Equity Story

  • Dermapharm sells its portfolio of generic pharmaceutical products in profitable niche markets. It targets markets with only a few players, resulting in limited competition. The size of such markets is limited but offer potential to rapidly gain market share. Due to limited size bigger players tend to avoid making big investments while smaller players face high entry barriers.

  • The company’s focus on targeted markets has enabled it to emerge as the leading player in dermatologics, systemic corticoids and prescription vitamins and among the leading players in pain treatment and women’s healthcare in Germany.

  • Dermapharm's strong position in niche markets enables it to earn high margins (>40%) in the Branded pharmaceuticals and other healthcare products segment. This segment is the largest contributor to Dermapharm’s revenue (55% in 2019) and EBITDA (86%).

  • Most of Dermapharm’s branded pharmaceuticals and other healthcare products do not depend on margin rebate agreements with SHI providers. Dermapharm strategically targets products that have a high share of direct payers, resulting in higher margins and less regulatory pricing pressure.

SWOT Analysis

Strengths

  • Leading position in key therapeutic categories

  • Regulatory and developmental expertise

  • Economies of scale in Germany with the integrated Brehna facility

  • Management team with proven track record

Weaknesses

  • Limited pricing power with high regulatory price restrictions

  • Lack of IP protection, makes products susceptible to competition

  • Low investments in R&D for developing originator products

  • Low barriers to entry in the parallel imports business

Opportunities

  • Structural underlying demand for pharmaceuticals

  • Increasing international footprint

  • Bolt-on acquisitions to accelerate growth

  • Acceleration in markets with low regulations (e.g. OTC)

Threats

  • Pricing pressure

  • Raw material supply bottlenecks

  • Herbal extracts demand susceptible to economic downturns

  • Litigation risks from originators

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