Eris Lifesciences - 100% of sales from India Pharma Market

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131

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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135

Eris Lifesciences -

Q4 and FY 24 results and concall highlights -

Acquisitions made by the company in last 24 months -

Oaknet Pharma - entry into Derma business - paid Rs 650 cr

Select brands of Glenmark Pharma - paid Rs 340 cr

Derma brands of Dr Reddy’s - paid Rs 275 cr

Biocon’s domestic Nephro and Onco business - paid Rs 366 cr

Swiss Parenterals - sterile Injectables business - paid Rs 640 cr for 51 pc stake

Biocon’s India Injectables business - paid Rs 1242 cr

**Total cost of all acquisitions put together - 3510 cr **

Total revenues of the acquired assets at the time of acquisition - 1240 cr

Q4 outcomes -

Revenues - 547 vs 396 cr, up 38 pc ( domestic revenues @ 480 vs 389 cr )
Gross Profit - 432 vs 402 cr, up 31 pc
EBITDA - 148 vs 118 cr, up 25 pc
PAT - 79 vs 61 cr

FY 24 outcomes -

Revenues - 2009 vs 1685 cr, up 19 pc ( Domestic revenues @ 1902 vs 1606 cr )
Gross Profit - 1629 vs 1332 cr, up 22 pc
EBITDA - 674 vs 536 cr, up 25 pc ( margins @ 34 vs 33 pc )
PAT - 397 vs 374 cr, up 6 pc ( due much higher depreciation, amortisation, finance costs )

There were non-recurring one time expenses of aprox 38 cr in Q4. Adjusted to that, PAT for FY 24 would have been 430 cr

Consolidated Debt on balance sheet @ 3000 cr. Company intends to reduce it to 2600 cr by end of FY 25 out of internal accruals. By the end of FY 26, aim to bring it down to 2000 cr !!!

Aiming for organic revenue growth of 12-14 pc in the domestic formulations business. Aim to maintain EBITDA margins > 35 pc for FY25. Will share complete company level guidance post completion of integration of Swiss Parenterals and Biocon’s domestic business by end of Q1 FY25. Biocon’s domestic business is currently clocking annual sales of 360 cr. Swiss parenterals clocked FY24 revenues of 280 cr with 37 pc EBITDA margins

Eris - Biocon combined will create 5th largest Anti Diabetic franchise in India with Anti Diabetes only revenue base of close to 1000 cr / yr. It will have significant presence across oral and injectable Anti-Diabetic products

Company can work on expanding margins by using Swiss Parenterals manufacturing facilities to manufacture a lot of Biocon’s injectable products

Eris - MJ Biopharm JV ( 70:30 JV formed in 2022 to sell Insulins and GLP-1 products ) is now clocking a monthly sales of 5 cr. It reported an EBITDA loss of 20 cr in FY 23. In Q4 FY 24, EBITDA loss has narrowed down to 1 cr. Should turn EBITDA positive from Q1 FY 25

The Insulin penetration in the domestic mkt is very low. Company sees fairly large growth runway for their Insulin products - both from Biocon’s and MJ Biopharm’s portfolios

Aim to launch 4-5 new brands in India in Q1 in the Critical care space to be manufactured out of Swiss Parenteral’s facilities

Aprox capex lined up for next 2 yrs @ 70 - 80 cr each

Disc: holding, biased, not SEBI registered

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Q1FY25 results and concall highlights -

  • Have 5 brands in excess of 100cr and 12 brands in 50-100cr range.

  • Eris is now top 20 companies in the market. Have gained 9 ranks since IPO.

  • Market growth of 8.1% and we grew at 12.7% in Q1.

  • Gross margin at 86% up 300bps, Ebitda margin for Q1 at 39% up 189bps on YoY for base business.

  • Guidance for FY25 - revenue growth of 12-14% and margin of 37% for the base business

  • Biocon Nephro and Onco business acquired in Nov - Q1 revenue growth of 16%, Gross margin up from 50% to 65%, Ebitda margin up from 19% to 39%. Guidance for the year - 125cr revenue which is a 25% growth and 36% margin.

  • Biocon Injectable business - Gross margin at 40%. Expect a 10% improvement in margin going forward. Expect a growth of 28% to 480cr.

  • Swiss Parenterals - Guidance of 330cr Sales and 115cr ebitda a growth of 13-14% in sales and 30% in ebitda. Started manufacturing key Biocon Critical Care products and Eris products. Have done multiple regulatory inspections and qualifications. Have filed multiple products. Geared up for future growth.

  • New acquisition of biosimilar fill finish lab of Biocon for 105cr. This will reduce time to market by 24 months. Key stepping stone for Biotek business. They have capacity for liquid vials and we will add cartridges and pre-filled syringes. This facility will make us GLP-1 ready. Will help improve margins for our insulin business of 1000bps.

  • Overall expect Sales of 2600cr with Ebitda margin of 36% for branded business and consol revenue of 3000cr with Swiss parental with margin of 35%.

  • Debt should reach 2500cr by end of FY25 and 2000cr by end of FY26.

  • MR strength at 3700+. 560 reps added through Biocon acquisitions.

Disclosure: invested.

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Eris is able to integrate the acquisitions well and improve the margins on acquired entities. I think they will be able to generate more cash than they are anticipating. Hence the debt repayment will happen earlier than projected. In the very detailed investor presentation here. They have provided outlook for each of their line of business.

Disc-Invested

138

Eris Life’s abilities to integrate and turnaround the acquisitions are really really commendable. The kind of margin improvements seen across the acquired brands / companies post acquisition are just eye popping. They did the same with Oaknet Pharma a couple of yrs ago

I think ( personal opinion ), the management can drive a lot of shareholder value in medium term

Another company ( IMHO ) that’s on a similar path is Mankind Pharma ( post the BSV ltd’s acquisition ). Here too, the chances of a successful turnaround are great

Disc : holding both, biased, not SEBI registered , not a buy / sell recommendation

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139

Hello

I have a position in Eris and studying it regularly . I think Eris management is quite aggressive in their growth outlook and this can result in some accidents . We need to wait and watch carefully. We dont know exactly where this will materialize. But yes , its promoter has been very committed in terms of his growth strategy.

Mankind is a different company altogether and not comparable

Thanks

Malolan

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**Eris Lifesciences - **

Q2 FY 25 results and concall highlights -

Revenues - 741 vs 505 cr, up 46 pc

Gross Profit - 555 vs 411 cr, up 35 pc. GMs @ 75 vs 81 pc due significant changes in product mix

EBITDA - 265 vs 181 cr, up 46 pc ( margins @ 35.7 vs 35.8 pc )

PAT - 97 vs 122 cr ( due accelerated depreciation, amortisation and finance costs - because of a series of acquisitions made by the company in last 12 months )

Net Debt @ 2500 cr, ahead of schedule ( had guided for net debt of 2600 cr by 31 Mar 25 )

Guiding for a consolidated revenue of 3000 cr for FY 25 with EBITDA margins of 35 pc

Acquisitions made by the company in last 24 months -

Oaknet Pharma - entry into Derma business - paid Rs 650 cr

Select brands of Glenmark Pharma - paid Rs 340 cr

Derma brands of Dr Reddy’s - paid Rs 275 cr

Biocon’s domestic Nephro and Derma business - paid Rs 366 cr

Swiss Parenterals - sterile Injectables business - paid Rs 870 cr for 70 pc stake

Biocon Biologics India formulations business ( has significant presence in Onco and Anti-Diabetic therapies ) - paid Rs 1240 cr

Total cost of all acquisitions put together - 3740 cr

Total revenues of the acquired assets at the time of acquisition - 1070 cr

Launched Liraglutide ( GLP-1 ) brand - ERLY in Sep 24

Despite the drop in gross margins, the EBITDA margins of the consolidated business remain strong at 35 pc due successful business integration and cost + scale benefits thereof. Also, the company’s new manufacturing facility at Ahmedabad is ramping up with Q2 capacity utilisation @ 65 pc vs 55 pc in Q1. Additionally, company’s in-house production of Derma products has gone up to 30 pc vs NIL in previous FY. This number ( ie - percentage of in-house derma business ) is improving MoM. All these things are helping improve the Gross margins of base business and EBITDA margins of the consolidated business

Pre-Biocon acquisition, company’s anti-diabetes franchise was limited to OHAs ( oral hypoglycaemic agents ) with a topline of Rs 600 cr, 900 MRs and a yield per MR @ Rs 5.4 lakh/month. Post the acquisition and integration, the Anti-Diabetes franchise has OHAs + Injectables with a topline of 1000 cr +, 1200 MRs with a yield per MR @ 7.1 lakh/month - clearly company is benefitting from significant scale business in their Anti-Diabetes business

The OHA and Injectables teams are complementing each other at the field level - which is a great news for the company

Company has added six senior level officials to the Swiss Parenterals business - in the business development and regulatory compliance roles for business expansion in the African, Asia-Pacific and Latin American mkts

Likely to commence - Oral solid Dosage exports business. Expecting regulatory approvals from EU-GMO and ANVISA ( Brazilian regulator ) for the Ahmedabad site. Once approved, exports may commence in mid FY 26

In the process of commencing - CMO business wrt Injectables for the EU mkts. Target customers would be EU focussed big generics players. Looking to get into stable 3-5 yr manufacturing contracts with them

Company acquired 30 pc stake in Levim Lifetech for 54 cr in Q2 FY 25. Levim has developed and commercialised 3 products - Liraglutide ( GLP-1 ), Streptokinase ( used to treat blood clots in Heart, Lungs, blood vessels ) and Pregaspargase ( Onco drug used to treat a type of blood cancer ). Successful development of Liraglutide by Levim builds confidence for a future GLP play. They are likely to commission a large scale manufacturing facility in Mid-2025. Levim’s R&D pipeline is expected to expand significantly going forward

Company’s brand ERLY is based on the active ingredients manufactured at the Levim’s manufacturing facility

Capex for FY 25 should be at 150 cr ( aprox ) + 54 cr investment in Levim’s business

Breakdown of Q2 revenues -

Base business - 501 cr
Biocon’s business - 131 cr
Swiss Parenteral’s business - 82 cr

H2 should see a flurry of launches in the base business. Base business is expected to grow by 10 pc in FY 25

GLP-1 drugs should end up being a big opportunity in India. At present, company is going to play it via Liraglutide. Post FY 26, they ll introduce Semaglutide

As Levim is able to develop more products, ERIS is likely to increase their stake in that business

Expect the Insulins business ( acquired from Biocon ) to grow in high teens in next 2-3 yrs. Only concern here is the supply shortages of Insulins - not only in India but across the world

Swiss Parenterals should do a 330 cr kind of Topline for FY 25. This business is also likely to keep growing at a good pace going forward. CMO to Europe ( once it starts ) - should be an added kicker for future growth

Disc: holding, biased, added more recently, biased, not SEBI registered, not a buy/sell recommendation

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Earlier Debt reduction Plan:
Debt: 31 Mar’24 3000Cr, D/Ebidta 3.5X
31 Mar’25 2600Cr, D/Ebidta 2.5X
31 Sep’25 2300Cr, D/Ebidta 1.8X
31 Mar’26 2000Cr, D/Ebidta 1.6X

Company is delivering more than the plan
Q3 FY’25 PPT:

FY25E Net Debt 2,100 cr. vs. guidance 2,600 cr - lower by INR 500 cr.
H1- FY26P Net Debt 1,750 cr. vs. guidance of INR 2,300 cr. - lower by 550 Cr
Sharp reduction in Debt to TTM EBIDTA ratio
• 3.9x in FY24A
• 2.x in FY25E
• 1.5x in H1 FY26P

• 6x expansion in asset base, largely driven by acquisitions
• Acquisitions in various stages of value creation - especially Swiss (acquired Feb-24) and Biocon (acquired Apr-24)

Company so far seems to be moving on the plan.
Invested in the stock.