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Aurobindo Pharma Limited (AURPHA)
All set for growth transformation…
We met the management of Aurobindo Pharma Ltd (APL) to understand
its business model and growth plans. We also visited one of APL’s
USFDA approved facility (Unit VII which is based in Pharma SEZ) near
Hyderabad. APL is an integrated pharmaceutical company which
manufactures generic formulations, active pharmaceutical ingredients
and intermediates. The company has strong presence in the therapeutic
areas of Antibiotics, Cardiovascular (CVS), Central Nervous System
(CNS), Gastroenterological (GI) & Antiretroviral (ARV), and markets
these products in over 125 countries. The company has transformed
itself into an integrated Pharma player from a predominantly API
company since 2002-2003. It recently signed generic supply agreement
with leading MNC players, first with Pfizer and more recently with
AstraZeneca. The company owns 16 manufacturing facilities in India,
USA, China and Brazil. The company has received approvals for 126
ANDAs (including 29 tentative approvals) from US FDA and 348 dossier
approvals (55 products) from various regulatory authorities in EU
market till date. Exports contribute around 72% of total sales while the
remaining 28% come from domestic sales.
Business model
Formulation
Around 54% of total sales currently come from Formulations. APL has
strong presence in the US, Europe and ROW markets, and very small
presence in the domestic market. APL also participates in global tenders
for ARV products. Till date, it has filed 195 ANDAs (185 ANDAs from
Indian facilities & 10 ANDAs from New Jersey facility) to USFDA and
almost 60 ANDAs were filed with Para IV certification. APL received
approvals for 126 ANDAs (including 29 tentative approvals) and launched
67 products in the US market. The company markets its products in the
US mainly through various distribution channels like McKesson,
Amerisource, Kaiser, Cardinal Health, Walgreen etc.
Sales for ARVs are all tender based, where APL participates in major
tenders including the WHO, President’s Emergency plan for AIDS Relief
(PEPFAR) and Clinton Foundation. Currently 14% of sales come from
tender business. The company will continue to focus on this tender
business.
Besides US it also markets its products in EU region and RoW markets.
Around 7% of sales come from Europe region and 6% come from RoW
markets. Till date, it has filed 852 dossiers with various regulatory
authorities in Europe and received approvals for 348 dossiers (55
products). Rest of world markets includes South Africa, Canada, and
Australia. It filed 120 products with South Africa MCC and received
approval for 48 products. It filed 21 products in Canada FDA and received
approval for 10 products; similarly it also filed 21 products in Australia
TGA and received approvals for 5 products.
API & Intermediates
API sales contribute 46% of total sales. The company owns 6 API
manufacturing facilities and 4 intermediates manufacturing facilities. The
company intends to use maximum APIs for internal consumption as a
result the API sales as percentage to sales is expected to come down in
the due course. The company is a leader in categories such as Semisynthetic penicillins (SSPs) and Cephalosporins and both these segments
account for nearly 80% of total API sales.
Other Operating income
Other Operating Income for the company includes out-licensing of
dossiers to MNCs which trigger supply agreements. The company sales
dossiers - detailed monographs of non-infringing processes of bioequivalents, approved sights of manufacturing and procurement of raw
materials, which are required to be submitted to different regulatory
authorities. In Europe, especially, the time taken for filing these Dossiers
and getting Marketing Approval (MAs) can be at least 24 months. Hence
more and more players are inclined to outsource the dossier filing work to
third parties.
Pfizer Deal
In 2009, APL entered into a licensing and supply agreement with Pfizer Inc
to supply off-patented formulations in various geographies. Pfizer will
market over 100 products in the US, 30 EU countries and 110 ROW
countries. These products cater to therapeutic segments of Antiinfectives, CVS and CNS. The company has already started supplying
products to Pfizer. Pfizer is also looking forward to take this deal into
Japanese & Korean markets in the near future.
AstraZeneca Deal
The company recently signed a licensing and supply agreement with
AstraZeneca to supply solid dosage and sterile products for Emerging
markets. These products cater to therapeutic segments of Anti-infective,
CVS and CNS.
CRAMS
In the last fiscal, the company launched a new division AuroSource, to
provide custom research and manufacturing services (CRAMS). The
dedicated Crams facility will act as a separate division with dedicated
workforce catering to Chemicals and formulation Research.
The two tranches of FCCBs still remain out-of-money and the redemption
looms around with less than 6 months time left. Taking into account the
46.99% premium on redemption of US$ 33 million FCCBs with a
conversion price of | 879 and 46.3% premium on redemption of US$ 113
million FCCBs with a conversion price of |1014 due in the month of May
2011, the company will require another ~` 3-3.5 Billion to redeem these
FCCBs. As both tranches almost certainly to remain out of money, the
company is planning to repay the debt from the recently raised ECB debt
of US$ 125 million and internal accruals.
View
The company has changed it self from a pure plain-vanilla API supplier to
a niche Formulations player. This transformation is still on and that has
improved the EBITDA margins of the company, recently. Hence forth, the
next big growth drivers will be huge capacity optimisation and
monetisation of huge US ANDA pipeline. Recent deals with the MNCs
have given the company a new identity. We are positive about the long
term earning prospects of the company.
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