22-Dec-2020:  Resignation of Managing Director and Chief Executive Officer

The Board of Palla Pharma Limited (ASX:PAL) wishes to announce that Mr Jarrod Ritchie has tendered his resignation as Managing Director and Chief Executive Officer of the Company effective immediately.

Mr Ritchie has advised his resignation is a personal decision related to his desire to strike a better balance between his work obligations and his family commitments.

Mr Ritchie said: “I have spent the last 17 years leading the development of Palla Pharma into a truly global pharmaceutical business. I am exceptionally proud of what my team and I have achieved this far and excited about what the future holds for the business. Unfortunately, the toll of leading, in my very hard charging hands-on-way, what is now a global business has become apparent to me in recent times and, spending the vast majority of this year away from my family, I have decided I have to make some changes for me. I am disappointed to be leaving my team but now is the right time for me and importantly the outlook for the business is extremely positive.”

The Palla Pharma Chairman, Simon Moore, remarked: “We are disappointed that Jarrod is leaving the business, but we understand and respect the reasons for his decision to do so. Palla Pharma has been Jarrod’s baby since its founding and his drive and resilience to overcome any barriers put in the way of its development are a testament to him. The future successes of the Company will be due in no small part to all his efforts to this point. We wish him well for the future.”

The Company will undertake an international search for a Managing Director and Chief Executive Officer to succeed Mr Ritchie and in the interim, the Company’s Chief Financial Officer, Mr Brendan Middleton, will take on the added responsibility of Interim Chief Executive Officer. Mr Ritchie will remain as an advisor to the Company and assist with the transition process to the new Chief Executive Officer.

--- ends ---

[I sold my PAL shares this morning on this news, at very close to breakeven.  I'm wary of these sudden departures of company leaders, with zero notice, and no replacement ready to step in, regardless of how much positive spin they use when announcing it.  A CFO is not usually CEO or MD material, and while Brendan Middleton (CFO and now interim CEO) may do an OK job, he's unlikely to be the inspirational and driven leader that they most likely need after the year they've just had.  I'll keep PAL on my watchlist and I'll likely step back in when the fog clears a bit.  I'm just wondering if there's some more bad news to come.  PAL has always shown a lot of promise, but they just have not delivered on that promise yet, and I don't think this resignation helps with that at all.  There are always other opportunities.  I've purchased a small tranche of Service Stream (SSM) shares today.  I said I'd wait until they stopped falling,  I haven't.  They are still falling.  I also rang the company and got an answering service - and left a message.  I want some clarrification around whether they have indeed actually LOST any nbn work (in NSW & Vic) or just gained more work elsewhere - which is how I read their announcement.  However, regardless of whether they have lost some work or not, they have stated that they now have ongoing nbn work in EVERY mainland state in Australia, and on that basis I believe this sell off is either overdone or else entirely unjustified.  Either way, they look like an opportunity to me, however I'm only taking a small position initially ($5K) as I want more clarrification around the nbn work and why the market is dumping their shares before I take a larger bite.]

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

• Morphine and codeine remains the “gold standard” for acute and chronic pain management globally
• Significant unmet demand in developing countries with 92% of global supply consumed by only 15% of the global population
• One of six licensed producers of morphine and codeine globally, and one of only three fully integrated suppliers of opiates from raw material through to packaged Finished Dosage products
• Disruptive technology: lowest cost Narcotic Raw Material producer globally based on trade secret extraction process
• Globally diversified poppy straw supply chain with diversified dual hemisphere supply sourcing strategy
• Strong revenue growth: $22 million in 2017, $46 million in 2018 and expecting $60+ million in 2019 
• Achieved EBITDA positive 4QFY18 whilst continuing to position the company for growth
• Highly experienced management team with significant industry experience

SUBSTANTIAL SHAREHOLDERS

• Washington H. Soul Pattinson, 19.9%
• Thorney Opportunities, 17.0%
• Wentworth Williamson, 7.2%

CAPITAL STRUCTURE

• Share Price (29 May 2019) $1.19
• Fully Paid Ordinary Shares 81.1m
• Share Appreciation Rights 1.3m
• Market Capitalisation (29 May 2019) $96.5m
• Net debt (31 Dec 2018) $21m

TPI ENTERPRISES AT A GLANCE

• Fully integrated opiate manufacturer from farm gate to tablet production.
• Lowest cost Narcotic Raw Material (“NRM”) and Active Pharmaceutical Ingredient (“API”) production capability based on novel water-based extraction technology.
• Rapidly growing global supplier of pain relief, cough and plans for anti-addiction active pharmaceutical ingredients.
• Significant contract manufacturer of Finished Dosage Formulation (“FDF”) tablets via Contract Manufacturing Organisation (“CMO”) supply agreements.
• Founded in 2004 and headquartered in Victoria, Australia with production facilities in Victoria, Australia and Kragerø, Norway. 

Disclosure:  I hold TPE shares.

Edit:  TPE is now PAL.  I hold PAL shares.

6-Nov-2020:  CCZ Equities Research: Palla Pharma (PAL): "Marketing authorisation progress points towards a profitaPAL 2021"

OK, I see what you did there...

Analyst:  Chris Macrow, cmacrow@ccz.com.au, +61 2 9238 8222.

• Recommendation: BUY
• Target Price: 124cps (down from 137cps) 
• Market Capitalization: $88m
• Index: N/A
• Share Price: 70cps
• Sector: Health care

Palla Pharma (PAL):  Marketing authorisation progress points towards a profitaPAL 2021

• UK Marketing Authorisation (MA) progress:  PAL have completed the validation trials to support the application to the UK medicines regulator (MHRA) to manufacture and sell 30mg Codeine Phosphate/500mg Paracetamol tablets and caplets under the recently acquired MA. The MHRA confirmed in writing on 3 November 2020 that a valid MA variation application has been received. Under the regulatory process the MHRA has 30 days from 3 November 2020 to raise any concerns with the application, if nothing unfavourable is raised within 30 days the MA variation will be deemed to be accepted and PAL can begin selling 30mg Codeine Phosphate/500mg Paracetamol MA tablets and caplets into the UK market at a very attractive estimated gross margin of ~50%. The ability to sell finished dosage MA products into the UK market should result in a strong revenue and EBITDA uplift in FY21. Revenue for every kg of Codeine Phosphate sold in tableted form is approximately 2.4 times higher than that sold as an Active Pharmaceutical Ingredient. PAL have flagged that a $4m monthly revenue opportunity exists once they receive MHRA approval to commence sales, this monthly opportunity will grow to $12m per month should PAL spend $4m expanding their tabletting capacity. PAL expect gross margins can improve to 50% once most of their sales are made under MAs. PAL will make further submissions in Q1FY21 to the MHRA for the variation of the remaining 4 MAs.
• FY20 outlook:  PAL expects to see stronger revenue, gross profit, and EBITDA results in 2H20 vs 1H20. PAL flagged that the delay in commencement of sales finished dosage products under MAs (early December vs PAL expectations to begin sales in early October) and lower than expected NRM sales will result in a negative EBITDA performance for 2H20. PAL expects to be EBITDA positive from Q1 FY21. CCZ forecasts have been adjusted to incorporate PAL’s updated FY20 outlook.
• Investment thesis:  PAL is a business in transition recently undergoing short-term pain. PAL’s significant loss of low margin non-opiate tableting revenue in FY20 is a necessary step towards PAL becoming a profitable business. CCZ thinks it is likely that PAL will leverage the recently acquired MAs from early December 2020 to grow high-margin sales as it captures the last phase of the farmer to pharma opiate supply chain. We expect strong earnings growth in the forward years as PAL increases production across the portfolio. CCZ view the commencement of MA sales as a turning point for PAL. Trading at a FY21PE of 10x and FY22 PE of 5x CCZ view PAL as a very strong buy!

--- click on the link above for the full CCZ report on PAL ---

[I hold PAL shares and they are on my Strawman.com scorecard also.  I have also posted a few straws here about them - see here: https://strawman.com/reports/PAL/]

08-Sep-2020:  CCZ Equities Research: Palla Pharma (PAL): "Short-term pain before long-term gain"

CCZ Equities Analyst:  Chris Macrow, cmacrow@ccz.com.au, +61 2 9238 8222

Recommendation: BUY, Target Price: $1.37 (up from $1.27), Market Capitalization: $94m, SP (on 11-Sep-20): $0.76.

[I hold PAL shares].

31-August-2020:  1H20 Results Release Briefing   and   1H20 Results Presentation   plus   Appendix 4D and Half Year Financial Report

The market didn't like this one.  PAL was sold down -11% today on this half year (first half 2020) report.

Half Year Results

• 1H20 WAS A TRANSITION PERIOD THROUGH WHICH THE COMPANY POSITIONED ITSELF FOR HIGHER GROWTH
• EXPECT SIGNIFICANTLY ACCELERATED GROWTH IN 2H20 ONWARDS AFTER SHORT TERM REBASING OF BUSINESS
• GROSS PROFIT UPLIFT EXPECTED FOLLOWING FIRST MARKETING AUTHORISATION PRODUCT SALES IN Q4 2020
• PLANNED NON-OPIATE CMO EXIT AND MAJOR CUSTOMER LOSS OF LICENCE LARGEST IMPACT ON 1H20 RESULTS
• JULY/AUGUST 2020 API SALES 50% of 1H20 VOLUME

Palla Pharma Limited (ASX:PAL), a fully integrated opiate manufacturer and supplier to the global pain relief market, announced its results for the half year ended 30 June 2020 (1H20), which saw the company make strong progress in transitioning from supplying lower-margin non-opiate products to higher-margin opiate-based products via the recently acquired Marketing Authorisations (MAs).

1H20 Result overview (vs 1H19)

• 1H20 Revenue down to $12.3 million (1H19 $27.3 million)
• Gross Profit down to $1.7 million (1H19 $9.4 million)
• Operating EBITDA loss of $(6.7) million (1H19 $0.3 million)
• Underlying NPAT loss of $(9.1) million (1H19 loss of $(2.3) million)

Commenting on the result, Managing Director and CEO, Jarrod Ritchie said, “As we previously communicated to the market, this year’s sales and earnings will be heavily skewed to 2H20 as we transition from a producer of lower-margin non-opiate products to highermargin opiate-based products sold via Palla owned Marketing Authorisations (MAs) acquired during 1H20. Profitability in 2H20 will also be favourably impacted by the continued reduction in indirect overhead costs from the early exit of the legacy non-opiate supply agreement.

“Regulatory validation and the transfer of the MAs manufacturing license to our Norway facility is going very well. We expect strong sales of higher-margin opiate-based tablet and caplets to commence in the final quarter of 2020.

“As advised at the AGM, while 1H20 revenue was expected to be lower, FY20 revenue will be modestly lower to flat year on year (YOY) with a significant uplift expected in revenue and gross profit through FY21 and FY22, driven by MA sales, once approved and higher API sales. Further, in the near term we expect a significant gross profit uplift in FY20 driven by high margin MA related sales in Q4 2020.”

Result overview

The 1H20 revenue decline to $12.3 million was impacted by the planned early exit from a nonopiate based supply agreement, lower poppy seed sales volumes due to reduced (weather related) domestic poppy straw growing area, and lower API volumes due to a major UK customer losing its manufacturing license which had committed contracted volumes to the company.

Gross Profit of $1.7 million was impacted by timing of the planned early exit from the legacy non-opiate based supply agreement, reduced poppy seed margin contribution due to a reduction in domestic growing area, increased focus on offshore poppy straw supply, and significantly lower Active Pharmaceutical Ingredients (API) volumes due to the prolonged manufacturing license suspension of a major API customer. With the non-opiate based supply agreement ended, the indirect overhead cost base was able to be reduced by approximately 20 percent for the half, resetting the cost base ahead of the higher-margin MA sales commencing in Q4 2020.

The Operating EBITDA loss of $(6.7) million was impacted by the decline in revenue and gross margin, partly offset by indirect overhead cost reduction. The company continues to strengthen its foundation for the future as it continues to focus on completing its strategic shift to downstream, margin accretive FDF supply. Regulatory approval is nearly complete for two of the seven acquired MAs.

The company is well positioned to benefit from the operational leverage with higher margin MA sales to start in Q4, supported by reduced manufacturing complexity and increased plant utilisation , reduced headcount and a lower cost base due to the early exit from legacy lower margin non-opiate based supply agreement.

Imminent supply of Palla generic FDF (using our own MAs) finally enables PAL to combine the cost effectiveness of NRM Supply from Victoria (Australia), the ability to convert to API and FDF in Norway, which will further enable access to new markets providing a future earnings growth engine for the business.

Continued operations at Victoria and Norway facilities

The company’s Melbourne and Norway facilities continued to operate under various ‘Permitted Industry’ exemptions as manufacturers of pharmaceutical product. In March 2020, the company implemented strict COVID-19 safe operating procedures at both facilities, including the provision of additional PPE, staggering shifts and breaks, and adherence to physical distancing requirements in shared working areas. To date this has proved effective in keeping the workforce safe.

While we have seen both positives and negative effects from COVID-19, in specific areas there has been an overall business disruption with regard to shipping costs, efficiency of interactions with customers, slowness in receivables and in some country specific examples (Italy) an inability to obtain co-excipients such as paracetamol which has delayed H1 API orders into H2 2020.

Demand however remains strong as Codeine based products have been included in the UK governments list of essential medicines with increased prices being observed in the UK market.

• All codeine products have since the start of the year been on the list of products that cannot be hoarded or parallel exported.
  • https://assets.publishing.service.gov.uk/government/uploads/system/uploa ds/attachment_data/file/892354/Medicines_that_cannot_be_parallel_export ed_from_the_UK_15_June_2020.csv/preview
• 2. Co-Codamol 30/500mg is on (from 31 March 2020) the list of urgent COVID19 products – and there is a limit on the number that can be supplied
  • https://psnc.org.uk/our-news/covid-19-urgent-supplies-ofcontrolled-drugs/

The company continues to hold higher than normal inventory levels across all aspects of the business to mitigate supply line interruptions during the pandemic. Elevated inventory levels are expected to decrease over the next six months, freeing up working capital.

Validation batches passed, stability trials started for first MA in Norway, targeting sales in Q4 2020

Palla Pharma Norway is well progressed with the validation of the acquired 30/500 CoCodamol product MAs. All three validation batches have been completed with analysis of the validation batches for both the tablets and caplets, meeting the required specifications.

Co-Codamol 30/500mg Tablets and Caplets have been packed and have commenced stability trials.

Next steps that will enable sales in Q4 2020 are:

1. Satisfactory stability trials and submission of Data to the Medicines and Healthcare Regulatory Agency (MHRA)
2. Approval by the MHRA of Palla Norway as an approved manufacturing site.

Pricing continues to increase in the UK market for opiate-based products due to supplier shortages

The price of Codeine/Paracetamol 30mg / 500mg has increased significantly since Q2 2018 – from £2.50 to over £4.00 per 100 pack according to the IQVIA data from the UK pharmacy network and hospitals.

Utilising its full packaging capacity at Norway facility the revenue generated per month is expected to exceed approximately A$4 million at original pricing levels. Palla plans to expand capacity in 1H 2021 to allow for additional demand, resulting in expected total revenue per month of approximately A$12 million after capital expenditure of approximately A$4 million.

Multi-year opiate based FDF CMO contract extension

During the half-year period a multi-year opiate based Finished Dosage Formulation (FDF) CMO contract was extended to supply 270 million Codeine Phosphate tablets to a major UK customer. The contract extension equates to a minimum of eight tonnes of Codeine Phosphate equivalent and represents approximately four months packaging capacity.

Diversifying NRM raw material sourcing and ensuring uniformity in poppy straw quality

Australia had reduced growing area last season due to adverse weather events in NSW and a heightened focus on diversification of straw supply to offshore supply sources. The company continues to increase poppy straw sourcing from Northern Hemisphere sources and continues to focus on improving local expertise with increased farmer and aggregator engagement through the company’s on-the-ground agricultural expertise in Europe.

Debt recovery legal proceedings commenced seeking payment of outstanding invoices from major UK customer

The company has filed a claim in the High Court of Justice Business and Property Courts of England and Wales. The company is confident in its claim as all product supplied was ordered and delivered as per product specifications and expects to recover the amount owing in full. Despite this, a trade receivables impairment loss charge of $1.0 million was recognised during the period.

Strategy update and Outlook

As previously communicated, the company expects a significant revenue and earnings skew to 2H20 as first MA sales start in Q4 2020.

The company is well positioned to rapidly grow revenue and earnings in 2H20:

• MA validation is on track, with three validation batches completed, meeting the required specifications
• MA sales start after certification of Palla Norway as an approved manufacturing site by MHRA
• At full capacity, ~A$4 million monthly revenue opportunity exists for MA sales at early 2018 tablet/caplet prices.
• Manufacturing can commence (without sales) to build inventory prior to approval
• Elevated prices for Codeine/Paracetamol 30mg/500mg tablets/caplets due to supply shortages provide further margin upside. At least two of the four major customers have supply issues into the UK market at present meaning Palla will not have to lower prices to enter the market.
• A$12 million monthly revenue opportunity following $4 million capex spend
• FY20 revenue is expected to be modestly lower to flat YoY with a significant uplift expected in FY21-22
• Gross profit uplift expected in FY20 driven by high-margin MA-related sales in 2H20
• Continue targeted improvement in working capital and reduction of net debt.

--- click on links above for more ---

About Palla Pharma Limited:

Palla Pharma Limited (ASX:PAL) is a vertically integrated opiate manufacturer from poppy straw growing through to tableting production. Palla Pharma has developed an innovative, efficient, and environmentally sustainable opiate manufacturing process based on a unique water-based extraction technology. The company is one of six licensed opiate producers globally, and one of three fully integrated suppliers from opiate extraction through to tableting production delivering on its strategy to secure access to regulated downstream narcotics markets by leveraging its production cost advantage.

[I often hold PAL, but I am not holding PAL shares currently;  They are however on my Strawman.com scorecard.]

[The largest shareholders of PAL shares are SOL/BKW.  The investment is in the Brickworks (BKW) investment portfolio, however BKW is considered to be a controlled entity of Washington H Soul Pattinson (SOL) so SOL also have a notice lodged for 23.18% of PAL, same as BKW, but it's the same stake, not a different stake.  The second largest shareholder is Thorney Opportunities Fund (TOP, a.k.a. TIGA Trading) - who hold 18.65%, and Wentworth Williamson also hold 8.28% of PAL - so there is plenty of "smart money" on the register.]

17-7-2020:  FDF contract extension and marketing authorisation update

[I hold PAL shares]

28-May-2020:  2020 AGM Chairman's Address

26-May-2020:  Palla Pharma UK Acquisition Update    Also, on 19-May-2020 (1 week ago):  Palla Pharma 2020 AGM Update

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.

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. 

--- ends ---

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.

Early March 2019:  TPI Enterprises (ASX: TPE) is a fully integrated opiate manufacturer from farm gate to tablet production. 

They have some competitive advantages, the main one being that they enjoy the lowest cost narcotic raw material (“NRM”) and active pharmaceutical ingredient (“API”) production capability based on novel water-based extraction technology. 

They are a rapidly growing global supplier of pain relief, cough and plans for anti-addiction active pharmaceutical ingredients.  They are also a significant contract manufacturer of finished dosage formulation (“FDF”) tablets via contract manufacturing organisation supply agreements (“CMO”). 

TPI was founded in 2004 and is headquartered in Victoria, Australia with production facilities in Victoria, Australia and Kragerø, Norway. 

Their financial year ends on December 31st;  Their full year (2018) results presentation (released to the ASX this morning) can be viewed here.

Washington H. Soul Pattinson and Co. Limited (ASX: SOL) is an investment house with investments in a diverse portfolio of assets across a range of industries. SOL's main business activities includes ownership of shares (50% of NHC, 25% of TPM, 44% of BKW, 19% of API, 23% of CLV, and a number of other investments); coal mining (they control NHC); gold and copper mining and refining (CopperChem); property investment; and consulting.  SOL also own 19% of TPE.

Other substantial/major shareholders include Thorney Investments (a.k.a. Thorney Opportunities - ASX: TOP) with 14%, Wentworth Williamson with 6%, and Cooper Investors with 4%.  TPE's board and management also own 4.5% of the company's issued shares.

The presentation (link above) contains a good overview of the company and why the next couple of years should provide some meaningful shareholder returns.

23-Mar-19 Update:  Thorney (TOP/TIGA Trading) have just increased their holdings from 14% to 17% of TPI (ASX: TPE).

23-Mar-19 - I've just updated another straw of mine with the news that Thorney Opportunities (ASX: TOP) / TIGA (Thorney Investment Group Australia) Trading have just increased their shareholding from 14% to 17% of TPI Enterprises (TPE).  Earlier in the month, Wentworth Williamson Management also notified the ASX (and TPI) that they had increased their own stake in TPI to 7.15% (from 6.01%).

I've just finished listening to a podcast titled, "A Century of Dividends" which is part of Livewire's "Rules Of Investing" series, in which Livewire's Patrick Poke interviews Robert (Rob) Millner, the Chairman of SOL (Washington H Soul Pattinson or Soul Patts), BKW (Brickworks), NHC (New Hope Coal), BKI (BKI Investment Company) and MLT (Milton Corporation), as well as being a director of TPM (TPG Telecom) and API (Australian Pharmaceutical Industries), and an ex-director of a number of other companies including CLV (Clover Corporation).  Soul Patts (SOL) is an investment company that owns shares in all of those other companies mentioned and a number of other companies.  One of those other companies is TPI (ASX: TPE).

Commsec says SOL owns 18.92% of TPI.  However, the most recent results presentation released by TPI (on Feb 28th, 3 weeks ago) - see here (page 4) - says that SOL owns 20% of TPI.  In the Livewire "Rules of Investing" podcast - see here - Rob mentions SOL's investment in TPI and why they like the company (including TPI's competitive advantages over their limited competition) - beginning at the 14 minute mark.  It's a relatively brief mention in a wide-ranging interview, but it's worth listening to.  In fact, the whole interview is worth listening to.

Rob is very old-school, especially his views on climate change, but there's no denying that the Millners have proved to be master investors over the years.  SOL is also one of only two companies (RHC being the other) that have raised their ordinary dividends every single year for the past 20 consecutive years, as well as increasing their share price over that period, making them excellent investments for long-term shareholders.  Rob talks about companies like TPI hopefully becoming an API or a TPG in the future.

TPI Enterprises Limited (ASX:TPE) changed their company name to Palla Pharma Limited (ASX:PAL) effective from 19 June 2019. 

On Thursday 30 May 2019, shareholders formally approved the change of company name to Palla Pharma Limited at the Company’s 2019 Annual General Meeting.  The name change is one component of a new brand identity that reflects the Company’s shift of its operations, product range and culture to that of a global pharmaceutical business.  They announced this on June 14th, adding that the effective date for the change to the Company’s ASX listing details would be Wednesday 19 June 2019, when the ASX Listing Code would change from “TPE” to “PAL” (which it did).  

A rebranding project is currently being implemented and the Company have said they will make a further ASX announcement regarding changes to communication details, including an updated website, in due course.  

I have yet to see that particular announcement, however their new website went live in the past week or two - and it is:  http://www.pallapharma.com/

Any attempt to reach their old site (www.tpienterprises.com) will now take you straight to their new site.

Palla Pharma is involved in the production and distribution of Narcotic Raw Material for supply to international pharmaceutical markets, and the production and distribution of poppy seed for supply to international culinary markets. PAL is the only Australian-owned poppy processing company that uses the world's only 'green' manufacturing process.

Recent report and presentation links:

23-Jul-2019:  New Codeine Phosphate Supply Agreement & 1H2019 Update

28-Aug-2019:  Half Yearly Report and Accounts

29-Aug-2019:  Palla Announces 1H2019 Financial Results and Trading Update

29-Aug-2019:  Palla 1H2019 Results Investor Presentation

30-Aug-2019:  Recording of Palla Pharma 1H2019 Results Briefing

Disclosure:  I hold PAL shares, and I held them when they were TPE also.  I also hold SOL shares (SOL own 19.95% of PAL).

27-Feb-2020:  Palla Pharma delivers double-digit growth in FY19

Palla Pharma Investor Presentation - FY19 Results & Outlook

Preliminary Final Report and Annual Report

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)

• Record FY19 Revenue up 18.4% to $54.7 million (FY18 $46.2 million)
• Gross Profit up 15.3% to $17.3 million (FY18 $15.0 million)
• Operating EBITDA up $2.1 million to a loss of $0.3 million (FY18 loss of $2.4 million)
• Underlying NPAT loss of $5.8 million (FY18 loss of $6.5 million)

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:

• Revenue and earnings growth with a greater focus on API sales and the use of Norway capacity to increase production of opiate based finished dosage products;
• Significant revenue and earnings upside, should the UK acquisition proceed; and
• Improved straw supply in both quality and price from both hemispheres;
• Full utilisation of increased API capacity, demonstrated in late FY19;
• API expansion and new product development; and
• Improvement in working capital and reduction in net debt.

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. 

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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.  

Overview:

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.

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The announcement then goes into further detail around each of those 6 points.

31-Jan-2020:  CCZ Equities Research:  Palla Pharma (PAL):  More codeine phosphate at higher margins:  No pain more gain

• Recommendation: BUY
• Target Price: 123cps
• Market Capitalization: $126m
• Index: N/A
• Share Price: 100cps (31-Jan-20) (7-Feb-20: 90cps)
• Sector: Health care 

Excerpts:

• Initiating Coverage: Palla Pharma (PAL) is a fully integrated opiate manufacturer. PAL contracts farmers in Australia and Eastern Europe to grow opium poppies, these poppies are harvested and then dried to create poppy straw and poppy seeds. Poppy seeds are then sold as a by-product, and poppy straw is processed into narcotic raw material (NRM) in PAL’s Melbourne factory via their unique water based, solvent-free extraction technique. PAL’s Norwegian factory then produces opiate based active pharmaceutical ingredient (API) from NRM. API is then converted a tablet form known as a finished dosage formulation (FDF). FDF outputs include codeine phosphate, co-codamol and nonopiate pain relief such as paracetamol and ibuprofen. The company started in 2004, and ASX listed on 2015.
• PAL considers itself to be the lowest cost producer of NRM and opiate based API globally:  Their key competitive advantage exists due to their unique water based, solvent-free technique used to produce NRM. NRM is 70-80% of the input cost of opiate based API/FDF products. This process is protected by trade secret and ensures PAL is wellplaced to gain market share in an industry that competitors are exiting (9 licensed manufacturers in 2015 down to 6 in 2019). PAL are one of only 3 fully integrated opiate suppliers in the world.
• 4x revenue growth possible by 2021:  PAL’s production target in 2021 of 200 tonnes of opiates is almost 5x it’s 2018 production of 41 tonnes. Revenue for 2018 was $46.2m. Achieving this production target would represent a market share of 17% of INCB’s addressable global opiate market of 1,175 tonnes (~1/6 of the 6 producer market).
• Significant inventory improvement benefit likely through FY20:  As high codeine inventory is converted to finished product and sold, PAL anticipates significant reduction in inventory levels. PAL announced in December 2019 that they have negotiated an early exit of the contract to produce non-opiate tablets. This will release tabletting capacity to allow them to focus on the much more profitable production of opiate based tablets.
• Investment thesis:  Despite prior headwinds of changing product mix, production facilities integration, plus cashflow and legal issues, PAL still achieved a strong +58% 3yr sales CAGR to $55m in 2019. We expect strong earnings growth in the forward years as PAL further increases production across the portfolio. At 7.1x FY22 PE and before accounting for the upside from a potential FDF marketing authorisation purchase, PAL warrants a BUY rating.

23 July 2019:  New Codeine Phosphate Supply Agreement & 1H2019 Update

Palla Pharma Limited (ASX:PAL - formerly TPI Enterprises Limited, ASX:TPE), a low cost producer of  Narcotic Raw Material (NRM) and one of three fully integrated opiate manufacturers for supply to  the global pain relief market, is pleased to provide the following update.    

New Codeine Phosphate Supply Agreement    

PAL is pleased to announce the securing of additional Codeine Phosphate (CPO) volumes as a result  of entering into a new multi-year supply agreement with a European customer.

The key terms of the agreement are:

• Additional 24 tonnes of Codeine Phosphate (CPO) per annum;
• Three-year term;
• Total contract revenue value of not less than US$25 million; and
• The ability to supply in CPO API, granulate or tabletted form.    

PAL expects to begin delivering product under the new contract in Q4 2019.

1H 2019 Update

• Revenue is expected to exceed May guidance of $24 - $26 million
• Reiterate expectations of a modest Operating EBITDA profit for 1H 2019 compared to an Operating EBITDA loss of $1.8 million for the prior corresponding period despite the  incurrence of non-recurring legal expenses and an increased investment in research and  development
• Confirm estimate for FY 2019 revenue of $60+ million

PAL has achieved over 18% revenue growth in 1H 2019 compared to the prior corresponding period, with strong growth in Active Pharmaceutical Ingredients (API), Finished Dosage Formulation (FDF) and poppy seed revenue.

PAL expects to report a modest, maiden half year Operating EBITDA profit, with strong growth in API  and FDF product sales tempered by operational challenges in finished dosage manufacturing which  has impacted profit margins for this division (as previously discussed in the 30 May 2019 AGM  update).

With the patent issue resolved, PAL now has over 100 tonnes of NRM equivalent in poppy straw  available at its Melbourne NRM extraction facility, providing sufficient raw material input supply for at least the next 12 months. This fact, coupled with the impact of increased production volumes and an anticipated reduction in legal expenses, sees PAL optimistic about continued improvement in  operating margins through 2H 2019.

PAL will provide further detail on its 1H 2019 operating performance and half-year financial results  in late August 2019.

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Disclosure:  I hold PAL shares (formerly TPE).

There is often not much to be gleaned from looking at the poll numbers for the resolutions put forward at a company's AGM, but these TPE Results of Meeting caught my eye today.  At yesterday's TPI Enterprises (ASX:TPE) AGM (held on 30-May-2019), they were required to include a "Board Spill Motion" as they received their first strike last year by achieving a "No" vote of 25% or more against their Remuneration Report (No: 25.44%, Yes: 74.56%).  That Spill Motion was withdrawn at this year's AGM because their Adoption of the Remuneration Report motion received a "Yes" vote of a whopping 99.77%.  Their "No" vote was down to a miniscule 0.23% this year - less than a quarter of one percent - so they must have addressed whatever issues shareholders had with their remuneration structure - if that was indeed what shareholders were upset about last year.

I also found it interesting that all 4 of the other motions that were put to shareholders at the TPE AGM yesterday received "Yes" votes of almost 100% - the lowest "Yes" result was 99.64% and the highest was 99.98%.  It seems that TPE has a reasonably tight register and some very happy shareholders (and I'm one of them).

Voting against the company's remuneration report is one of the most immediate and effective methods of registering shareholder frustration or displeasure with management of the company they own shares in.  Company board's have to take notice because if they get just 25% of shares voting "NO" to the RR for 2 consecutive AGM's they must also put the "Board Spill Motion" to their shareholders at the second AGM and if they get over 50% of shares voting "Yes" on that motion, all board seats have to be vacated and new elections held.  Those previous board members can apply to be re-elected of course, but there's no guarantee that disgruntled shareholders will vote them back in if given a cedible alternative board that they could vote for instead.  It's certainly a way for shareholders to hold boards to account, for a variety of reasons, not just because of the way they choose to remunerate themselves and their senior management. 

Further reading:

http://www.smh.com.au/business/companies/what-is-the-two-strikes-rule-20121008-278us.html

http://www.claytonutz.com/knowledge/2011/july/two-strikes-rule-starts-today

http://www.smh.com.au/business/companies/time-is-up-for-two-strikes-rule-on-executive-pay-say-advisers-20190420-p51fvf.html

http://www.claytonutz.com/knowledge/2011/december/the-two-strikes-rule-how-has-it-played-out

http://www.lexology.com/library/detail.aspx?g=bcc534ff-c2d1-410f-a140-780837f04977