Investors cheer Wockhardt on revival hopes; stock gained 41% in 2017

Wockhardt’s regulatory hassles are far from over but its stock has been the third best performer among pure-play pharmaceutical companies in the past 12 months, on signs of business recovery.

Cost-saving measures have helped the drugmaker minimise losses and the company is now evaluating an overseas bond issue to pre-pay a portion of its Rs 35-billion debt and fund research and development programmes. The Wockhardt stock gained 41 per cent in calendar year 2017 when the BSE health care index remained flat.

While almost all the major pharmaceutical companies have been impacted due to quality issues, Wockhardt has been hit the hardest as three of its plants are under an US Food and Drug Administration import alert. The drugmaker lost over Rs 20 billion of sales from the US market over the past four years. Events such as Brexit (the company earns around 35 per cent of its revenue from the UK), demonetisation and roll out of the goods and services tax (GST) added to its woes.  

But now there are nascent signs of a recovery. The company’s sales grew 15 per cent quarter-on-quarter to Rs 10.22 billion in Q2FY18. Loss before tax and exceptional items reduced to Rs 280 million in Q2FY18 from Rs 1,210 million in the previous quarter.

“So what you are seeing in the P&L (profit & loss) statement is probably the rock bottom and from here every dollar that we add in incremental sales will contribute straight to Ebitda (earnings before interest, tax, depreciation and amortisation),” said Manas Datta, group chief financial officer, Wockhardt.

Wockhardt’s novel antibiotics development programme, which promises to be a multi-billlion dollar opportunity remains on track and its molecules are undergoing abridged Phase III clinical trials.

While the company expects to launch at least one novel drug (WCK-5222) in FY21, new product launches and site transfers of products is aiding revenue growth in the current fiscal year. With three of its plants facing an import ban from the US drug regulator, Wockhardt decided to transfer the production of over 15 existing products to a third-party site. Two of them have received approval. Also, five new products filed from other sites have received approval for sales in the US. 

Cost optimisation is yielding results too. “We have undertaken various cost optimisation initiatives that have started giving results, be it in power and fuel or in administrative costs. Going forward this would continue to add to the bottom line,” Datta said.

The company has appointed consultants to examine its working capital requirements and cost optimisation measures while consultancy EY has been roped in as an internal auditor to look at all the business processes. Datta said the company is in discussions with international banks regarding the overseas bond issue but is yet to decide on the quantum and bond structure.  

“Domestic business has been a silver lining for the company. Also, reduced share of US business is giving it a favourable sales mix and the company is less impacted from price erosion in the US market than its peers,” said an analyst from a domestic brokerage who did not wish to be named. 

“There is still a lot of risk and uncertainty about the company due to the regulatory issues and large investors will stay away unless these issues are addressed,” another analyst said.