while GPM contracted to 38.8% from 45.9% in 3Q18.
    • Adjusted EBITDA recorded 25.8% down from 33.5% in 9M18, driven by the higher costs resulting from outsourcing finished vials from India to meet toll manufacturing demands. 
    • 3Q19 weak performance is mainly driven by expansion and upgrade works and regulatory delays, disrupting the company’s operations and new launches.
    • The company managed to launch 4 new molecules out of the planned 9, by 9M19.

    FY19 and FY20 Guidance

    • 5 new products launched in 4Q19, with an ASP of EGP75-80. In FY20, the company is targeting 12-15 new molecules with an ASP of EGP80-85.
    • New launches are expected to generate around EGP20-25mn in FY19 instead of the previously expected EGP40-45mn, because of the expansion works and regulatory delays.
    • In 4Q19, there will be higher margins product sales and API cost is expected to continue to decline further. 
    • Revenue contributed by the top 10 molecules, which represent 77% of volumes and 50% of revenues, is expected to grow by 25-30%y/y in FY19 and FY20. 
    • FY2020 revenue will grow at 30% y/y with GPM of 55-60%. 
    • SG&A to Sales should record 5-6% and grow by 10% per annum.