|Shares Out. (in M):||15||P/E||0||0|
|Market Cap (in $M):||91||P/FCF||0||0|
|Net Debt (in $M):||-8||EBIT||0||0|
Negative sentiment in the pharma sector has created the opportunity to buy Biosyent within 10% of its 52 week low. Given the tiny EV and thin trading volume, this is best viewed as a speculative PA trade.
Biosyent has a pretty simple strategy as a specialty pharma company, bringing (somewhat) successful drugs to Canada and then commercializing them. These drugs have very limited peak potential and all serve small niches. The company looks to maximize revenue growth, then uses the growing cash flow to continue to increase the portfolio of drugs over time. This is a pharma rollup, but without any debt.
The only way this business works is with a strong, focused management team, and I believe René and his team will continue to be successful well into the future while executing the same playbook over and over. René and his team have all worked at companies many multiples larger than Biosyent, including Procter & Gamble, Colgate, Abbott, and DuPont. René has over 1.2MM shares/options and his CFO Alfred D’Souza has around 1.6MM shares/options.
During my meeting with René, he made it clear that he was not a fan of the debt-driven pharma model, and he’d rather operate conservatively and nearly debt free to ensure that Biosyent doesn’t experience a crisis like that occurring for most pharma roll-ups right now. So far that has worked very well, with a 64% revenue CAGR from 2010-2014, and a high 20s CAGR this year. Regardless, the stock has traded down significantly with the other pharm rollups.
Biosyent currently has 7 drugs on the market and that portfolio typically grows by 1-2/year. The majority of sales currently come from FeraMAX, which targets iron deficiency. The product was launched almost 10 years ago, with a powder version launching ~4 years ago. FeraMAX is marketed as the least likely iron supplement to upset one’s stomach and also is a once-a-day supplement, solving the problem of skipped doses of 2-3x/day supplements. While the iron supplement market is fairly stagnant, FeraMAX has been taking share and in the most recent quarter sales for the solid and powder forms were great (18% & 35%, respectively). Marketing the drug has been fairly easy so far and they should continue to take small market share over time, as well as be able to pass through small price increases. Total international sales, which are fairly small, are comprised primarily of FeraMAX sales. FeraMAX is more or less the base that Biosyent builds off of, and it has been the primary driver of revenue growth for years. The company estimates it has ~10% of the iron supplement market, at this point, but I believe it is likely higher.
The other product the company classifies as a “growth” product is Cathejell – which is a combo sterile gel + lidocaine used primarily in urological procedures. This is growing faster than FeraMAX, but also has a possible peak sales of only a few million dollars.
The rest of the products were in-licensed within the last two years and are just starting to produce revenue. Both RepaGyn and Proktis should be generating north of $1MM in sales by the end of this year, which combined, will increase company sales by ~13%. Coupled with high overseas growth from FeraMAX and lower growth domestically, sales growth should be in the 20%+ range again regardless of whether or not they in-license another drug this year. With that said, we expect a few more in-licensing deals in the near future.
Taking all this into account, and looking forward into 2017, we’re forecasting around $25MM in sales and ~$0.45 in EPS, versus ~$0.26/share EPS this year. This equates to ~14x earnings, and if you strip out the cash, around 12.5x earnings. So you get an ~8% FCF yield for a company that should be growing revenue at 15% or faster before any new in-licensing deals. If you roll forward another year, the stock trades at less than 10x ex-cash earnings. This is a high growth business with, we believe, rising EBITDA margins as more sales are spread over the recently expanded sales force.
Reversal of FeraMAX growth