Eris Lifesciences - 100% of sales from India Pharma Market

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Margin revival continues, organic sales growth is a bit disappointing and they keep acquiring! I have captured recent call notes below.

FY24Q3

  • Since FY17: OCF of 2,100 cr., invested 1,900 cr. in inorganic growth + 400 cr. capex + 400 cr. dividend and buyback. 6-year average GM: 80%+, EBITDA margin: 35%, OCF to EBITDA: 75%

  • 3 derma acquisitions of 1**,265 cr. in FY23** will contribute 375 cr. sales and 130 cr. EBITDA in FY24. Tail brands are doing badly and main brands are growing well. Commercial production in Gujarat facility has started for derma products which will aid in margins

  • Vision FY29: achieve revenues of 5,000 crores

  • Swiss parenteral (51% for 637.5 cr. + 19% for 237.5 cr. by promoters)

    • Valued at 1250 cr. (12x FY23 EBITDA, 4.5x FY24 sales)

    • FY23 revenue: 280 cr., 37% EBITDA margin and 25% PAT margin

    • Remaining 30% will be held by Naishadh Shah, Director of Swiss Parenterals, who will be in charge of day-to-day operations

    • 11 lines of sterile injectables (mostly antibiotics) focused on ROW markets; strong presence in Southern Asia and Africa, and focusing on European markets. Work on distributor led model

    • Will enable Eris to launch Sterile Injectables business in India (hospital focused) along with small volume parenteral market. Target of 100 cr. in first year on the domestic injectables side

    • Differentiation of what goes into Swiss Parenteral vs Eris: Swiss will do large part of hospital business and Eris will do specialty drugs. For example, in Women’s health, there is some amount of biotech which will be done by Eris

    • Will build an OSD business in RoW markets leveraging Eris’s manufacturing facilities and Swiss’ RoW channels and distribution presence

    • 1,000 active dossiers across 200 molecules, and pipeline of 1,000+ dossiers in existing molecules and 40+ new molecules

    • 2 manufacturing units in Gujarat being run as single shift

      • Unit 1 is for general injectables

      • Unit 2 has dedicated blocks for betalactams, penicillins, cephalosporins and carbapenems

      • Will do 40-60 cr. capex in next 2-years

    • R&D: 15 professionals focusing on liposomal, microsphere, oil-based and depot injection

  • Insulin: 12 cr. sales in Q3FY24 (YPM: 3.5 lakhs). Reached 5 cr. monthly runrate

  • Launches and R&D pipeline

    • Launched Sitagliptin-Gliclazide and Dapagliflozin-Gliclazide in December + Empagliflozin + Linagliptin combination

    • Secured approvals for Liraglutide and Glargine from MJ’s pipeline and these will be launched in Q4

    • Pipeline increased to 26 from 14 in Q2 (17 FDCs + 9 new drugs)

  • Looking at standalone performance will no longer make sense as Gujarat facility is part of Eris Therapeutics Ltd

  • Tayo (MAT of 80 cr.; 45% Q3 growth), Gluxit (MAT of 75 cr.; 21% Q3 growth) and Remylin (MAT of 70 cr; 51% Q3 growth) are set to reach 100 cr. annual sales

  • Biocon portfolio doing 7-8 cr. of monthly secondary sales, gross margins will increase from 50s to 70% by Q1FY25

Disclosure: Invested (position size here, no transactions in last-30 days)

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132

One more acquisition

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133

Eris has been now on a huge acquisition spree, having spent close to 3500 cr. in last few years on acquisitions. One thing this clearly highlights is how hard it is to grow organically in branded market (or that Eris is lacking that capability).

The only good things about their acquisition is large acquisitions are done to get into new therapies, and they pay reasonable valuations for most acquisitions (~3x trailing sales). See a summary of all their acquisitions below.

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14.03.2024 call notes

  • The Swiss Parenteral and Biocon biologics deals were evaluated together

  • Biocon biologics

    • Acquired Indian branded sterile injectable business of Biocon Biologics (1242 cr.; 360 cr. sales; 70 cr. EBITDA and will increase to 100 cr. in FY25). This will expand their presence in the sterile injectables market and has synergies with Swiss Parenterals Limited

    • 435 employees (325 MRs), price includes 50 cr. net working capital

    • Oncology (Monoclonal antibodies; MAB; 80 cr.; 40 field force including 30 MRs) + insulin (200 cr.) + critical care portfolio (80 cr.; 70 field force)

    • Critical care manufacturing will move to Swiss Parenteral, Mabs and Insulin will be sourced from Biocon

    • Insulin:

      • Basalog (Glargine; 8.2% to 10.5% market share in last-4 years) - 100 cr. brand

      • Insugen (rH insulin; 9.5% to 11% market share in last-4 years) - 100 cr. Brand

      • Both Basalog and Insugen have not grown in last 5-years, but have gained volume market share

      • RH insulin Indian market has declined in volume terms in last 5-years

      • Insulin can reach 70% gross margins

      • Hope to gain from interchangeability acceptance for Basalog (no other biosimilar in India has this)

    • Will continue their own Xsulin and Xglar brands

    • Anti-diabetes will be a ~1000 cr. franchise now

    • Oncology – 5 main brands (Biomab, Canmab, Hertraz, Krabeva and Abevmy). Market is growing at 26%+ p.a. 80 cr. sales with

    • Acquired brands highlighted below (maybe more, only highlighted ones where I am sure)

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  • Will acquire 19% equity stake in Swiss Parenterals Limited from Eris’ promoters (237.5 cr.; same as original acquisition price of 1250 cr.)

  • FY25 net debt will be <2x of FY26 EBITDA (1-year forward). Net debt will be 3000 cr. From now on, focus will be on optimizing acquired units. Cost of debt is 8.65%

  • Target to reach 5,000 cr. revenues in FY28 (vs FY29 earlier)

Disclosure: Invested (position size here, no transactions in last-30 days)

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134

Hello

wanted to start a new thread on this … Both the Biocon divestiture to Eris and their acquisition of Swiss Parenterals.
Market seems to be overly concerned about rising debt levels in the company.
Market is also worried that all cash flows are being invested in acquisitions and feel some will go wrong.

In a way only time can say . But management seems to be quite convincing.

Malolan

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