Key Takeaway:
- LCI has been a mini Valeant
- LCI's drug prescription volume didn't increase for last 3 years
- The management has made sensible price projections
#1) Is LCI a mini-version of Valeant?
Many investors has accused LCI for jacking up prices for its most popular drugs - Levothyroxine ("Levo") and Digoxin ("Digo"). Is this the real case? let's pull data from Medicaid.
From the Medicaid data, we found LCI has increase the price of Levo by 22% annually and Digo 27% since end of 2013. 20%+ is not a small number.
How about the industry average? Let's pull data from AARP's Rx Price Watch Report.
"The average cost for a year's supply of a prescription drug doubled in just seven years to more than $11,000 — about three-quarters of the average annual Social Security benefit."
It's equivalent to a 10% annual price increase (I know I should take the enormous data from Medicaid to get a better number, but I think the number is good enough for now.)
20+% vs. 10% - We conclude that LCI has been increasing price aggressively, well above industry average.
Do you see a mini-version of Valeant here? Oh yes.
However, LCI has grow from $151 million revenue in 2013 to $407 million in 2016. Is there something more than price jacking?
Let's dig deeper.
#2) The TRx numbers
The Total Number of Prescriptions (TRx) can demonstrate the volume of drug sales.
From the above date ranging from May '13 to Nov. '15, we can find:
- Per the two most popular drugs, Levo is on an upward trend while Digo is on a downward one
- The FDA downgrade had hurt Concerta greatly, similar to Morphine Products.
- The total generic TRx suffered mild dip in 2015, which I will explain in another article
To sum up, we can extrapolate that volume haven't help LCI much to grow its revenues.
#3) Is LCI's growth sustainable?
Let's put ethics aside (You know I'm a very ethical person. Look at my eyes), and talk about whether LCI's price increase is sustainable.
This is a big topic, and regulation is probably the biggest factor.
Nobody can really predict the government (If you could, tell me when Yellen will increase the interest rate;)).
Fortunately, the management seems prudent in this tough business. On one hand, they increased drug prices to offset ramping regulation fees (e.g. GDUFA adjusted base figure was $1.5 million in 2012, but $3.2 million in 2016), and the management clearly stated that "price increase are opportunistic things"
(Source: FDALawBlog)
On the other hand, the management is aware of new competitions in the market and projected high single digit price decline for their generic products.
That being said, we need the most conservative product pricing projection for LCI, in order to keep sufficient margin of safety. For instance, at inflation rate, or no increase for LCI's drug prices in the future.
OK. enough said. Let's look into LCI's products now.
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