Hovid - Patent Cliff

With global pharmaceutical industry facing the Patent Cliff, Hovid Bhd is in the happy position of benefiting from the changes that follow.

The Patent Cliff refers to the expiration of numerous patented products over the next five years from 2013, where patented medicine that currently (Sept 2013) generates more than US$133 billion in revenue a year will face competition from generic medicine producers.

The growth opportunities for generic medicine producers like Hovid are significant as there will be a rush by them to enjoy the high margins associated with new generic drugs.

Hovid plans to commence the construction of new plant early 2014 to expand its tablet capsule production capacity and its R&D facility. This will allow the company to target the development and production of new off patent drugs for supply to Malaysia and its export market.

With more countries trimming their healthcare budgets, health authorities are switching from the more expensive patented medicine to the cheaper generic equivalents.

This has created much potential for Hovid given that its principal business is the manufacture, distribution and export of pharmaceutical products.

The new plant will comply with the pharmaceutical production standards of Australia, Europe, and the US Food and Drug Administration and sharpen its competitive edge in Malaysia and its export markets. This will enable it to target the developed nations which will turn fuel its growth.

Previously it was impacted by challenges faced by its former subsidiary Carotech. In the de merger it made provisions for the impairment with its investments cost and all amounts due from Carotech.

Now (Sept 2013), its future will no longer be affected by events at Carotech.

It has since improved its financial position. As at June 30 2013, it had shareholders’ funds of rm152 million compared with rm107 million a year ago. As at June 30 2013, its gearing ratio was 0.08 times compared with 0.4 times a year ago.

Ho is Hovid’s largest shareholder with a 41.08% stake, followed by LTH with 5.79%.

Its future will be driven by its export markets, the growth of which is expected to be in the high teens to 20%. Currently (Sept 2013), export sales account for 60% to 70% of its total revenue.