Shilpa Medicare -Racing away on the Oncology API highway!

(Ananth) #387

While more detailed updates will come later, my key takeaways from attending shilpa AGM are

a) company is getting into adjacent/newer areas like biologicals and nano, hiring top talent from big pharma for management bandwidth strengthening (Also, employee count up from 950 to 1400 odd)

b) risk mitigation strategies: liked the thought process towards diversification from intas (client concentration risk) especially refusing a key customer as a formulations customer to further diversify customer base , spreading from oncology - getting into biologicals, non onco to mitigate risks due to focus on single therapy(oncology), even try out own front end/marketing in a small way to begin with, strengthening on spend towards software etc for FDA risk mitigation (SAP implementation going on, LIMS software etc).

c) The company has got FDA approvals in two lines in formulations plant as against one and there is good demand from customers (even US companies) for it. They have Japanese PMDA approval for API plants which is quite tough to get.

From being a pure play api player, to becoming a formulations and CRAMS player and now into front end (koanna subsidiary)in a small way are all steps in right direction.

My concern areas is the company doing too many things too soon. Planning for capex in biologicals without getting/stabilizing cashflows from existing capex (formulations capex). Getting cash flows from existing capex is taking much more time than expected (is it really slow execution on capex?).

Management has been visionary in identifying oncology as a focus area early. Now they are seeing the future focus area as biological. May be we can give benefit of doubt here for putting huge money into it (70cr acquistion + 150cr capex).

Also, there has been some slippage on one FTF which they told last year (which have not worked out for all other comapanies)

The other big concern is of course high valuation risk.

Disclosure: holding,

(Ananth) #388

Thanks @bharti_vishal

Shilpa gets its first ANDA approval for azacitidine.

seems to be a limited competition product. When Mylan launched this in june 2016, annual sales were around $230mil.

(Ankit Gupta) #389

Agree with Ananth here. It seems to be a limited competition molecule till date with presence of only three generics - DRL (launched in September 2013), Mylan (launched in June, 2016) and now Shilpa. Surprisingly, the approval of their first ANDA came much before than many of us expected and that too was filed in their own name (means better margins compared to cost plus model for the ANDAs filed in the name of the partner). What differentiates Shilpa from other generic players who enter US markets, is the quality and complexity of filings. Most of the new generic players usually file for highly competitive molecules when they enter US markets. This is not the case with Shilpa which has pretty decent pipeline of complex and limited competition molecules.
Will update the interaction with Shilpa management with help of others who attended it pretty soon!

(Vilin) #390

HI Ankit - Would be great if you can share detail Q&A with Shilpa Mgmt. Thanks.

(Sandeep Patel) #391

Good things take time… While we await the detailed VP AGM notes, please find below a snippet of AGM & Management Meet key takeaways by IndiaNivesh.

  • One major development post the Q1FY17 results is the approval of Imatinib (gGleevac) for EU markets. Will become off patent from end of Dec 2016 in EU region. Pre generic market size of this product in EU region is around $ 800 mn & there will be around 4-5 players in the market at the time of launch.
  • Many large Chinese players in oncology are stuck in regulatory hurdles as a result of which there is extra space created for Indian players like Shilpa…
  • Working diligently focusing more on Japanese markets as it is tough market to crack & entry barriers in terms of getting regulatory approvals are quite high (tougher than USFDA).
  • Believes US API will ramp up significantly once its partnered formulation products from Jadcherla get approval as there it is registered vendor.
  • Enhanced its oncology capacity by adding two new blocks; now it has total of 9 oncology blocks.
  • Commissioned second line at Jadcherla Formulation facility & work started on third line.


(Ankit Gupta) #392

Hi Guys,

Apologies for the delay in uploading the AGM notes since it took a lot more time to compile them and time constraints from my end. The effort from the questionnaire to Q&A and then to compiling notes (not to forget the travel arrangements made by Hyderabad team) is a collaborative effort of VP team members who attended the AGM. The key points discussed are given below:

Key points of the the AGM 2016

Regulatory Compliance
Getting approval from PMDA, Japan (regulator for Japanese markets) is not very easy and it is considered to be amongst the most stringent regulators especially for oncology. They don’t even allow change in Ph, temperature or even spelling of name of different blocks. Its Japanese CRAMS partner guided the company in securing the approval for its API plant. The company is fully automating its systems and processes to reduce as much human interference as possible. Getting zero 483 observations from USFDA for oncology injectable plant given the current times is an achievement for the company. It has implemented software like Laboratory Information Management System (LIMS) for adhering to the guidelines of USFDA and other regulatory authorities. As per the software, automatic data can be generated and even USFDA audit members can access it without any human interference. It will give detail about stability data, acceptance/discard of a batch etc. The company is also implementing SAP currently to streamline the processes within the company. Data integrity is considered to be the major issue faced by most of the pharmaceutical companies for which Quality Control (QC) team plays a major role. The company has good QC team in place which ensures that they discard the whole batch which fails the test and company is ready to take short term hit on profitability on account of it.

Management Bandwidth
The company is building up a team of employees that ensures that Mr. Bhutada, MD, is not involved in the day-to-day operations of the company and delegates more. Mr. Bhutada has not visited the Vizag R&D laboratory for almost two months now. Most of these employees have grown from within the ranks of the company. They started from the lower levels and rose within the ranks of the company. The company rewards the employees and gives them chance to grow. The company is hiring employees from outside as well. Few of the employees hired for overseas subsidiaries like Koanna Healthcare and Loba Feinchemi have lot of experience in the pharmaceutical industry (details covered late).

API Business
API is the bread and butter of the company. The company is adding two more oncology blocks to take the total dedicated oncology blocks to 9. With these capacities, Shilpa’s API capacity for oncology will become one of the largest in India. The competition in the API segment for oncology is not much and has reduced substantially especially from China on account of clampdown from USFDA on the Chinese companies. The competition for APIs in oncology segment from China for US markets has reduced substantially on account of compliance issues. Currently, only two large Chinese companies are competing in these segment which are USFDA compliant. Although, there is decline in the prices of few of the key molecules like Capecitabine, however, the company is making up for the decline in prices by increasing the volumes. The company is planning to increase the capacity of Capecitabine to 2.50 times the existing capacity. When the company had increased the capacity to its current capacity for Capecitabine, there were doubts that how are we going to operate such large capacities but now it is almost running full. Even if we are not able to fully utilize the whole capacity after expansion, we should be able to tie up for 60 – 70% of the capacity by next year. There are insourcing risks by large pharmaceutical companies but they are certain molecules where we have expertise. Even though Intas has inhouse API sourcing for Capecitabine, it procures large quantity from us (in fact driving expansion in capacities) and the insourcing is primarily to derisk itself if Shilpa faces any regulatory issues in the future. Intas Pharmaceutical is the major customers of the company for its APIs and derives 60% of its API sales from it. We are not just dependent on few molecules like Capecitabine and Gemcitabine, but are manufacturing 16 - 17 molecules currently. Furthermore, we have lot many in the pipeline. We only select products where we have good margins which are expected to remain sustainable in the future even after price erosion. We believe in adding new blocks for new molecule instead of phasing out old molecules where we have high market share. We are even working on exhibit batches for molecules whose patent will expire in 2020 – 21 or even 2030.
API sales are dependent on formulations and thus the company forward integrated into manufacturing of formulations. Many of the DMFs filed by the company with USFDA are for molecules whose patent have already expired and it will be difficult to replace the existing API source for Shilpa in few of the molecules where regulatory approvals from USFDA will take time. The API sales in US will depend on new product approvals from which Shilpa is the API source as well as Shilpa’s ANDA filings from its formulation plant. Out of the 22 ANDAs filed for the US markets for formulations, 12 -13 have Shilpa as its API source while the rest will be procured from other sources. We wanted to derisk our formulation plant for its API source in case there is an regulatory issue in our API plant and hence not all the ANDA filed from the formulation plant will have Shilpa as its API source. The US API sales will majorly start from FY18 onwards. It is possible for cytotoxic manufacturers to also manufacture oncology APIs, however, many of the formulation companies prefer non cytotoxic facilities since it becomes difficult to segregate between cytotoxic and non cytotoxic molecules from the same blocks. Sometimes regulatory authorities do accept oncology molecules filed form non cytotoxic blocks of API companies but the formulation companies will not accept it. Human safety is more if oncology molecules are manufactured in cytotoxic blocks. The company also got Silver award for patent filing from Pharmexcil. Out of Rs.240-250 crore API sales during FY16, Rs.200 crore was through oncology molecules while remaining from non-oncology ones.

The company has filed 22 ANDAs till date out of which 7 - 8 have been filed in its name while the rest have been filed in the name of customers for contract manufacturing. The contract manufacturing will be on ‘cost plus margin’ basis while the own ANDAs will have a profit sharing model with the partner. The formulation plant has approval from EUGMP (European markets), USFDA and ANVISA (Brazil). The company currently has two oral lines and two injectable line. The second injectable line is currently manufacturing exhibit batches for clients. The second injectable and oral lines were also covered during the USFDA inspection. The second line was set up in anticipation of demand since the first line was completely occupied. The construction for third injectable line (dry powder and lypo liquid) has also started and expected to be completed by December 2017. The injectable first line has also been fully automated and the company has also constructed additional packing lines for the same. The company has been working on many molecules including, Para IVs, FTFs and 505 (b)(2). It is working 3 FTFs for its customers (contract manufacturing) to be launched during 2022. The company is consciously making efforts to reduce its dependence on one major customer and has not signed up with it for any of these 22 ANDAs filed by the company. During FY16, company derived Rs.78.89 crore from product development charges, out of which ~Rs.10 crore was from API sales while the remaining was
The company is planning to file its first FTF in its own name in the current year. The company has also filed seven molecules for the EU markets and planning to increase it to 14 in a year or two. The approval time lines for EU are shorter compared to US. On account of its IP strength, there was settlement of litigation for 2 ANDAs filed in the US markets. The company only takes head on with innovator if it has IP strength and believes there is non-infringement of the patent. The IP strength of the company has also been appreciated by few of the MNC innovator companies. The company is also entering for direct marketing of its formulation products in some of the markets like Austria, Germany and UK through its subsidiary Koanaa Healthcare GmBH.
For Gemcitabine, the company has also got approval from EU for injectable. Although, the revenue contribution from this is not expected to be huge, but company wanted to get experience of manufacturing formulations for commercial use (instead of exhibit batches it is currently supplying). The company has received approval for the launch of gGleevec (Imatinib) in European markets in December, 2016. However, the company was a bit late in tying up with the marketing partner for the same. The company is pretty sure of getting approval for the same in US markets. The company has calculated approach towards intellectual property (IP) and patents and follows a calculated approach towards it where all the departments like R&D, manufacturing and IP decide upon the selection of the product for R&D, filing and manufacturing. The major revenues from formulation division will only start from Q4FY17 onwards.
Many Indian generic companies like Torrent, Alembic, Zydus etc have announced entry into oncology space but with more than 10 years of experience, earlier entrants like Intas, Dr. Reddy’s and Shilpa will have advantage over them. Some of these companies don’t even have oncology API or formulation manufacturing plants. A company like Shilpa which is backward integrated into APIs and which files dossiers on its own will have an edge over them. Many of these new entrants may even be Shilpa’s customers for formulation as well as APIs.

Japanese CRAMS
The company has started manufacturing exhibit batches of Tranxemic Acid for its partner currently and commercial supplies will commence from June, 2017 onwards. These division has a revenue expectation of Rs.50 – 60 crore with higher margins than CRAMS for ICE. The company is also in talks with other Japanese companies for other opportunities for CRAMS as well and approval from PMDA, Japan has further enhanced company’s prospects of attracting new customers.

Antiretroviral (ARV) Drugs
The company is not planning to pursue it on account of capacity constraints and has surrendered the license to Gilead.

Raichem Medicare (ICE JV)
The ICE CRAMS has seen consistent growth in the revenue contribution over the past few years. The company has been supplying raw ursodeoxycholic acid (UDCA) from Raichem’s plant and has been successfully audited by ICE’s consultant. The ramp up of supplies from the JV will happen FY18 onwards. The manufacturing of UDCA will be gradually phased out of Shilpa’s API facility only over the next two-three years on account of huge shortage of the drug. ICE has access to the key raw material (ox-bile) for manufacturing of UDCA and thus has higher market share. The new facility will have double capacity which is there in the API plant of Shilpa. The company also has long term plans for manufacturing of formulations and also other patented molecules of ICE. The approval for this facility for PMDA, Japan will take at least 2 years. The vacant capacity in Shilpa’s API plant post shifting to Raichem Medicare will be filled by non oncology molecules.

Investment in subsidiary companies/JVs
Philosophy behind investment: The main reason for investment is getting into niche areas which have potential for the future. Shilpa needs to mark its presence like Biosimilars or Nano Technlogy, and /or extend current capabilities around different delivery mechanisms such as Oral Disintegrable. The company makes investments considering at least 3 – 5 years of gestation period. Apart from technology and people running the companies, we also consider future potential and economics involved. The investments in such areas is not much initially but future potential can be huge.
Navya Biologicals: Biosimilars have huge potential in the future. Out of the top 100 pharmaceutical molecules in revenue terms, 45 are biological. Furthermore, out of the 10 new NCE molecules being approved by regulatory authorities, 5 – 6 are biological. We only thought about entering the segment post clear guidelines from regulatory authorities like USFDA and EU. If we entered on our own, it would have taken us at least 5 – 7 years to progress. By acquiring Navya, we saved time as they have been working in the Biosimilars for the past 7 years. They have been working for Indian and unregulated RoW markets. They have a good team but were lacking financial support as well as experience. With our investments and guidance, we can take the company to next level and even work for regulated markets like US and EU in few years. From 3rd year onwards post acquisition, we might see some revenues coming in from these subsidiaries. We are setting up a new facility for manufacturing of Biosimilars for Navya with total cost of Rs.150 crore at Hubli, Karnataka. Shilpa had offered the promoters cash for buying out the company but they wanted Shilpa’s equity. The have an agreement to stay with the company for next five years. Five years down the line, biosimilars might be the second biggest revenue stream for the company after oncology formulations and APIs.
INM Technologies: Nano technology has huge potential in the future. The company is working on both pharmaceutical and engineering projects. Nano technology can have good demand in the future especially in dental field. Many of the pharmaceutical companies talk about ophthalmology and dermatology space but none talk about dental. The company is working on 12 products out of which 2 – 3 are at advance stages of being commercialized. The filings will commence for domestic markets in the near term and gradually progress to regulated markets. Nano technology can help Shilpa in administrating few of its molecules to be administered through this technology through 505 (b) (2) route. The company is planning to set up a new plant with total cost of Rs.50 crore.
Shilpa Therapeutics (formerly Nu Therapeutics): The company has already started working for domestic markets and will enter regulated markets in the near to medium term. The company will start generating meaningful revenues 2 -3 years down the line.
Maia Pharmaceuticals and Makindus Inc, USA: Investing in both these companies have helped us in getting know how of the US markets, dealing with USFDA etc. For Maia, the second round of funding was at four times higher multiples compared to our initial investment. They are at advance stages of filing one to two niche ANDAs for molecules and might even get substantial license fee by end of the year.
Makindus is struggling to get next round of funding of USD 20 – 30 million for phase III trials. We did not have such large funds to support them.
Loba Feincheme GmbH: We recently hired a senior person of pharmaceutical industry, Dr. Walter Erber, to look after the operations of the company. Earlier, a senior employee from Shilpa was managing the operations of the company. He used to visit the facility for few days in a month. With the hiring of a full time person, the operations of the company are expected to be more streamlined. Even Mr. Bhutada is visiting the company regularly to motivate the employees. The company turned profitable last year and expected to grow in the medium term. Shilpa might even use its facility for manufacturing of formulations as well its warehouses. The experience of the company will help us in direct marketing Shilpa’s molecules in Austrian markets.
Koanaa Healthcare GmbH: We have identified Austria, Germany and UK to test waters for our own front end for formulation products. Out of these three countries. Austria is a small market, UK is medium sized while Germany is pretty large. We have hired four senior professionals from the pharmaceutical industry to look after the marketing arrangements.
Other points discussed
Capex and funding plans: The company is planning to spend Rs.450 crore of capex over the next two years. Out of these, Rs.150 crore will be for setting up third dry powder injectable line in formulation facility, Rs.150 crore will be for setting up of plant for Navya Biologicals, Rs.50 crore will be for setting up facility for INM Technologies, Rs.50 crore for API plant and Rs.50 crore for setting up centralized R&D centre at Bangalore or Jadcherla. The funding of the same will be through debt of Rs.150 – 200 crore, cash of Rs.70 crore and remaining through internal accruals. The company was earlier planning to raise equity for the same, however, dropped the plan later. However, now it can raise some debt and through its own internal accruals go ahead with its plans. The company has always believed in not raising huge debt which can lead to its downfall and hence diluted equity to raise funds.
Next generation joining the business: The two sons of Mr. Bhutada have recently joined as trainees in the company. They will undergo training for next two years in various departments and work with even lower level employees. The intention is to make them aware of their responsibilities. The promoters don’t have any business interest outside the company and are fully dedicated in growing the company.

Disclosure: Forms more than 10% of my pf. No transactions in last 30 days.

(Hamir Asher) #393

this is a superb write up … the detailing is awesome and my compliments for the same.

(JKS) #394

Hats off. Not many cos reveal this much and even if they do, not many take pains to note and share.

(Donald Francis) #395

Dear Fellow ValuePickrs,

Management meets 100s of analysts. We have always believed - quality of the Analyst(s) lies in extracting focused information from Management.

And that friends, involves lot of homework and preparation.
Many folks try to tell us - Donald, its not necessary to put in so much amount of homework. High level insights are enough to make a successful investment.

Our experience has been different - we believe REAL INSIGHTS come from detailed sustained grounds-up work - icing on the cake is when - multiple folks collaborate to add value and take forward each others work. The energy generated - is to be experienced :slight_smile:

These real (differentiated) insights give us the ability to average up, and more importantly average down - when we get opportunities - Mr Market always does, if we keep our homework ready.


Please share the Shilpa Management Questions doc, that you guys prepared. This will help inspire many more folks to put up their hands for sustained work in trying to understand a business deeply. Please acknowledge the contributions from guys, as possible (next time onwards, we could mark entries by different folks)

(Ashwini Damani) #396

We all have ability to do good detailed work…What we lack is willingness to do detailed work.Thanks for pushing us Donald…

(Ankit Gupta) #397

The questionnaire prepared for the AGM is attached for everyone’s reference (some of the questions might be a bit repetitive as there were multiple people working on it till the end :slight_smile: ).

Questionnaire-ShilpaMedicare-AGM2016.pdf.pdf (141.5 KB)

(Hamir Asher) #398

Hi … Donald and other contributors … I invested in Shilpa only after reading this thread. Though it was at a higher level than the early investors whose posts trail back to few years ago but the depth of analysis and information provided ( uninhibited and in my opinion without any prejudice) is phenomenal. Thanks guys for the info since there are many people like me who dont have the skills for this kind of analysis, but your work makes us take decisions…

(Rakesh ) #402

Shilpa Medicare Ltd has informed that Koanna Healthcare Limited, UK, a wholly owned subsidiary of Shilpa Medicare Limited, INDIA has received marketing authorizations from the UK Medicines and Healthcare products Regulatory Agency (UK MHRA) for the IMATINIB TABLETS in multiple strengths of 100 mg and 400 mg.

(Sandeep Patel) #403

The DMF filing upto Sep 30, 2016 is out and Shilpa has filed one DMF during the quarter (Q3CY16).

Pirfenidone (gEsbriet):

  • Innovator: Genentech (Roche Group) -
  • Medicine for the treatment of idiopathic pulmonary fibrosis (IPF).
  • The IPF market is currently dominated by only two drugs – Roche’s Esbriet & Boehringer Ingelheim’s Ofev.
  • The top-selling drug in IPF in value terms is Roche’s Esbriet, which GlobalData estimates generated ~$572m in 2015.
  • Esbriet has been retailing in US at ~8200USD for 270 capsules; stable price since past 2 years.
  • Exclusivity expiry: 2019-10-16
  • Other DMF filers: Signa, Honour Lab, Lupin and Granules. Last two filed in 2016.


Granules India Ltd
(Sandeep Patel) #404

Shilpa Q2 FY17… Great numbers… Disproportionate growth in action…


(Vijayk) #405

6 mthly sales growth of only 17% and operating profit growth at 20%. 45 price earnings ratio. Let us see how it pans out.
Seems a very expensive stock at current valuations. Also, pharma stocks are know to have one or other black Swan… Wockhardt, lupin, sun pharma, marksans, Ipca labs, the list is very long!

(Sarabjeet Singh) #406

After current results PE is around ~37 @ 626

(Vivek Gautam) #407

A great set of results. Another piece of great execution.

What an excellent promoter Mr Vishnukant Bhutada we Shilpa shareholders are lucky to have.

IMHO 90% bet on the co is on the promoter.We need to thanks the entrepreneurship gene present in Indias Marwari community also. Mr Bhutada being the fist B Pharma graduate in his family engaged in agri business in a small obscure comparatively backward district of Hyderabad Karnataka of Raichur.

He started the pharma business in the same place on his own at a young age .With combination of growth mindset, ethical practices,superb execution he has taken Shilpa to great heights.Opp size remains large and lets be invested here for several more years. IMHO Shilpa Medicare is a classic example of few most imp criteria of investing for me .

  1. Ethical Promoter
  2. Huge Opp size
  3. Good ROCE

See how well integrated & supportive he is of local Kannada language and culture by being the sponsor of Kannada literary festival being organized in Raichur.

Discl- I bought some more Shilpa today following my rule of averaging on upside when i see execution happening.

(Ananth) #408

Wockhardt is the marketing partner for shilpa first ANDA filing azacitidine


Why are they raising equity now? any acquisition planned etc? lot of space for debt but equity again