Pymepharco: second largest pharmaceutical company ready for stock market debut

Pymerpahrco JSC's listing will bring ample opportunities for domestic investors

Competitive advantages from a cutting-edge technology platform

Pymepharco, formerly known as Phu Yen Pharmaceutical and Medical Supplies JSC, was established on July 23, 1989, in the central province of Phu Yen. From the very beginning, Pymepharco’s Board of Directors chose not to compete with a low pricing strategy, but opted for the high-end product segment.

A typical example is Cephalosporins produced in high-tech manufacturing facilities, including powdered tablets and dry-powder injections which are widely used in electroconvulsive therapy treatments (ETC). Therefore, the investment in new modern machinery and equipment, as well as advanced technology, along with the efforts to build a team of highly qualified staff, have been prioritised and strongly promoted by the Board of Directors.

In 2003, Pymepharco’s tablet manufacturing plant, which consisted of three workshops of Beta-lactam, non-Beta lactam, and soft capsules, officially came into operation and became the first laboratory reaching GMP-WHO standards in Vietnam in 2005.

Moreover, in 2008, the second factory of the company, which was set to produce injections, also came into operation with four production lines: liquid injections, freeze-dried powder, eye drops, and, especially, ceftriaxone injections (liquid-powder mixture) of Cephalosporin antibiotics. It was the most modern facility for producing injectable medicines in Vietnam and Southeast Asia at the time.

After three years of drastic investments in human resources, Pymepharco became the first company in Vietnam to be awarded the Certificate of GMP Compliance of a Manufacturer by the European Medicines Agency for the Cephalosporin antibiotic factory in 2013. In 2015, the company successfully passed another review of GMP-EU standard compliance for antibiotic tablets among Cephalosporin products.

By complying to GMP-EU standards, Pymepharco’s Cephalosporin antibiotic tablets are eligible to be licensed for export to European markets. In particular, the company has gained a huge advantage in the bidding for producing drugs in Generic Group 1 and 2 thanks to its competitive prices against imported products. At the same time, the company is able to seize new opportunities from changes in the bidding mechanism, which tend to prioritise and greatly promote domestically-manufactured pharmaceutical products.

In addition, owning modern production technology has opened up further opportunities for Pymepharco to manufacture franchised products from leading pharmaceutical companies in the world, such as Stada (Germany) and EG LABO (France).

To date, Pymepharco has launched more than 350 products and is a leader in evaluating bioequivalence. More than 70 products have been evaluated for bioequivalence at Central Institute for Drug Testing and Ho Chi Minh City Institute for Drug Testing. 46 products were officially approved by the Ministry of Health.

During a factory visit on October 12, 2017 in Phu Yen, Huynh Tan Nam, chairman and CEO of Pymepharco, shared that the company successfully passed the third review of GMP-EU standard compliance for the Cephalosporin tablet manufacturing plant at the beginning of October 2017.

It will soon complete the investment project to upgrade the Cephalosporin injection manufacturing plant to GMP-EU standards by the end of this year. In addition, the company plans to invest in the non-Beta lactam tablet factory in accordance with the GMP-EU standards in 2018.

At present, the proportion of drug sales through the OTC channel (retail pharmacy) accounts for 52 per cent, while that of the ETC channel (sales through bidding or wholesale) takes up 48 per cent of Pymepharco’s total sales revenue.

As planned, the company will gradually increase the proportion of sales through the OTC channel by 3-5 per cent per year of the total revenue. According to the targets set for 2020, sales from the OTC channel will account for 65 per cent, while that of the ETC channel will make up 35 per cent. Promoting sales through the OTC channel is a sustainable development strategy, regardless of the distribution channels.

Bright business prospects

According to the company’s audited financial statements for the latest two years (2015 and 2016), Pymepharco’s net revenue was recorded at VND1.308 trillion ($57.62 million) and VND1.5trillion ($66.08 million) respectively, ranking third after DHG and TRA.

2016 pre-tax profit reached VND299.9 billion ($13.21 million), lagging just behind DHG. Regarding the composition of revenue, sales of self-made goods accounted for 88-90 per cent, while total trade sales only occupied about 10 per cent.

A special characteristic of the pharmaceutical industry in Vietnam points at the fact that the cost of raw materials always accounts for a large proportion of the costs of production and in recent years this has shown a tendency to increase. However, at Pymepharco, these costs are well controlled and are thus expected to remain stable.

In the period between 2015 and the end of June 2017, on average, the cost of goods sold accounted for over 52 per cent of net sales, while sales expenses made up about 25 per cent (26.7 per cent in 2015, 25.6 per cent in 2016, 24 per cent for the first half of 2017) and costs for corporate management occupied about 3 per cent.

Also, the gross profit margin remained stable around 47 per cent, of which the gross profit margin of manufactured products was about 46 per cent, much higher than that of several companies in the industry.

For the first six months of 2017, Pymepharco reached total sales of over VND825 billion ($36.34 million) and earned VND185.6 billion ($8.17 million) of profit before tax, fulfilling 52.5 and 61.9 per cent of the year’s targets.

In terms of the company’s capital structure, Pymepharco has gained a low debt to equity ratio of 26.5 per cent at the end of 2015, 22 per cent at the end of 2016, and 38.5 per cent as of June 30, 2017. The company has no short-term or long-term debts.

When talking about plans for 2018-2019, Nam said the company set a compound annual growth rate target (CAGR) of 15 per cent for both sales and after-tax profit.

Specifically, the target revenue for 2018 is VND1.858 trillion ($ 81.85 million) and VND2.137 trillion ($94.14 million) for 2019. Meanwhile, the profit targets for these two years are VND334 billion ($14.71 million) and VND384 billion ($16.92 million), respectively.

Pymepharco’s proposed business plan is based on the fact that its Cephalosporin injectable products have met GMP-EU standards, which will obviously help to boost sales, and the company will promote new products produced by the French EG Labo franchise.

According to Nam, if the GMP-EU injection manufacturing plant comes in operation, the company’s target to increase sales is not too difficult. Besides, the company will continue to expand its distribution channels. Currently, Pymepharco’s distribution network includes 19 branches serving over 12,000 customers nationwide.

Investment opportunities available to domestic investors

According to the company’s 2017 financial statement, Pymepharco’s chartered capital was recorded at VND502 billion ($22.11 million). In the third quarter of 2017, the company paid stock dividends to its shareholders and raised its chartered capital to VND625 billion ($27.53 million). This was the second largest capital stock compared to its peers listed on the stock exchange.

The shareholder structure of Pymepharco is fairly concentrated. As of August 29, 2017, the largest foreign shareholder of the company is Stada Service Holding BV, a wholly-owned subsidiary of Stada Pharmaceuticals who owns 49 per cent of the company’s capital.

This shareholder has been participating in Pymepharco’s business activities since 2008 and has provided tremendous support for the company. Thanks to the technology transfer from this strategic partner, Pymepharco has succeeded in upgrading its production lines to satisfy the GMP-EU standards.

Stada has no intention of divesting its capital in the company.

Pymepharco has another major shareholder, Well Light Investment JSC that owns a 10 per cent stake in the business, and a large individual shareholder Truong Viet Vu, chairman of the Board of Pha No Pharma JSC and member of the IMP Board of Directors, who owns a 13.16 per cent stake in the business. More than 400 individual investors own the remaining shares.

Given its position in the industry, the growth potential, and shareholder structure as mentioned above, Pymepharco’s shares are expected to unlock further investment opportunities for many investors.