Hyphens Pharma has, through its subsidiary, Hyphens Pharma Pte. Ltd., entered into exclusive license and supply agreements with Cassiopea S.p.A., a subsidiary of Cosmo Pharmaceuticals N.V. for the exclusive rights to develop and commercialise Winlevi® across all 10 Asean countries in Southeast Asia.

 

Under the exclusive license and supply agreements, Hyphens Pharma will pay Cassiopea S.p.A. an upfront payment of US$1 million ($1.4 million). The group will also pay the Cosmo Pharmaceuticals subsidiary potential regulatory and sales milestones that could total up to US$4 million as well as customary double-digit royalties on net sales.

 

Winlevi® is a topical drug that treats acne for patients aged 12 years and older. The drug was approved by the US Food & Drug Administration (FDA) in August 2020.

 

In its statement dated Dec 21, Hyphens Pharma called the drug a &ldquo game-changer&rdquo for acne sufferers as it is so far the only topical cream to treat hormonal acne directly in the skin.

 

The drug was launched in the US in November 2021 and is said to be already &ldquo the most prescribed branded topical acne drug in the US based on IQVIA data.&rdquo

 

&ldquo We are very pleased to partner with Hyphens Pharma. Their strong expertise in Southeast Asia gives us great confidence in their ability to gain regulatory approval and commercialise Winlevi® in the region,&rdquo says Diana Harbort, president of Cosmo Pharmaceuticals&rsquo dermatology division.

 

&ldquo The success of Winlevi® in the U.S. has given us the opportunity to select the best partners in each region and to eventually make the product available to more patients around the globe,&rdquo she adds.

 

&ldquo Acne is a medical condition that affects millions in the Asean region. Yet, the medical management of acne remained largely similar due to the absence of new drugs. Winlevi® is the first new class of topical drug for the treatment of acne that is approved by US FDA in nearly 40 years. We are thus very proud to be able to bring Winlevi® to doctors and patients in the entire Asean region,&rdquo says Lim See Wah, executive chairman and CEO of Hyphens Pharma.

 

&ldquo We would like to thank Cosmo for this partnership and their confidence in Hyphens Pharma. This deal also affirms Hyphens Pharma&rsquo s strength as Asean&rsquo s leading specialty pharmaceutical company with a strong focus on skin health. We will continue to innovate, as well as to bring to market relevant innovations from the world to our region, so as to continue serving our doctors and patients.&rdquo

 

The exclusive license and supply agreements will not have a material effect on the net tangible assets (NTA) or earnings per share (EPS) of the group for the FY2022 and FY2023 ending Dec 31 and Dec 31, 2023, respectively.

After posting record revenue and net profit in 3QFY2022 ended September, CGS-CIMB Research analysts Tay Wee Kuang and Izabella Tan say Hyphens Pharma International is steadfast in executing its business strategy.

 

In a Nov 24 note, Tay and Tan maintained their &ldquo add&rdquo call on specialty pharmaceutical and consumer healthcare group Hyphens Pharma with a higher target price of 40 cents from 39 cents previously. The new target price represents a 33.3% upside to its last traded price of 30 cents.

 

Hyphens Pharma reported an almost threefold y-o-y jump in its 3QFY2022 profit after tax to $4.0 million from $1.1 million a year ago.

 

Revenue, meanwhile, came in at $42.8 million, 46.7% higher from $29.1 million a year ago. The group&rsquo s newly-acquired Novem group of companies contributed some $3.8 million in revenue during the quarter.

 

Cyclical restocking by customers in Vietnam, ahead of product licence renewals that typically occur every two years, contributed to the strong 3QFY2022 earnings, write Tay and Tan. &ldquo The last round of licence renewals was in FY2020.&rdquo

 

According to Tay and Tan, Hyphens Pharma&rsquo s management warned of potential headwinds from inflationary pressures, supply chain disruptions and a potential economic slowdown that could disrupt supply-demand dynamics and lead to higher costs. &ldquo We also expect a step-up in operating costs from incubating DocMed, which houses Hyphens Pharma&rsquo s digital assets including its e-pharmacy and business-to-business (B2B) platform for two years with the $6 million raised from a 10% stake sale in DocMed in June 2022.&rdquo

 

Hyphens Pharma is potentially heading into an investment year, say Tay and Tan.

 

As at end-1HFY2022, Hyphens Pharma&rsquo s cash balance has recovered back to $28.4 million from end-FY2021&rsquo s $19.5 million post-acquisition of Novem with a low debt level of some $5.3 million.

 

According to the analysts, the healthy cash balance suggests that Hyphens Pharma could go into FY2023 with an eye out for investments, which can include acquisition of brands, businesses, as well as potential in-licensing from brand principals.

 

Nevertheless, Tay and Tan do not expect an immediate earnings impact due to regulatory approvals required before sales, along with slow adoption from the medical community.

 

Tay and Tan have raised their FY2022/2023/2024 earnings per share estimates by 18.4%/0.3%/12.2% as they expect a stronger FY2022, and normalisation of profitability from FY2023.

 

This could also pave the way for higher dividends, they add. &ldquo We project 1.27 cents for FY2022 based on its 30% payout policy, suggesting a yield of some 4%, while allowing the company to pursue potential growth opportunities. Potential re-rating catalysts include accretive acquisitions and strong growth of portfolio products while downside risks include margin compression and demand disruption.&rdquo

 

PhillipCapital Research analyst Paul Chew has upgraded Hyphens Pharma from &ldquo accumulate' ' to &ldquo buy&rdquo as he sees digital healthcare being a new growth and stock catalyst.

 

&ldquo Hyphens Pharma&rsquo s underlying growth strategy is to be a leading portfolio of proprietary skin health products and brands across Asia,&rdquo says Chew, who has also upped his target price to 43 cents from 34.5 cents.

 

In addition, Chew has raised FY2022 earnings by 40% to $9.2 million to incorporate earnings from the acquisition of Novem.

 

On May 27, Hyphens Pharma announced that Metro Holdings, a property and retail company, will be investing $6 million for a 10% stake in DocMed Technology (DocMed), valuing it at $60 million.

 

DocMed is a subsidiary of Hyphens Pharma and digital health platform.

 

DocMed owns Hyphens Pharma&rsquo s medical B2B hypermart POM Medical Hypermart (POM) and a licensed e-pharmacy WellAway. POM&rsquo s revenue in FY2021 came in at $41 million including offline sales.

 

DocMed will use the proceeds to build up its manpower across technology, operations and marketing areas and enhance its B2B platform to serve doctors. The platform can be enhanced with more pharmaceutical offerings, mobile features and a regional footprint across Asean. The expected timeline to enhance and expand the B2B platform is two years.

 

Chew views the transaction as a funding event rather than crystallisation or monetisation of Hyphens digital assets.

 

&ldquo The proceeds have the potential to enhance the B2B platform with more doctors, pharmaceutical companies, transactions and new sources of revenue,&rdquo the analyst writes. &ldquo Such milestones could drive further rounds of financing and higher valuations.&rdquo

 

The analyst also notes how DocMed platforms will be an important platform to showcase their drugs to doctors. In turn, DocMed can generate new sources of revenue such as advertising and promotion from pharmaceutical companies.

 

Overall, Chew sees the creation and development of the digital healthcare platform DocMed as an additional growth and share price catalyst for Hyphens Pharma, with near-term earnings drivers being the acquisition of Novem and growth in specialty pharma sales due to the return of elective surgeries post-Covid-19. This is considering Hyphens Pharma' s multiple-year growth strategy to expand its proprietary brands of skincare products across the region.

Analysts from CGS-CIMB and SAC Capital have maintained their &ldquo buy&rdquo call and target prices on the stock after the company released its 1QFY2022 results ended March.

 

CGS-CIMB gives a target price of 36 cents, while SAC Capital hands Hyphens a 40 cents target price.

 

CGS CIMB analysts Tay Wee Kuang and Izabella Tan note that Hyphens experienced &ldquo robust growth&rdquo across all business segments, recording a 1QFY2022 revenue of $39.2 million.

 

This was 24.9% higher q-o-q and 18.5% y-o-y, and was in line with the brokerage&rsquo s expectations at 27% for FY2022.

 

They point out that the newly acquired portfolio from Novem contributed $3.5 million in revenue for the quarter, without which Hyphens would still have observed robust 8% revenue growth.

 

All three segments reported revenue growth, but the higher margin segments, like speciality pharma principals (up 24.4% y-o-y) and proprietary brands (up 12.8% y-o-y), outpaced the medical hypermart and digital segments (up 10.8% y-o-y).

 

This improved sales mix also led to a 1.7% percentage point improvement in both gross profit and net margins y-o-y. Consequently, 1QFY2022 net profit of $3.2 million represents 49.7% growth compared to the same period a year ago.

 

1QFY2022 also was the first quarter for Hyphens that saw a full contribution from Novem&rsquo s portfolio since its acquisition in Dec 2021.

 

Tay and Tan believe that the higher-than-expected revenue contribution from Novem compared to its flattish $10m-11m sales per annum. over FY2019-2021 was due to the return of patients.

 

This was as the public healthcare sector in Singapore shifted its focus back to the backlog of deferred treatments for non-Covid-19 patients over the past two years.

 

&ldquo From our previous communication with management, the public healthcare sector typically contributed about 60-70% of Novem&rsquo s sales.&rdquo the analysts say

 

Despite these promising signs, Tay and Tan think that net margins could normalise in coming quarters, even though Novem&rsquo s business commands a net margin of about 15-20% compared to Hyphens 5-6%.

 

Cost pressures such as rising freight costs and higher operating expenses could thin margins moving forward, and Hyphens has also disclosed that the purchase price allocation (PPA) for Novem&rsquo s acquisition, which will result in higher amortisation expenses related to intangible assets involved in the transaction, has not been completed.

 

&ldquo We believe the market has not recognised the impact of Novem&rsquo s acquisition on its earnings profile, which could also translate to future cross-selling opportunities with Hyphens&rsquo existing sales channels&rdquo Tay and Tan say. 

 

Separately, SAC Capital analyst Peggy Mak also broadly agrees with the points made by the CGS-CIMB analysts, but also highlights the point that she expects an easing in gross margins in the next three quarters due to supply chain bottlenecks, as well as higher procurement costs.

 

Mak writes that the lead time for procurement has lengthened, and some products are out of stock as suppliers face difficulties in securing raw materials. As such, this will raise working capital requirements

 

This is coupled with higher procurement costs as suppliers pass on higher raw material prices, with Mak adding that higher selling prices might dampen consumers&rsquo demand, especially for discretionary products,

 

&ldquo We maintain our FY2022 revenue and net profit forecast, but there is upside risk to our projections if the supply situation in Europe improves.&rdquo