by Suhani Adilabadkar

Aurobindo Pharma’s stock price touched its new 52-week high last week, after USFDA’s go-ahead for Verapamil Hydrochloride, a blood pressure drug. The company has been on a continuous ascent since the end of March, driven by ratings upgrades, Unit IV clearance by US FDA, non-fructification of the Sandoz deal and sturdy March quarter results. Aurobindo Pharma is the second largest Indian pharmaceutical company in terms of revenues and the 10th largest globally.

The company has established a foothold in key therapeutic segments such as central nervous system (CNS), cardiovascular, anti-retrovirals, diabetics, anti-allergies, gastroenterology and anti-biotics. Aurobindo has created a niche for itself in API and formulations with 27 manufacturing facilities across the globe, 21 in India, 3 in the USA, 1 in Brazil, 1 in Netherlands and 1 in Portugal. 

Quick Takes

• Auro Pharma stock price surged 5% after reporting double digit growth in march quarter FY20. The company management expects a soft Q1 FY21 amidst coronavirus upheaval. 

• US revenue for Q4FY20 reported growth of 20.5% YoY at Rs. 2,990 crore, accounting 48.6% of revenue basket. Roughly 90% of its revenues are now garnered from international markets.

• Net Profit stood at Rs. 868 crore in Q4 FY20 compared to Rs. 586 crore corresponding quarter previous year rising 48% YoY and 23% sequentially.

• The $900 million Sandoz deal was called off by Auro Pharma as it did not receive regulatory permission, a relief for investors worried that the deal would increase Aurobindo's debt load. 

• The company intends to be net debt free by FY22. Eight of its facilities have been adversely impacted by USFDA inspections last year leading to low ANDA approvals.

Double Digit Growth for the Quarter

Auro Pharma's stock price surged 5% after reporting double digit growth in march quarter FY20. Revenue was reported at Rs. 6158 crore in Q4 FY20 against Rs. 5292 crore same period previous year, rising 16% YoY and 4.5% sequentially. Roughly 90% of its revenues are now garnered from international markets.

Operating profit came out at Rs. 1316 crore in march FY20 against Rs. 1058 crore same period previous year growing 24.5% YoY. Operating margin was up 139 bps YoY at 21.37% in Q4 FY20 driven lower raw material cost, rupee depreciation and favorable product mix. Net Profit for the quarter stood at Rs. 868 crore in Q4 FY20 compared to Rs. 586 crore corresponding quarter previous year rising 48% YoY and 23% sequentially. R&D expenditure stood at Rs 239 crore during the quarter, 3.9% of total revenues while for FY20 R&D expenditure was Rs 958 crores. The company management expects a soft Q1 FY21 amidst coronavirus upheaval. 

A Surprisingly Covid-free March Quarter 

Aurobindo Pharma struck a 52-week low of Rs. 295 on 23rd March this year. Though dented by a market selloff in March, the stock had been suffering from a USFDA hangover since June 2019. Eight of its facilities had been adversely impacted by USFDA inspections last year leading to low ANDA approvals. But things seem to be on a better platform now, evident from Auro Pharma’s stock moving in northern trajectory and regaining its April 2019 levels. First starting with the March quarter results, the company did not witness any adverse Covid impact, and the US market (accounting for about  half of its revenues) witnessed an uptick in demand in antibiotics, antiviral, nutraceuticals and long treatment routine drugs.

US revenues for Q4FY20 reported a growth of 20.5% YoY at Rs. 2,990 crore, accounting 48.6% of revenue basket. The company has launched 4 products during the quarter and 34 products including 7 injectables during the year. Auro’s US revenue mix is tilted in favour of oral solids contributing 64%, injectables 23%, dietary supplements 9.7% and OTC 3%. Next revenue constituent, EU formulations jumped 26% YoY to Rs. 1,652 crore, accounting 27% of total consolidated revenue mix.

Other growth markets reported healthy growth of 30% YoY at Rs. 376 crore, accounting for about 6% of revenue basket followed by ARV revenues moving at the same growth rate of 30% YoY at Rs. 382 crore and also contributing 6% of total revenues. And lastly APIs, only constituent de-growing, at 18% YoY in Q4 FY20 reported 12% revenue contribution at Rs. 756 crore. 

USFDA Respite Comes With Robust Product Pipeline

Along with healthy March quarter results, positive news flow aided Auro Pharma’s stock gaining 60% over the past three months. Firstly, after a flip-flop by USFDA in February, Unit IV (injectables facility) was finally cleared with a VAI status indicating continuation of new drug approvals. Unit IV accounts for about 10-12% of US revenues and 20% of total ANDA fillings. In addition to this significant respite, investors are also excited about Auro’s upping its ante with respect to new product launches expanding from 34 last year to about 50-60 in FY21 and its robust product pipeline.

In this respect, Mr. Govindarajan, MD, Aurobindo Pharma said, “From the inhalers perspective we are developing eight inhalers including six MDIs and two DPIs and as far as nasals are concerned, we are currently working on six nasal sprays and out of which two products has been already filed. As far as the topicals are concerned, 37 products are in the pipeline at various stage of development and on transdermal we are developing eight transdermal patches.

"As far as depot is concerned, we will be filing in Q3 FY2022, the first product and subsequently every year we will be filing at least one or two variants as well. So, we have enough products in the differentiated or the speciality portfolio.” Further augmentation is provided by its biosimilar business with product pipeline of 14 products which is expected to start earning revenues from FY22.  

Another key positive is the $900 million Sandoz deal being called off by Auro Pharma as it did not receive regulatory permission. The company had entered into a definitive agreement with Sandoz Inc., USA to acquire its dermatology and oral solids businesses along with 3 manufacturing facilities in the US. The non-consummation of the Sandoz deal was a major positive for Auro’s stakeholders as it receded fears of further increase of its debt load. As on March 2020, the company has gross debt of Rs. 5566 crore as on March 2020, but company management has recently communicated that it intends to be net debt free by FY22. Though this is a major positive for Auro Pharma, USFDA overhang still remains as its unit I, unit IX and unit XI are yet to cleared.