Pfizer Q3FY17 Concall Summary

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Performance Highlights

Pfizer Q3FY17 P&L

Revenue growth

  • The revenue numbers of about Rs.503 crores from sales needs to taken into consideration.
  • When looked at the P&L, one will see revenue decline of 3% versus the same period last year.
  • Rs. 503 crores if broken up in a couple of steps –Corex and for transition products, that is about Rs. 70 crores of revenue which need to kind of take out.
  • The revenue numbers for the continuing business is about Rs. 1340 crores approximately.
  • The brands which were not under price control grew 13% for the quarter. On a year-to-date basis, these same brands grew at 10%.
  • The company is not able to make an official comment as to what the profitability is and when would be able to start recognizing revenue in Pfizer Limited as it is still under process for the product Meronem.
  • The objective of the company is to do as good as the market if not better, but if FY ’18 and ’19 is taken into consideration, the company is optimistic
  • A couple of things that affect performance- one is that the company has to factor in the annual increments and the others are incentives, bonuses and all keep going up and down but this is the big one.

Impact of Demonetization

  • In the month of November, there was a slowdown in the sales and that has reflected even in the growth rate of the Indian Pharma Market (IPM) industry.
  • IPM growth which was always trending at a double-digit level in this quarter actually came down to 5.7% which was attributed to demonetization
  • Revenue has been impacted to the extent of about Rs. 15 crores in the month of November because of the demonetization. So that is one big external change.
  • Sales of Corex are significantly lower and the number of brands which were transitioning to Abbott India Limited has witnessed huge impact.
  • Revenue decline of 3% versus the same period last year.

Performance of 'Continuing Business'        

  • Revenue from continuing business grew at $% to Rs 433 Cr
  • The continuing business can be broken into two parts:
    • One is products which were under price control and
    • Those products which were not under price control
  • Approximately 15-16% of the Continuing Business consists of products which are under price control and the remaining was not under price control.
  • The brands which did well – Prevenar did well, high double digit growth; Magnex did well, Minipress did well and so did Corex DX and a couple of other brands
  • Overall once again the brands which were not under price control grew at 13%.
  • The brands which are under price control because it had a significant drop in prices ranging all the way from 15 to 16% to sometimes 45 to 50%, obviously that number does not look that great.

Gross Margin for Two Fiscal Years

  • The company’s gross margin is more or less constant versus a year ago which basically means that it has been able to manage a mix and despite the price drop the company has been able to figure out a way of managing the mix so that the margin remains constant
  • There is actually a one-time provision of about Rs.13 crores which is sitting in the material cost because of the discontinuation that the company announced for manufacture of Corex. So including that, the gross margin is at about 60% which is not very different from what the company had same period last year.
  • Overall expenses on an absolute basis are not very different from what the company had in the last year. But then obviously because of the significant decline in revenue run rate, the expenses as a percentage to revenue has gone up.
  • So if summarized all these, this has resulted in profit from operations dropping 30% mainly attributed to the decline in the revenue of Corex, the divested brands as well as the pricing impact.It has been offset to an extent by the increase in other income mainly because of interest income from bank deposits and exceptional items where the company had the sale of a few flats and therefore profit after tax despite the challenges of revenue, the company have been able to grow it at about 4% versus the same period last year.
  • EBITDA margins are obviously under a little bit of pressure.
  • After the demonetization impact, the company expects that the revenue should start recovering gradually over the next couple of months though it is difficult to predict how long it would take
  • Some interior parts in the North and East, still find an impact on our regular run rate. So that is something that the company have to watch carefully going forward.

Update on Corex

  •  On Corex an announcement was made to the stock exchange that they have discontinued the manufacture of the brand.
  • The Delhi High Court did rule in the company’s favour.
  • The reported sales of Rs. 503 crores from which Rs. 70 crores are subtracted, which is a combination of Corex as well as divested brands; Rs. 58 crores is Corex
  • The comparative number for the same period if one compares Q3 of 2016 was Rs. 58 Crores versus Q3 of 2015 which was about Rs. 77 crores approximately
  •  More or less, Rs 58 crores of Corex would be very little because the company has discontinued manufacturing, maybe a small amount of spillover inventory may be there in January but otherwise it would be zero.
  • Gross margin would be higher than company average.
  • India is probably one of the largest manufacturing bases of Pfizer Inc. anywhere in the world and definitely in Asia. It sees huge commercial opportunities in the market

Price Control

  • The decline in price control product was a significant decline because the price drop in many products was in the range of between 15% to sometimes 45%.

Corex T

  • The company has launched Corex T, it is a very soft launch, they have just started invoicing Corex T and then of course as they go along, other products would be seen but this is the first one and is in very early stages at this stage.
  • This is a new combination of Codeine Phosphate and Triprolidine Hydrochloride
  • It is a Codeine-based product available only through medical prescriptions.
  • Since it is a Codeine based formulations and it is part of what is called the Schedule H1 drug, it would be tightly controlled.
  • It is actually a great treatment protocol for dry cough.
  • Corex nine months’ number share is Rs. 179 crores.

Meronem

  • Meronem is an anti-infective, right, the company has strong critical care field force.
  • Meronem will go along with Magnex.
  • No pay of any compensation in India, it is a global deal.
  • The company do not anticipate any significant cash outflow at the moment
  • Corex DX has been doing very well,  it has been a high double digit growth
  • At the moment, the immediate benefit in India is Meronem.
  • Revenue of Meronem is expected to be around Rs. 100 crores annually approximately.

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