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Claris Lifesciences – IPO Note
Angel Broking recommends a Subscribe on Claris Lifesciences IPO.
Claris is one of the largest sterile injectables pharmaceutical companies in India
with a presence in 76 countries worldwide. With a strong portfolio of 113
products, Claris caters to multiple markets and across therapeutic areas including
the anaesthesia, critical care, anti-infectives, renal care, infusion therapy, enteral
nutrition, parenteral nutrition and oncology segments.
Differentiated and complex product portfolio: Claris has a strong portfolio of
injectable products across therapeutic segments, technologies and delivery
systems. Certain key products such as propofol, iron sucrose and hydroxyl ethyl
starch, ciprofloxacin and metronidazole have large markets worldwide.
Strong filings: As of September 30, 2010, the company had filed 280 dossiers for
product registrations in the regulated markets, including 36 ANDA in the US, of
which 145 product dossiers, including 25 in the US have been approved. Claris is
primarily targeting off-patent injectable products in the regulated markets.
Outlook and Valuation: In the past, Claris has grown at a strong pace with net
sales increasing at a CAGR of 26.9% and net profit posting a strong CAGR of
65.6% over CY2005-09. The traction in net sales came on the back of strong
exports, which also boosted overall operating margins. At the upper end of price
band, the IPO is available at 2.5x EV/Sales and 14.4x earnings CY2009. We
recommend Subscribe to the issue given the niche product portfolio and potential
to expand in regulated (Europe) and emerging markets.
Company Background
Claris is one of the largest sterile injectables pharmaceutical companies in India
with a presence in 76 countries worldwide. With a strong portfolio of 113
products, Claris caters to multiple markets and across therapeutic areas including
the anaesthesia, critical care, anti-infectives, renal care, infusion therapy, enteral
nutrition, parenteral nutrition and oncology segments. The company offers
injectables in various delivery systems, such as glass and plastic bottles, vials,
ampoules, pre-filled syringes and non-PVC and PVC bags. Its customer base
primarily includes the government and private hospitals, aid agencies and nursing
homes. Over the last four years, the company has clocked a CAGR of 26.9% and
65.6% on top-line and bottom-line, respectively. Claris now has commensurate
exposure to both the domestic and export segments, with 45% of its revenues in
CY2009 coming from the domestic segment and the balance 55% from exports.
The company has five manufacturing facilities spread over a 78-acre campus
located in Ahmedabad, India.
Clarion I: Manufactures sterile injectable products;
Clarion II: Manufactures sterile infusion products;
Clarion III: Manufactures highly complex and difficult to source APIs meant solely
for captive consumption;
Clarion IV: Has similar manufacturing lines as Clarion I, but houses more
sophisticated and advanced equipment achieving higher manufacturing capacities;
Clarion V: Will be used to manufacture sterile injectable products as well as to
manufacture cytotoxic products in different delivery systems. This unit is expected to
be operational by the third quarter of 2011.
Some of these facilities have been approved by the foreign regulatory authorities
including the USFDA, MHRA (UK), TGA (Australia), NAM (Finland), GCC FDCA
(Gulf Cooperation Council, including Saudi Arabia, U.A.E. and other countries in
the Middle East) and INVIMA (Colombia).
Industry Overview
The injectables industry, in comparison to the orals industry, is characterised by
less competitive intensity, low price erosion and higher profit margins. One of the
major attractions of injectable generics is the potential for companies to compete
in a relatively exclusive market. The estimated total market size for injectables (both
infusion and SIP) was approximately US $143bn in CY2009, which accounted for
about 20% of the estimated US $750bn global pharmaceuticals market in
CY2009. As in the conventional oral dosage pharmaceutical markets, the
injectable business can also be segmented into generic and innovator product
segments.
The global generic injectables business is estimated at around US $20bn globally
in CY2009 i.e. about 15% of the world-wide market for injectables. The global
generic injectables are expected to post a CAGR of 10% to US $33bn in size in
CY2014, up from US $20bn in CY2009. This growth is expected to be driven by a
large number of innovator injectable products going off-patent (both oncology and
other therapies) in the non-biological segment and limited price erosion in these
products, even after becoming generics, due to limited competition compared to
oral dosage products. Since most of the products going off-patent in the coming
years are speciality injectable products (SIP), growth of this product range will be
much higher than the infusion products.
Oncology products account for a large share of biological injectable products.
However, in non-biological products (both generic and innovator) while oncology
is an important therapy, others like anti-infectives, anaesthetics and
cardio-vascular are also important product categories. Thus, therapy segments like
anti-infectives and anaesthesia account for about a third of the global market,
primarily SIP.
Recommendation Rationale
Differentiated and complex product portfolio
Claris with its strong portfolio of injectable products caters to various therapeutic
segments, technologies and delivery systems. The company’s product portfolio
spans multiple technology platforms, including aqueous solutions as well as
complex colloidal solutions, liposomal products and emulsions. The products are
available across delivery systems, such as ampoules, vials, bottles ranging from 1
ml to 2000 ml, multi-chamber bags in PVC and non-PVC material. The company
has developed 98 products over the past few years. Claris thus has one of the
largest portfolios of injectables amongst the Indian pharmaceutical companies.
Certain key products of the company, such as propofol, iron sucrose and hydroxyl
ethyl starch, ciprofloxacin and metronidazole have large markets worldwide.
Going forward, the company plans to introduce its key products globally especially
in the regulated markets to drive growth ahead. For instance, the total global
market size of propofol in `2,500cr of which the company caters only to a market
of `500cr and currently enjoys market share of 20%.
Strong filings
As of September 30, 2010, the company had filed 280 dossiers for product
registrations in the regulated markets, including 36 ANDA in the US, out of which
145 product dossiers, including 25 in the US has been approved. The company is
primarily targeting off-patent injectable products in the regulated markets. Claris
facilities have been approved by foreign regulatory authorities including the
USFDA, MHRA (UK), TGA (Australia), NAM (Finland), GCC FDCA (Gulf
Cooperation Council, including Saudi Arabia, U.A.E. and other countries in the
Middle East) and INVIMA (Colombia).
Widening its geographic reach
To tap the global markets (regulated and emerging) the company has entered into
arrangements with the global players and has simultaneously expanded its sales
team. Claris has entered into supply agreements with Pfizer, wherein Pfizer would
market its products in the US, Europe, Australia, Canada and New Zealand.
Similarly, Claris plans to increase its presence in emerging markets such as Brazil,
Mexico, South Korea and Saudi Arabia, as well as establish its business in new
emerging markets, such as China, Russia, Turkey, Egypt and Argentina
As of September 30, 2010, the company had a sales team of approximately 422
who primarily sold products to hospitals in India, and a sales force of around 107
personnel catering to the international markets.
Concerns
Warning letter and Product recalls a big negative
ô€‚„ In November 2010, the company’s manufacturing facilities at Ahmedabad
received the USFDA warning letter for violation of the CGMP regulations. The
USFDA has also issued import alerts on certain products of the company
distributed through partners. For the five months ended May 31, 2010, the US
contributed nearly 14% of the company’s total revenues.
ô€‚„ Pursuant to the recommendation by the USFDA and GCC, the company’s
registration and products were suspended by the Drug and Food Control,
Ministry of Health, State of Kuwait from June 8, 2010 till August 22, 2010. As
a result, the company’s products were not marketed in Kuwait during the
mentioned period.
􀂄 Claris has also received a number of complaints from other countries for some
of its products, namely ciprofloxacin, metronidazole and ondansetron that
were contaminated or suspected, post which the company recalled these
products. The cost of recall for the five month period ended May 31, 2010
amounted to `7.4cr, while revenues from the recalled products constituted
3.7% of total revenues and 66.2% of revenues from the jurisdictions where the
products were recalled.
Dependency on partners
Claris distributes its products through third parties (including Pfizer). As a result, it
is dependent on third parties to scale up its business especially in the regulated
markets.
Outlook and Valuation
In the past, Claris has grown at a strong pace with net sales increasing at a CAGR
of 26.9% and net profit posting a strong CAGR of 65.6% over CY2005-09. The
traction in net sales came on the back of strong exports, which also boosted
overall operating margins. Further, Claris has strong filings with 280 dossiers filed
in the regulated markets, with majority targeting the Europe region. The company
is also expanding geographical reach of its key products, propofol and iron
sucrose. Overall, though the USFDA warning letter remains a key negative, the US
geography contributed only 13%. At the upper end of price band, the IPO is
available at 2.5x EV/Sales and 14.4x earnings CY2009. As compared to Strides
Arcolab the stock is available at discount of 16% on EV/Sales and 31% on PE front
for CY2009. We recommend Subscribe to the issue given the niche product
portfolio and potential to expand in regulated (Europe) and emerging markets.
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