Lizard
30-01-2014, 10:00 PM
Been meaning to start a thread on IDT for a while, as it seems interesting (i.e. cheap and illiquid:eek2:). I think it is probably too soon for an investment in IDT, but there are a couple of factors (i.e. under-utilised assets and an experienced CEO) that could form the basis for a turn-around.
IDT was established in 1975 as a consulting research and development organisation associated with the Victorian College of Pharmacy in Melbourne. It was privatised in 1986 and first listed in 1988. While initially involved in contract research and formulation, the company gradually moved into the manufacture of Active Pharmaceutical Ingredients (API's) and contract drug development, including work for big names such as Pfizer and Johnson & Johnson. Under the stewardship of Chairman/MD Dr Graeme Blackman, IDT was able to achieve steady progress in revenue, profit growth and share price through until 2007, reporting revenue of $26.7m and NPAT of $5.5m, while employing over 140 staff. Dividends of 10cps were paid for the year and the share price peaked at around $2.64.
With business buoyed by increasing work from Pfizer, Dr Blackman chose to step back and appoint a separate MD from within the company along with a Deputy Chairman and optimistically entered 2008. Another record year followed, with revenue up to $31.4m, NPAT of $7.1m and dividends of 12cps... but with the GFC underway and a significant parcel of shares affected by the Opes Prime sell-down, the share price floundered in the $1.64 - $2.00 range.
The first hint of more fundamental trouble came at the end of 2008, with an announcement that, despite a record first half, work had slowed due to deferrals by Pfizer... in a typically boom-bust fashion, Pfizer managed to invest $20m in an API manufacturing facility at IDT's premises which opened in August 2008 - 8 months after Pfizer had effectively ceased work on development of the new antibiotic for which the facility was intended. Cancellation of the development was confirmed in the 2009 final accounts release. After a further 8 months (and what must have been some interesting discussions), Pfizer agreed in April 2010 to transfer the ownership of the new facility to IDT without cost. A valuation at that time indicated a replacement value of $70m for all company land, buildings and facilities, including the Pfizer assets. However, given the accounting practice of valuing assets based on future earnings, the company chose to accord nil value to those they had acquired.
Unfortunately though, without their key client, revenue more than halved, falling below $10m in 2012 and with losses in each year since Pfizer's departure. The high AUD over this period meant little interest in Australian drug manufacturing and the struggling biotech sector had few clinical trials to progress. Quietly, the MD departed at the end of 2012 - a timely move that enabled IDT to pick up the services of Dr Paul MacLeman who had departed abruptly from GTG after the major shareholder voted down director appointments at the agm and triggered a mass departure. This was followed by a board re-structure, with long-standing directors departing and a former CSL exec, Graeme Kaufman, replacing Dr Blackman in August 2013.
In reviewing the business, the new management have focussed on finding ways to utilise the valuable plant & equipment assets held by IDT and have determined to utilise their specialist knowledge and FDA/TGA approved position to manufacture generic oncology drugs. This strategy takes advantage of the "patent cliff" in which a significant number of valuable oncology drugs will come off-patent in the next decade. First off the rank is likely to be Temozolomide which comes off patent this year and for which IDT have already filed an Abbreviated New Drug Application (ANDA) and is in discussions with potential US marketing partners.
Separately announced this week has been the acquisition of an option to acquire an ANDA for synthetic conjugated estrogens from Perrigo Company plc, who would also exclusively market and sell the product in the US. This is a synthetic version of Premarin - a drug used widely in Hormone Replacement Therapy but which requires manufacture from the urine of pregnant mares.
This leaves IDT today as a company with a share price close to the book value of estimated 39cps (after recent rights issue), but with perhaps another $47m (62cps) of unrecorded assets based on replacement value. Combined with a capable management intent on utilising those assets, the potential exists for a significant re-rate.
Technically, IDT has pulled back from a turnaround-rally in the second half of last year. While it is not sending any obvious signals I can spot right now, it may be worth watching.
IDT was established in 1975 as a consulting research and development organisation associated with the Victorian College of Pharmacy in Melbourne. It was privatised in 1986 and first listed in 1988. While initially involved in contract research and formulation, the company gradually moved into the manufacture of Active Pharmaceutical Ingredients (API's) and contract drug development, including work for big names such as Pfizer and Johnson & Johnson. Under the stewardship of Chairman/MD Dr Graeme Blackman, IDT was able to achieve steady progress in revenue, profit growth and share price through until 2007, reporting revenue of $26.7m and NPAT of $5.5m, while employing over 140 staff. Dividends of 10cps were paid for the year and the share price peaked at around $2.64.
With business buoyed by increasing work from Pfizer, Dr Blackman chose to step back and appoint a separate MD from within the company along with a Deputy Chairman and optimistically entered 2008. Another record year followed, with revenue up to $31.4m, NPAT of $7.1m and dividends of 12cps... but with the GFC underway and a significant parcel of shares affected by the Opes Prime sell-down, the share price floundered in the $1.64 - $2.00 range.
The first hint of more fundamental trouble came at the end of 2008, with an announcement that, despite a record first half, work had slowed due to deferrals by Pfizer... in a typically boom-bust fashion, Pfizer managed to invest $20m in an API manufacturing facility at IDT's premises which opened in August 2008 - 8 months after Pfizer had effectively ceased work on development of the new antibiotic for which the facility was intended. Cancellation of the development was confirmed in the 2009 final accounts release. After a further 8 months (and what must have been some interesting discussions), Pfizer agreed in April 2010 to transfer the ownership of the new facility to IDT without cost. A valuation at that time indicated a replacement value of $70m for all company land, buildings and facilities, including the Pfizer assets. However, given the accounting practice of valuing assets based on future earnings, the company chose to accord nil value to those they had acquired.
Unfortunately though, without their key client, revenue more than halved, falling below $10m in 2012 and with losses in each year since Pfizer's departure. The high AUD over this period meant little interest in Australian drug manufacturing and the struggling biotech sector had few clinical trials to progress. Quietly, the MD departed at the end of 2012 - a timely move that enabled IDT to pick up the services of Dr Paul MacLeman who had departed abruptly from GTG after the major shareholder voted down director appointments at the agm and triggered a mass departure. This was followed by a board re-structure, with long-standing directors departing and a former CSL exec, Graeme Kaufman, replacing Dr Blackman in August 2013.
In reviewing the business, the new management have focussed on finding ways to utilise the valuable plant & equipment assets held by IDT and have determined to utilise their specialist knowledge and FDA/TGA approved position to manufacture generic oncology drugs. This strategy takes advantage of the "patent cliff" in which a significant number of valuable oncology drugs will come off-patent in the next decade. First off the rank is likely to be Temozolomide which comes off patent this year and for which IDT have already filed an Abbreviated New Drug Application (ANDA) and is in discussions with potential US marketing partners.
Separately announced this week has been the acquisition of an option to acquire an ANDA for synthetic conjugated estrogens from Perrigo Company plc, who would also exclusively market and sell the product in the US. This is a synthetic version of Premarin - a drug used widely in Hormone Replacement Therapy but which requires manufacture from the urine of pregnant mares.
This leaves IDT today as a company with a share price close to the book value of estimated 39cps (after recent rights issue), but with perhaps another $47m (62cps) of unrecorded assets based on replacement value. Combined with a capable management intent on utilising those assets, the potential exists for a significant re-rate.
Technically, IDT has pulled back from a turnaround-rally in the second half of last year. While it is not sending any obvious signals I can spot right now, it may be worth watching.