Galenica “en pleine” Santé - Bingo & Oops! Go figure, Mr. Market!

2017-04-06

 

In its 2010 annual report, Galenica wrote:

"No one can predict the future with certainty. Even if we sometimes wished we could... However, not knowing what the future holds does not mean passively surrendering to one's fate.  Galenica believes that it has much in common with the author and pilot Antoine de Saint-Exupéry when in “The Wisdom of the Sands (Citadelle)” he wrote:

"Your task is NOT to foresee the future, but to enable it."”

Well, St-Exupéry is one of my favourite authors and Galenica is one of my favourite companies. Back in early 2008, Galenica was generating 80% of its sales through pharmacies, under the brands Amavita, Coop Vitality and Sunstore, but was already a leader in iron drug delivery and had just launched its intravenous iron drug, Ferinject, in Europe.

But Galenica suffered a setback: OOPS – the sacrosanct US FDA didn’t give the green light to Injectafer, the US version of Ferinject. The stock plummeted, the short-sellers “jackals” were having a ball and Galenica became one of the most hated stocks on the Swiss market.

Fast-forward to 2013, Ferinject sales had reached CHF 150 mn and: BINGO! the sacrosanct FDA approved Injectafer, the price of which is 3 times higher than Ferinject in Europe. That same year, BINGO again and Happy Thanksgiving!  In late November, the Velphoro drug, a phosphate binder used in kidney malfunction, was granted FDA approval in the US.  At the  same time, the conclusion of the JV with Fresenius Medical Care, opens the nephrology market to further grow Velphoro, Mircera, and the abovementioned iron deficiency drugs.

Short-sellers were nowhere to be found!!!

Fast-forward again to 2016!  BINGO again! Here comes the $1.5 bn acquisition of Relypsa, a US company producing the only FDA-approved oral potassium binder, called Veltassa. Galenica changes from chrysalis to butterfly and becomes VIFOR PHARMA, a $1.2 bn revenue, US present, Big League drug company. According to its management & some courageous analyst(s!),  Vifor Pharma could reach $2bn in sales by 2020.

So what’s going on with the pharmacies business? Well, it has spun off and become GALENICA SANTE, the largest Swiss Initial Public Offering so far this year.

And BINGO! perfect timing.  Mr. Market loves Galenica Santé, many times oversubscribed and priced at almost CHF2 bn, bang in line with my estimated value for the business.

But, OOPS: for some strange reason, Mr. Market “punishes” Galenica stock (Oops! Vifor Pharma now) with a 10.4% decrease in March, the equivalent of CHF 800 mn of its value, even though the Company’s debt has just reduced to zero –  Go figure!

What about Vifor Pharma?  Let’s do the maths.  As stated above the Company has projected CHF2 bn sales by 2020. The recent J&J bid for Actelion, another CHF2 bn revenues company, was done at an EV to sales ratio of 9.  This would equate to CHF2,700 per share for Vifor Pharma.  But “comparaison n’est pas raison”.  Using a more conservative calculation of an EV to sales ratio of 5 would mean that the stock is worth CHF1’500 vs. CHF1,060 as per Mr. MarketGo figure!

Taking my hat off to Etienne Jornod, the vibrant Executive Chairman, and the entire Galenica crew, let me remind you of this other quotation from "Le Petit Prince" that I shared with you a few years back:

“You are responsible, forever, for what you have tamed. You are responsible for your rose”.