Invest in Claris Lifesciences IPO - Nirmal Bang

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Invest in Claris Lifesciences IPO - Nirmal Bang


Investment Rationale
• Complex product portfolio – niche segment
The company has a differentiated business model among Indian pharmaceutical companies due to its focus
on a range of complex injectable products. Injectibles is a high margin, low comptetion segment providing
cushion to company’s margins. The company has established a portfolio of injectable products across
various therapeutic segments, technologies and delivery systems. Its product portfolio comprises complex
molecules, such as propofol and iron sucrose. These 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.
Hospitals are the key customers for injectables.


• Huge potential to grow
The estimated total market size for injectables (both infusion and SIP) was approximately USD 143 billion in
2009. This accounts for about 20% of the estimated USD 750 billion global pharmaceuticals market in 2009.
The generic injectables business is estimated at about USD 20 billion globally in 2009 – about 15% of the
world-wide market for injectables. Global generic injectables are expected to grow rapidly and are
estimated to reach USD 33 billion in size in 2014, up from USD 20 billion in 2009. This growth is driven by a
large number of innovator injectable products going off-patent (both oncology and other therapies) in the
non-biologicals segment and limited price erosion in these products, even after becoming generics, due to
limited competition compared to oral dosage products.

• Diversified product portfolio
Claris has a wide range of products apread across vast therapies, technologies and delivery systems which
offers a de-risk model to the company. It is present in various theraupeutic segments like Anethesia,
Oncology, Critical Care, Parental Nutrition, Anti-Infectives, Renal Care, Eternal Nutrition, Infusion Therapy
etc., which cover almost all of the value chain in a surgery process. Company’s products span multiple
technology platforms, including aqueous solutions as well as complex colloidal solutions, liposomal
products and emulsions. Availability and application across wide range of delivery systems, such as
ampoules, vials, and bottles ranging from 1 ml to 2000 ml, multi-chamber bags in PVC and non-PVC
material gives the company an enviable edge over its competitors.

• Deal with Pfizer – proves strong business capabilities
In March 2009, the company entered into a 15-year business arrangement with Pfizer with a view to
strengthen its presence in regulated markets. We believe this business arrangement will increase its
product coverage by tapping into Pfizer’s existing sales, marketing and distribution network for its licensed
products, and will enable it to grow its business in certain regulated markets, which would otherwise
require significant capital investments to penetrate. This deal validates the strong product pipleline of the
company.



Risk Concerns:-
• Regulatory: The Company faces regulatory risks from various countires it operates in. Recently it faced
with a warning letter from USFDA for its manufacturing site in Ahmedabad. In respect to that the company
has recalled 3 products from US markets out of 4 launched. The recalled products constitute 3.6% of
consolidated sales. We feel this issue will take further 2-3 quarters to clear off and for the time being
would impact whole 13% of revenues coming from US.

• Management Issue: There are few criminal and legal proceedings pending against one of the former
promoter Mr Sushil Handa (who owns Core Healthcare). Currently, Claris Lifesciences is been handled by Mr
Arjun Handa (son of Sushil Handa). Management has clarified that businesses have been separated between
family members and currently Sushil Handa doesn’t hold any stake in Claris Lifesciences. Though any
adverse judgement in those cases can impact the company’s future outlook.


Outlook & Valuation
We believe that the company has slected a niche opportunity for itself and has proven its credentials in it. It has
1100 global registrations and is one of the leading players in injectibles segment in emerging markets. It is trying to
foray in regualted markets which hold 90% of global injectibke market. We believe that despite some hiccups
(USFDA regulatory issue) Claris Lifesciences holds a promising future. Further deal with Pfizer boosts the
confidence in company’s strong product pipeline. Given the high growth market, high margin-low competion
scenario and company’s focus on profitbalilty than scale, we are positive on the company’s outlook.




Company Background
Claris Lifesciences Limited (Claris) is an Ahmedabad based
company. It is one of the leading sterile injectibles
pharmaceutical companies with presence in 76 countries globally.
The company’s products range across various therapeutic
segments, including anaesthesia, critical care, anti-infectives,
renal care, infusion therapy, enteral nutrition, parenteral
nutrition and oncology. 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. Claris’s
major customer base includes government and private hospitals,
aid agencies and nursing homes.

It has four operational and one under construction facilities
located at one campus. One of the four facilties is a USFDA
approved.
As of September 30, 2010, the company had obtained over 1,100
registrations worldwide and approximately 324 applications are
pending approval. Out of procust offering, one of the key
products, propofol represents ~14.84% of company’s total sales
for the financial year Dec 2009.
Object of the Issue
Company will raise Rs. 300 Crs from the primary market. The
proceeds will be utilized as follows:-

Particulars Rs in Cr
Setting up of a new plant comprising of a small
volume parentals line, a PVC bag line, a non-
PVC bag line, and a fat emulsion line
131.6

Setting up a new manufacturing line for
propofol and other fat emulsion products at
existing plant, Clarion IV
26.5

Construction of a R&D unit 38.4

Repayment of loan 45.9

Total 242.4