In an exchange filing today, SEARL PA has announced that it has successfully entered licensing and marketing agreement with Beximco Pharmaceuticals Bangladesh for Remdesivir – a US FDA approved wide-spectrum antiviral drug used to treat advanced stage Covid-19 patients. This partnership will provide an immediate supply of the finished product at an affordable price and without much delay in due process. Initially SEARL plans to import Remdesivir in finished form (ready to use) to meet the country’s urgent requirements. This is, however, subject to timely approval from the regulator (DRAP). SEARL expects the product to be made available on fast track to support product availability, (we think SEARL may look to manufacture the product later on). SEARL is also planning to donate a sizeable quantity to the Government of Pakistan.

Pricing in Bangladesh

Beximco will sell Remdesivir for about Tk6,000 (US$71) per vial to private clinics but will give it for free to state-run hospitals treating Covid-19 patients. A critically ill Covid-19 patient will need at least 6-11 vials. This means it will cost Tk66,000 (US$782) worth of the drug for full treatment. We expect similar pricing by SEARL in Pakistan with the total treatment costs to cross c. PKR100,000 per patient.

Trading partnership: Earnings impact on SEARL

Assuming a minimum costs of drug production by Beximco (calculating the cost of API, added to costs of excipients, formulation and packaging- based on Dr. Andrew Hill’s research), a profit margin of 10% may apply in the case of manufactured sales (Beximco). We therefore assume thinner margins in the trading partnership with SEARL, where a toll manufacturing fee may be paid by SEARL to Beximco, in our view. This would therefore dilute overall earnings impact for SEARL (c.5-8% EPS impact), assuming net margins in the 4-6% range and 30,000-40,000 patients (not including donations to the Government of Pakistan).

Beximco and FEROZ are similar cases

Both Beximco and Feroz Laboratories Ltd (FEROZ) entered non-exclusive license agreements with US based Gilead Sciences Inc. earlier last month for the manufacture and sale of Remdesivir. SEARL, however, plans to import the drug at final stage from Beximco. FEROZ and Beximco may sell the intravenous treatment to private clinics/hospitals and may also export its version if other governments request the drug. Although they do not have a license from Gilead to do so, WTO agreement provisions permit “least-developed” countries to grant a company the license to copy a patented medicine without the consent of the patent holder. As a result, Bangladesh/Pakistan are not required to avail pharmaceutical patents until 2033.

Valuations seem slightly pricey

While we have yet to incorporate recent acquisition of Luna Pakistan into our estimates for SEARL, we think that existing valuations (forward P/E of 18.2x and P/S of 2.1x) seem a tad pricey. SEARL has gained 41%;(following public announcement by FEROZ for manufacturing of Remdesivir; which sparked expectations for SEARL to enter a similar agreement). We have a June 2020 TP of PKR198/sh for SEARL and will look to revise our estimates as further information is revealed. ( Intermarket Securities Limited)