The following is an extract from Morning Star 27th July 2016
This Australian wholesaler of a ground-breaking Hepatitis C cure will benefit from the Turnbull government's $1-billion commitment to eradicating the disease over five years. Ebos Group (ASX: EBO) operates a conglomerate business in Australia and New Zealand, where it provides healthcare and animal care products and services.
Its core business is in the distribution and supply of medical and pharmaceutical products in Australia and the Asia-Pacific region.
While the business was founded in 1922, its expansion by acquisition only began in the 1990s, and Ebos only reached critical mass in 2007 when it acquired Auckland-based pharmaceutical wholesaler PRNZ.
This was followed in 2013 with the purchase of Symbion, a transaction that elevated Ebos to become the second-largest Australian pharmaceutical wholesaler. This acquisition also accounts for its narrow moat rating.
"The Australian pharmaceutical wholesaler market comprises essentially three players, and is characterised by a high degree of regulation and price-setting by the government through licensing requirements and Medicare," says Chris Kallos, senior equity analyst, Morningstar.
The current excitement around Ebos stems from its involvement in distributing four new Hepatitis C treatments--Harvoni, Sovaldi, Daklinza and Ibayvr--which were listed on the Pharmaceutical Benefits Scheme in May.
"They represent medical breakthroughs in this condition, with up to 95 per cent of treated patients cured of Hepatitis C," says Kallos.
The average cost of treatment is estimated at around $100,000, with the estimated number of people affected in Australia pegged at around 230,000.
While this is an amazing medical breakthrough and excellent news for those suffering with the condition, Morningstar also believes the buzz is artificially inflating the Ebos share price.
"We consider the shares overvalued and believe this is in part due to the market's overestimation of the impact of a new generation of Hepatitis C drugs on the earnings profile of Ebos," Kallos says.
"Despite a current run rate at an industry level of around $200 million per month since listing in May 2016, according to our industry sources, we expect demand to subside over the medium term as patients are cured and the condition eradicated."
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