Company Overview
Laboratorios Farmaceuticos ROVI SA (ROVI) is a Spain-based company with main activities including the development and commercialization, nationwide and abroad, of medicines and drugs. Its products are structured into three fields: Diagnostic, which offers contrast mediums for medical imaging; Prescription, which distributes medicines; and Over the Counter (OTC).


Investment Overview
Enoxaparin is the growth driver. Enoxaparin is used for anti-blood coagulation in treatment of venous thromboembolism and acute ischaemic heart disease. It contributes c.20% of sales and sales CAGR in 2018-21 was 60%. This product is the growth driver supported by: 1) steady demand growth as it is regarded as an essential medicine by the World Health Organization; 2) high entry barriers. According to the U.S. Food & Drug Administration, the median review time from application to approval is 2.5 years for a drug on average. It has taken >5 years to complete the same procedures for generic enoxaparin.

Increasing sales contribution from pharmacies in Europe. The company generates over half of its sales by supplying generic drugs into the European market. Generic drugs players in Europe mostly start by selling their drugs to hospitals as they need the recognition from doctors. Then they will increase the sales contribution to pharmacies. This is because the drug price in pharmacies could be two to five times higher than that in hospitals as pharmacies have more autonomy in pricing.

Strong cash position. As of Dec 2022, the company was holding net cash of EUR 53m. This is crucial for its future development. It provides resources to support two crucial projects: 1) European Commission has approved the company to launch Okedi® for treatment of schizophrenia; 2) Moderna and the company have expanded their long-term collaboration for the manufacture of mRNA medicines. Sufficient financial resources are crucial to execute the projects above.

We have a BUY rating for Rovi, with a TP of EUR 60.0. Our TP is based on 21.2x forward PE, which is 0.6 S.D. below the 5-year average. We believe the increased penetration into European pharmacies would drive its revenues, as well as continued collaborations with global pharmaceutical names.


Risks
Lacks capability to produce active pharmaceutical ingredient for key product. The production of enoxaparin requires heparin active pharmaceutical ingredient (API) as a raw material. We believe the company needs to procure this from Chinese suppliers, or even Chinese competitors in Europe. This poses a huge potential risk for the company. Those Chinese competitors might restrict the supply of heparin API to them due to competition. Close to 20% of sales might be impacted.