Article Excerpt:
TWST: What is DRAXIS Health?Dr. Barkin: DRAXIS is a rapidly growing provider of sophisticated pharmaceutical products in areas with high barriers to entry. We do that in two specific areas. One is for our own account through our radiopharmaceutical operations, in which we have a whole range of both radioactive and non-radioactive products used in nuclear medicine. And we do so for others through our contract manufacturing operation, which is one of the few with sterile lyophilization capabilities, and one of the few that specializes primarily in sterile and sterile injectable products. In the last five or six years, the company has experienced around a 20% compound annual revenue growth rate. It is cash flow positive. It has cash in the bank and has no debt. The company's corporate strategies are carried out through its state-of-the-art facility located in Montreal, Canada, where it has about 500 employees and a little more than 250 thousand square feet of space. It is approved by all of the major regulators around the world, including the FDA, and European and Canadian regulators. Within this facility, it has multiple production lines, including sterile, lyophilized, non-sterile and radiopharmaceuticals. The company's net operating cash flow for last year was around $10 million and this year we estimate net operating cash flow at around $15 million. As of June 30, 2006, we had $15 million in cash in the bank. The major trends and developments in the pharmaceutical sector in which we operate define the roles that we play. The biggest trend that we see on the contract manufacturing side is the trend to outsourcing as Big Pharma continues to merge and consolidate, and, as a consequence, is closing down literally hundreds of manufacturing plants around the world. When they do that, they are often left with products for which they seek an alternate manufacturing site, one in which they have confidence. Because of our strong regulatory track record and our ability to manufacture the most difficult products from a regulatory and an operational perspective, namely sterile and sterile lyophilized, we are looked upon as a favorable site for those kinds of transfers. As a result, within contract manufacturing our largest customer base consists of some of the largest pharma companies in the world, including Glaxo, Pfizer, J&J, and Genzyme. Another powerful driver for growth, in addition to Big Pharma's consolidation and closure of its various manufacturing facilities, is emerging pharma, of which there are literally hundreds that are public issuers and probably an equal number that are non-public issuers. These are primarily the new biotech companies. Biotech companies have two things in common. Number one, the product that they make is a biotech product, which means that it is usually a protein or a peptide. Usually that means that the product is not stable except in a sterile liquid, or preferably commercially available in a sterile lyophilized form. Emerging biotech companies generally have no manufacturing capacity and, as a result, they are outsourcers of all their products from Phase I, II, III, up to finished commercial product. That is the second place where we see significant opportunities for growth in our area of expertise, which is sterile and sterile lyophilization. The nuclear medicine operations are also operating in the difficult-to-provide and difficult-to-manufacture area. As you can well imagine, radioactive products carry with them their own unique barriers to entry, not the least of which are the various regulators including those who regulate radioactivity. But there are things you might not think about, such as logistics and transport. A radioactive product decays from the moment it is prepared until the time that it is delivered to a patient. Therefore, it must be transported in a very timely way from the site of manufacturer to the patient where it is used. On the therapeutic side, we are one of the leading providers of radioactive iodine in North America for both the therapeutic and diagnostic aspects of thyroid disease, including hyperthyroidism and thyroid cancer. DRAXIS I-131 is probably the leading I-131 product in that marketplace. I-131 is the standard treatment and diagnostic modality in thyroid disease. On the diagnostic side, DRAXIS is a provider of diagnostic kits such as those that are used for liver, kidney, lung, and bone scans. We provide those throughout North America. Our next step will be to have those products enter the European marketplace. That array of products is now in front of the European regulators. The first of those, MAA, has already been approved by them. We expect the balance to be approved by the end of this year or the beginning of next year. So we are in late stage discussions with potential European distributors. Growth on our radiopharmaceutical side will take place, first from geographic expansion of the markets for our existing products, and second from new products which are in our pipeline and which we announced several months ago. First and foremost, there is generic Cardiolite®. Cardiolite is the world's largest radiopharmaceutical agent. It is used for the determination of cardiac function and viability in almost all patients who have a cardiac stress test or who are about to undergo a major cardiac procedure such as angioplasty or aortocoronary bypass. There will be a functional study before such an event, and patients will certainly have at least one or two further studies as part of the follow-up. Cardiolite will be going off-patent around the world starting the end of 2007 through 2009. There are only a handful of companies that are capable of producing a generic Cardiolite. We are one of those. Currently, the global market for Cardiolite and similar products is somewhere between $800-$900 million a year. So genericization of Cardiolite is a very significant opportunity for DRAXIS starting in 2008-2009 and going forward. The second product in our pipeline is a new generation technetium generator. Technetium is the radio-isotope that is used in the radiopharmacy to prepare the final Cardiolite kits as well as the bone, liver, kidney, and lung scanning kits. The technology for technetium generation has been unchanged for the past 20 years. DRAXIS will be introducing a new generation of technetium generator into that marketplace in 2008-2009. The third product in our pipeline, INFECTON, was presented at the Society of Nuclear Medicine. It is an imaging agent to define and localize difficult to diagnose infections. Thus, the trend in our nuclear medicine business is to expand geographically, and to introduce new products into our existing markets, as well as into the new geographic markets. We have a strong array of high-value products in our pipeline. The trend in our manufacturing area is to continue to expand our sterile manufacturing, which makes up more than three quarters of our manufacturing volume, as well as to expand our lyophilization capacity. We added a new double capacity lyophilizer this year, and this has just started to become commercially active in the last few months.
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