Bioton – growing exports and cost pressures
COMPANY PROFILE
Bioton is a recombinant human insulin (RHI) manufacturer and is in a proces of development of his own analogue insulin. Main business area of Bioton is diabetology. Capital Group includes feed additives manufacturer (Biolek). At the end of 2021 Company was employing 377 people.
As announced, Bioton increased export sales in H1 2022. However, inflation and rising energy prices, as well as a higher share of exports in sales, have resulted in a significant decline in profitability. In the current year, we expect that despite higher sales, the company will ultimately fail to improve its operating result and EBITDA will be similar to last year's. As a result of updated forecasts and valuation assumptions, including a higher discount rate, we are adjusting our valuation from PLN 7.15 to PLN 4.68 per share.
1H2022 results - higher exports, margin pressure
Revenues in 1H2022 amounted to PLN 98.1 million (+34% y/y), thanks in part to 56% higher export sales and a strong domestic market. However, a higher share of less profitable exports and cost pressures reduced gross profitability on sales. On the positive side, it is worth noting the control of SG&A expenses, which in 1H2022 remained at a similar level to the same period last year. Overall, in 1H2022, EBIT amounted to PLN 6.5 million (+136% y/y), EBITDA amounted to PLN 23.9 million (+29% y/y), and net income amounted to PLN -1.7 million, due to, among other things, negative exchange rate differences. Operating cash flow in 1H22 was +PLN 25.2 million, CAPEX was PLN 16 million (vs. PLN 9 million in 1H21), and net debt was PLN 83 million (vs. PLN 86 million at the end of 1Q22).
Analog project - pending Yifan decision
Bioton has already done its work on the fast-acting analog (lispro) and the decision is currently on Yifan's side. Bioton is awaiting Yifan's final study report and the preparation of an IND application. In the area of long-acting analog (glargine), the company has moved to the early stage industrialization phase. The company is currently undertaking lab-scale trials with the goal of completing a clinical-scale batch of the drug substance in late 2022/early 2023. The plant is currently being upgraded to accommodate the new process. Bioton expects the commercialization phase of the analogs in 2025-2026, which is in line with the company's earlier assumptions.
Insulin steadily loses to other drugs
The insulin market continued its decline in H1 2022. This was due to competition from biosimilar insulins and price declines, competition from new drugs (GLP-1), price declines in the Chinese market and other factors. The analogs for which Bioton is preparing biosimilar versions, namely Humalog and Lantus, also recorded sales declines, with more noticeable declines in Q2.
Risks for our forecasts and valuation
Main risk factor as we see in our forecasts and valuation is the risk related to the registration and launch of insulin analogs.
Our valuation is equally based on DCF (PLN 4.39/share) and peers valuation (PLN 4.97/share) and indicates present fair price at PLN 4.68/share.
VALUATION
We calculated the value of one share of Bioton as the average of the peers and DCF valuation with equal weights. On this basis, we estimated the current value of the company’s stock at 4.68 PLN per share (previously 7.15 PLN/share). In table below we present valuation summary:
DCF VALUATION
Assumptions:
FCF discounted at the beginning of September 2022 (previously: at the beginning of May 2022),
Net debt on 31.12.2021 calculated at PLN 101m (unchanged), effective tax rate at the level of 19% (unchanged),
Growth rate (g) 2% (unchanged),
risk free rate 6.1% (avg 10Y Polish Treasuries yield; in last report: 5.9%); beta 1.4 (previously 1.6 - improvement of the fundamental situation in the company); market risk premium 7.11% (previously 5.08%).
Below we present Cost of Equity and WACC calculation:
PEERS VALUATION
We’ve based comparative analysis on foreign insulin manufacturers. In valuation process we’ve taken into account P/E, EV/EBITDA and EV/Sales multiples (we assign 40% weight to P/E and EV/EBITDA, and 20% to EV/Sales valuation) in 2022-2024 (previously in 2021-2023). We’ve adjusted revenues by reinvoiced R&D expenses concerning insulin analogs. On the base of peers valuation, we valued Bioton at PLN4.97/share (previously PLN7.7/share).
Podsumowanie wyceny porównawczej:
Krzysztof Radojewski
Deputy Head of Research and Advisory Department krzysztof.radojewski@noblesecurities.pl
+48 22 213 22 35
