By Suhani Adilabadkar
Nifty Pharma is 8% up over the past one year. This may look unimpressive compared to its other vibrant sectoral peers such as FMCG, Banking and IT. But there are star performers even on this flat pitch, and now with weather turning favorable - with the easing of US pricing pressure and regulatory approvals, the Indian Pharma players might just better their original run rate.
Sun Pharma, DrReddy’s Lab, Lupin, Divis and Aurobindo Pharma (which is in 16 stock screeners) comprise the top and middle order of the Indian Pharmaceutical Industry. But the most exciting and fruitful innings have been Aurobindo Pharma's for the past 32 years. The stock is up 35% YoY as the company cautiously heads towards its next level of aggressive growth trajectory.
Quick Takes:
- The company grew rapidly in 2014 with the Actavis acquisition in Western Europe and later established OTC presence in US by acquiring Natrol.
- APL reported from Revenue and PAT CAGR of 23% and 53% over the past five years.
- Specialty Products will drive the next growth phase for Auro Pharma as outlined by its medium and long term strategy.
- Auro Pharma has acquired Advent, Apotex and Sandoz to enhance its specialty product portfolio.
Auro Formulation
Aurobindo Pharma entered the pharmaceutical industry as a semi synthetic penicillin manufacturer, and was incorporated in 1986 and later went public in 1995. APL has moved up the pharmaceutical ladder from being a bulk drug manufacturer to the second largest player in US by prescription in 2019. It has been a consistent player, with the second highest number of ANDAs (519) filed and runner up in terms of revenues behind Sun Pharma. It has surpassed DrReddy’s Lab, Divis, Lupin with respect to revenue, profitability and market cap. The Actavis acquisition gave it entry into the leading European Pharma club in Western Europe and later established OTC presence in US by acquiring Natrol. While its peers haggled with pricey buyouts, APL made modest acquisitions and this focused growth strategy is still moving on with strong momentum visible from its latest acquisition of ‘Sandoz’ from Novartis.
Diversified & Robust Business Dynamics
Auro Pharma is the10th largest generic pharma company globally by sales and has presence in 150 countries with 26 manufacturing facilities across the world. Aurobindo shifted its focus from bulk drug and API manufacturing to formulations from 2006. As a result over the years, revenue mix has changed in favor of formulations currently contributing 82% revenues where as API segment declined from 35% in 2014 to 18% in 2018.
Moving on to geographic presence, the US leads with 45% revenues with CAGR of about 15% (2015-18) catering to orals which constitutes 70% of entire US business followed by high margin injectable business which exhibited 29% volume growth YoY comprising 16% of the total US revenue basket in December quarter FY19. The US revenue mix is further diversified by OTC and Dietary supplement segments contributing roughly 3% and 11% respectively. After the US, the second largest market for APL is Europe which has grown with Revenue CAGR of 11% and trebled its revenue contribution for the past 4 years. APL ranks as the 10th largest generic pharmaceutical company with 3% overall market share in Europe. Remaining chunk are Canada, Brazil and South Africa constituted as growth market with just 5% revenue contribution but moving strongly at 16% CAGR.
Future Growth Levers
Specialty Products will drive the next growth phase for Auro Pharma as outlined by its medium and long term strategy. The diverse and robust specialty product portfolio includes oncology & hormones, peptides, biosimilars, vaccines, consumer health, controlled substances, transdermal patches, inhalers, nasals and consumer health. And to fulfill this agenda, inorganic expansion has been on the cards for the past 2-3 years. Acquisition of Advent Pharmaceuticals Australia has been completed during December quarter to enhance DPI (Dry Powder Inhaler) pipeline with its first product to be filed by 2020-21 and approval by 2022-2023. Acquisition of Canadian Pharma company, Apotex will be completed in fourth quarter FY19 which will augment its biosimilar, OTC and generic portfolio and expand APL into Eastern Europe. Biosimilar portfolio has also been strengthened by acquiring five molecules from TL Biopharmaceuticals in February 2017. Oncology portfolio was widened by acquiring seven oncology injectable products from Nasdaq listed Spectrum Pharmaceuticals for about $ 300 Mn in Jan 2019. And lastly, the Sandoz acquisition which has enhanced its oncology and derma branded portfolio in US.
Robust Financial Performance
APL reported Revenue and PAT growth of 21% and 19% YoY at Rs. 5270 cr and 710 cr respectively in Q3 FY19. Major business segments, API and Formulation clocked revenues of Rs. 4348 cr and Rs. 922 cr with 22% and 20% YoY growth in December quarter FY19. Coming to yearly performance, Auro Pharma has been one of the few Indian Pharma companies exhibiting strong and stable growth momentum in-spite of US FDA woes and pricing pressure evident from Revenue and PAT CAGR of 23% and 53% over the past five years.
Adding to such strong run-rate, APL expects acquisition synergy benefits to come into play in the next few quarters. Consequently, after the Sandoz acquisition is consummated in H1 FY20, APL will be become the second largest generic company in US by prescription.
The company management has guided 30% growth for the injectable business by the end of FY19 which has already grown twice in size over the past four years, and European business is expected to touch quarterly revenues of 150 million euros in the near future. With respect to fillings, Mr. P.V. Ramprasad Reddy, Executive Chairman, Aurobindo Pharma USA further added, “We have products for next 4-5 years. On an average of 60-70 products filing will happen for all type of products”.