28-May-2020: 2020 AGM Chairman's Address
01-Apr-2020: Palla Pharma UK Acquisition Update
On 10 February 2020, Palla Pharma Limited (ASX:PAL) announced that it had entered into an option agreement with a major UK customer to acquire its business as part of PAL’s strategy to continue to move further down the opiate supply value chain, with the option expiring on 31 March 2020.
As part of this announcement PAL confirmed it had acquired four (4) marketing authorisations (MA`s) relating to the manufacture of opiate based finished dosage formulations for sale in the United Kingdom. Since then PAL has acquired a further three (3) marketing authorisation which in total accounts for approximately 70% of the acquisition target’s revenue. PAL has elected not to exercise the option as outlined in February; despite this PAL is in advanced negotiations with the owners and senior creditors and while hopeful of reaching agreement, there remains material differences between the parties with respect to valuation.
These negotiations are expected to conclude imminently, and PAL will provide a further update when a conclusion has been reached.
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Looks like this deal will probaby fall through. Pity. Would have been a game changer for PAL. However, the bright side is that it demonstrates that PAL is focussed on not overpaying for assets. The right acquisitions at fair prices is fine, but overpaying is usually a big mistake that will come back to bite you later. PAL's management appear to be wise to this, and that's good. I hold PAL shares.
27-Feb-2020: Palla Pharma delivers double-digit growth in FY19
Palla Pharma delivers double-digit growth in Revenue and Gross Profit
Palla Pharma Limited (ASX:PAL), a fully integrated opiate manufacturer and supplier to the global pain relief market, is pleased to announce its results for the financial year ended 31 December 2019 (FY19), which delivered record revenues of $54.7 million and gross profit of $17.3 million.
FY19 Highlights (vs FY18)
Commenting on the result, Managing Director and CEO, Jarrod Ritchie said, “We are pleased to have delivered a strong FY19 result with double-digit revenue and gross profit growth while maintaining a flat indirect cost base.
“We continue to focus on capturing additional margin as we move down the supply chain, this strategy diversifies our distribution channels, expands our customer base, reduces agricultural reliance and importantly; significantly multiplies our earnings growth for every kilogram of opiate sold as we continue to grow volumes across our business.
“We continued our efforts to diversify the supply of poppy straw, focussing on improving straw assay from Northern Hemisphere and developing additional growing areas. With the record straw harvested during FY19 and patent litigation behind us, we now have enough raw material for supply during the entire FY20.
“Following the December year end, we have entered into an option to acquire our largest UK customer as part of our strategy to increase the value we can extract across the whole production cycle. In conjunction with the acquisition option, PAL has acquired six Marketing Authorisation (MA`s) to supply Codeine based tablets in the UK at margins considerably higher than contract tablet manufacturing. This enables Palla Pharma to have a sales presence in the entire opiate supply chain, from the farm gate to opiate based tablet supply to wholesale distributors.
“During 2019 we also undertook a significant balance sheet de-risking by repaying borrowings with the capital raise proceeds to meet the Group’s near-term API growth capital expenditure needs. Reduced debt levels also allowed us to negotiate better terms for the working capital debt facility. Palla Pharma is now in the best position it has ever been to continue to execute on its strategy and gain market share in the global supply of opiate based pain relief products.”
[...lots of stuff omitted here - due to 5,000 character limit on straws - but you can access all of the announcement by clicking on the link above]
Trading Update and Outlook
FY19 was a period of transitioning to a more stable supply of raw material, de-risking the balance sheet and developing strong foundations for growth. The FY20 result will be underpinned by:
Continued revenue and EBITDA growth are expected with or without the UK acquisition.
Note: When “tonnes” are referred to when describing Poppy Straw, NRM, API or Tablets, this refers to tonnes of opiate equivalent in the product.
--- click on links above for more ---
Disclosure: I hold PAL shares. While not currently profitable, they are certainly moving in that direction at a good clip. I would expect they will breakeven within the next 12 months based on these results. They have been (so far) growing the business by reinvesting their gross profits back into increased production capacity. They have some smart money on the register: SOL/BKW own 23.18% of PAL, Thorney/TIGA/TOP own 18.65% and Wentworth Williamson own 8.28% of PAL. Their CEO/MD also holds over 2m shares and their Chairman holds over 3m shares. Because they are still not profitable, they have to be considered as a speculative investment, but they have some significant competitive advantages, good management, and good backers, with significant barriers to entry (very tight regulation mostly - of the opiate supply chain, plus they already have a fully integrated supply chain set up that is producing and selling product now - something that is very difficult and costly to replicate). If their planned UK acquisition goes through as expected, it will significantly increase their production capacity, revenue and sales.
10-Feb-2020: Palla Pharma Investor Update
Due to recent share price fluctuations, industry related media commentary and the rapidly changing nature of the global pain relief market, Palla Pharma Limited (ASX:PAL) provides this update prior to the release of its full year financial results on 27 February 2020.
1. The recent short-term share price drop was dominated by a single shareholder selling a significant block of shares over a short period. The share price has rebounded 10.86% in the last 2 days of trading.
2. After a protracted period of negotiation, PAL has entered into an option agreement to acquire its largest UK customer, a manufacturer of finished dosage Codeine Phosphate.
3. In conjunction with the option, PAL acquired four Marketing Authorisation’s (MA’s) from the UK customer for supply of Codeine based products into the UK. These MAs will allow PAL to supply meaningfully margin accretive Codeine and Dihydrocodeine based tablets (generic and branded) into the UK from Norway in 2H 2020.
4. The 2019 total revenue expectation will be reduced due to a French based NRM customer requesting that the supply of product expected in Q4 2019 be delayed and operating issues at two UK based customers in the same period which reduced their product demand.
5. On 5 February 2020, PAL received regulatory approval (CEP) to manufacture Codeine Phosphate from Morphine NRM in the UK at a CMO site, significantly increasing our API supply capability without further investment.
6. Recent media regarding increased monitoring of opiate pain relief in Australia is not expected to impact PAL business. Opiates remain an essential medicine as referenced by the World Health Organisation (WHO) and we see strong demand for product from existing and prospective customers.
The announcement then goes into further detail around each of those 6 points.
PAL rose a lot on the back of this - getting as high as 90.5 cps (+27.5%) and closing at 80 cps (+12.68%) compared to the previous day's 71 cps close. This announcement provides clarity around why Palla Pharma (PAL) have chosen not to proceed with the acquisition of a major UK customer of theirs. That target company was a significant customer and has (as of today) not received licence reinstatement and as a result has not purchased Codeine Phosphate from PAL as per their supply agreement.
However, despite this reduction in expected Codeine Phosphate sales volume in H1, PAL expects to supply the same API (Active Pharmaceuticals Ingredients) volume in 1H 2020 as it did in 1H 2019 through other existing and new customers.
The best news however is while exploring the possible acquisition, PAL acquired seven Marketing Authorisations (MA's) from the Target. These seven MA`s accounted for about 70 per cent of the Target’s revenue and all involved an opiate as a major excipient.
PAL has transferred the ownership of the MA`s from the Target to Palla and is well progressed in transferring manufacturing to PAL`s Norway site, where it has freed up additional tableting capacity by terminating non-opiate CMO (Contract Manufacturing Organisation) arrangements.
PAL expects the validation and MHRA (UK Medicines & Healthcare products Regulatory Agency) approval of manufacture in Norway will be complete in the September quarter, whereupon PAL will commence manufacturing and supply of these opiate-based tablets into the UK.
They said today, "We expect that earnings in 2H 2020 will be significantly stronger than 1H 2020, as we finalise the transition of our sales profile from a volume-based commodities to higher value products. We expect a material uplift in full year earnings compared to 2019 as a result.
"In addition to the above opiate marketing authorisations being transferred to PAL`s Norway site, PAL expects to obtain fast track approval for the registration of a new Paracetamol generic for the UK market in the September quarter. PAL uses paracetamol as a co-excipient and would supply this product into markets when commercially attractive to do so.
PAL will provide a more detailed trading update and outlook at the AGM on May 28, 2020."
--- click on the link above for the rest of this announcement ---
I do have a small position in PAL. They are a small Australian company who have a vertically integrated and fully licenced narcotics manufacturing and supply business. They have significant competitive advantages, there are very high barriers to entry in this heavily regulated area of pharmaceuticals, and PAL have SOL (Washington H Soul Pattinson) as cornerstone investors. SOL own 23.18% of PAL, via Brickworks (BKW), so both BKW & SOL are listed as 23.18% holders of PAL, however the holding is one position, not two. BKW is considered a controlled subsidiary/entity of SOL, so any substantial positions taken by BKW are also deemed to have also been taken by SOL.
I believe that PAL are close to an inflection point, being a move into profitability, and this announcement that they are not going to spend a lot of money to buy one of their largest UK customers, but have instead bought the best of their IP, is a very positive move in that direction.
As they are not yet profitable, they still have to be considered speculative and risky, hence my smaller position size.
30-May-2019: TPE 2019 AGM Presentations & Outlook
About TPI Enterprises Limited
TPI Enterprises Limited (ASX:TPE) is one of three licensed poppy processors in Australia, and the only Australian-owned company. It is one of only three companies globally that is vertically integrated from poppy growing through to tableting production. TPI Enterprises has developed an innovative, efficient and environmentally-sustainable extraction and purification manufacturing process which allows the company to deliver a highly competitive pricing platform. The company’s strategy is to secure access to regulated downstream narcotics markets to leverage its reliable, cost-competitive upstream raw material capability.
TPI ENTERPRISES: INVESTMENT THEMATIC
TPI ENTERPRISES AT A GLANCE
Disclosure: I hold TPE shares.