Panacea Biotec Gains On New Partnership Agreements

Delhi-based vaccine manufacturer Panacea Biotec has been gaining strong momentum over its recent two strategic alliances with American pharmaceutical companies. Its shares on an YTD basis are up by 49 per cent, beating the Sensex and the Pharma Index.

Most of the gains in the stock have come in the second half of the year as the company entered into a strategic alliance with the U.S. company Osmotica Pharmaceuticals. Under the agreement, a total 18 branded drugs are to be developed and sold globally over the next 10 years. Panacea Biotec will take on the role of identifying, developing and manufacturing the drugs while Osmotica will undertake product registration, sales and marketing in the U.S. and other global markets. Panacea Biotec will get a research fee and 50 per cent of the development fee as a milestone payment in the future.

Yesterday the company inked another pact in which it has entered into a strategic alliance with another U.S. company called Kremers Urban Inc for developing and selling a total of 11 generic drugs with high entry barriers. The total market size of these 11 drugs, as per the company’s filing to the stock exchange, is USD 4 billion (about Rs 22,000 crore). Of these 11 products, one product i.e. Tecrolimus has already been developed and has been launched in the U.S. market in November 2012.

Tecrolimus is an immunosuppressant drug and has total sale of USD 892 million (nearly Rs 5,000 crore). There are six players selling this drug of which five are generic players that hold 53 per cent of the total market. Indian company Dr Reddy’s Lab has been selling this drug in the U.S. market from May 2010 and has held 16 per cent market share as per its Q4FY11 transcript.  We expect Panacea Biotec to garner about Rs 230 crore from this drug which will be 32 per cent of its FY12 sales. The company has also submitted another ANDA in September 2012 while the rest of the nine ANDAs would be submitted in the coming 16 months. These limited competition ANDAs would be very beneficial to the company as we expect a huge addition to the topline.

Both the strategic alliances will provide good opportunities for the company in the future. The entry in the limited competition space will also improve its margins. Besides, the company has a very strong R&D pipeline which will start yielding good results from this fiscal onwards. Panacea Biotec also has a robust product flow in specialty therapy areas like oncology, endocrinology, CNS and urology that promises good future earnings. It recently has also added a new oncology capacity which will cater to the growing anti-cancer segment in the country. The drugs for this facility are under registration and hence we expect commercial production from this facility soon.

The exact impact of the strategic alliance cannot be evaluated at this time as the drugs are not known. It is already working with few partners and hence we believe it has all the capabilities to benefit from joint ventures like these. The stock has recovered after going through a delisting of its polio vaccine by the WHO. We had advised our readers to avoid the stock after the WHO whip in March 2012 but would now recommend investing in the company with a long-term horizon.