Today Lannett (NYSE: LCI) announced plans to co-develop a generic insulin pharmaceutical product for the U.S. market with its strategic partner in China. Is this news a fabricated stimulation to LCI's stock price, or a real growth opportunity? Every value investor wants to know.
Key Takeaway:
- The Chinese partner is relative young with limited track record
- Potential revenue stream from generic insulin will be after minimum 36 months
- Generic insulin market already exists and seems crowded
More detailed discussions are as followed:
# 1) How reliable is the Chinese partner?
YiChang HEC ChangJiang Pharmaceutical ("HEC", HK:1558) is a pharmaceutical manufacturing company, focusing on areas of anti-virus, endocrine, metabolic, and cardiovascular diseases.
- Company structure: A subsidiary of layers of parent companies
- Management: Relative young management, with ~40 average age
- 60%+ revenue (RMB 453.8 million) comes from "Kewei", an anti-influenza medicine
- R&D: interestingly, only 3.8% of HEC's employees (36 out of 946) have "Master or Above" education level
# 2) What's the timeline to monetize the investment?
- LCI will facilitate the U.S. FDA approval and have market exclusivity in the U.S. Market.
- HEC are currently developing three types of insulin APIs, which will be produced into six form of insulin products. In 2015, the Group has applied for clinical trials for insulin aspart, insulin aspart injection and insulin aspart 30 injection. Recombinant human insulin is now in the phase III clinical trial.
- If we take the data from 2013, it takes 36 months to get ANDA approval from date of receipt. So we can project the revenue will come after year 2019.
# 3) What's the potential revenue stream?
- According to IMS, global spending on diabetes in 2015 was 43~48 $billion, enjoying a 11.9% CAGR in last 5 years
- Per American Diabetes Association, U.S. insulin sales in 2011 totaled $8.3 billion, a 14.9% increase compared to 2010
- The generic Insulin is manufactured by 25 companies and in 101 brands
- The generic Insulin is manufactured by 25 companies and in 101 brands
- 6 million people currently take insulin in the United States
Without further research, the generic insulin market seems already crowded.
More research will come. In another article I will talk about the Kremers Urban Story. Stay tuned:)
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