Laurus Labs - Can Business Transform to Next Level?

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I have been reading about Laurus Labs & found it interesting. I will present my findings in 2-3 posts with first post summarizing the company’s business.

Laurus Labs is a company founded by Dr. Satyanarayana Chava around 2007. He was COO of Matrix Labs & when Matrix Labs got acquired by Mylan, Dr. Chava went on to found Laurus Labs. Mr. Ravi Kumar V V also works at Laurus & he has previously worked as Vice President of Matrix Labs.

The company has 4 business lines - API, Generic FDF, Synthesis, Ingredients.
The company has strong presence in API segment with ~90% revenue contribution. The company has invested into 3 new business lines namely - Generics FDF, Synthesis &Ingredients. The contribution of new lines in FY18 was at 0.3%, 7.4% & 2.8% respectively.

The thesis for investment resolves around -

  • Execution of management to scale the new business lines & transform the business from pure play API player to diversified pharma company.
  • The company has invested 600Cr in the new businesses which are generating very little revenues but P&L is charged costs of ~120-130Cr in terms of depreciation & finance costs. Once these businesses start contributing revenue, operating leverage shall kick-in.

MANUFACTURING FACILITIES

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BUSINESS
API
This business can be further divided into 4 sub-segments - ARV, Hepatitis C (HepC), Oncology & Others.

The company is one of the largest API player in ARV drugs (HIV) market. The number of patients requiring ARV treatment are expected to go up from 18 million to 23 million over next 3-4 years. A large part of these patients are in low & middle income countries (LMIC). For developed market, there are patented drugs with much higher selling price. The patents are slated to be expired (or have already expired) on ARV side in US & EU markets & that presents opportunity for Laurus.

HepC business has not grown much over last 2 years. The company is focused on trying to increase Oncology API business. The others include APIs in - anti-diabetic, cardio vascular, gastroenterology.

I will try to write a separate post for technical details & market developments in API side.

FDF
The company has increased the FDF plant capacity from 1 billion tablets to 5 billion tablets in FY18. The company expects revenue from FDF side to start contributing from Q3 FY19. The company has filed for 9 ANDAs & 1 NDA in FY10. The company expects to file 10 ANDAs every year for next 2-3 years.

The company has used partnership model to get into FDF business. They have profit & cost sharing model with Dr. Reddy’s for development & sales of ARV FDFs. The company also has 10-year agreement with Natco for supplying HepC FDFs. The brands will be jointly owned & they have 50-50 cost/profit sharing agreement.

SYNTHESIS
The company does custom synthesis for two global companies - namely C2 pharma & Aspen. The business contributed 7.5% to overall revenue & company has set target of 10% revenue contribution in FY19.

The unit 5 of the company is dedicated to manufacture custom APIs for Aspen & Aspen has issued bank gurantee of 21mil. $ for construction of this unit. Aspen is 6th largest generic player in the world. The validation batches have started from unit 5 & commercial batches are expected to be shipped over next 12-18 months. The company would be supplying 10 products - hormones or intermediates of hormones.

The company has dedicated block at Vishakhapatnam for C2 pharma to manufacture digoxin.

The company has setup a subsidiary in US - Laurus Synthesis Inc. The company has hired 12 scientists & 4 sales persons in Boston area focused on this.

NUTRACEUTICALS
In nutraceuticals, there is consolidation happening globally & quality norms as stringent as pharma are being adopted. The company is trying to seed & grow this business. Current products include - anti-oxidants, skin brightners, UV protection agents etc. The company is also trying to develop botanical extraction to target natural ingredients market.

OTHER POINTS

  • The company has 587 scientists working at R&D center in Hyderabad. The company is also setting up/expanding R&D center at Vishakhapatnam.
  • Customers - Aspen, Aurobindo, Cipla, Mylan, Natco, Strides Shasun
  • Competition - Desano, Hetero, MSM, Mylan, ScinoPharm (Taiwan), Shilpa Medicare, SMS Pharma

NUMBERS

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SHAREHOLDING PATTERN

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The promoter has bought shares from the market from March’18 to June’18 taking stake from 30.57% to 32.06%.

RISKS

  • The valuation seems to have priced in a lot of growth from FDF + Synthesis. If growth does not come through, there might be significant downside risks.
  • USFDA inspections remains a constant risk for all pharma companies. Although company has cleared several USFDA inspections with no observations & even has a VP looking just at regulatory matters - they can not let their guard down.
  • The company is going to compete with their customers when they are trying to move from API to FDF. JV mitigates this to some extent but combined picture of API + FDF shall be looked at.

TODO

  • Build entire ecosystem landscape in terms of customers, JV partners, competition, original innovators etc.
  • More details about RM, their supply-demand scenario & ability to pass on RM costs etc.
  • End market potential
  • Management quality

Disc - Invested with small allocation, will buy/sell as more clarity emerges on execution, above TODO items & if valuation becomes more favorable. This is not buy/sell recommendation & investors are advised to do their own due diligence.

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ARV MARKET

Patients
Currently there are 37 million people who are living with HIV globally. Around 50% of them, ~17-18 million, patients get ARV treatment. There are 2 million new infections annually.
India has 2.4 million patients living with HIV/AIDS which is 3rd largest diseased population.

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Market Size
Generic Accessible (GA) Market
The market size outside of US & EU for ARV is pegged at ~ $1.5bn

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Regulated Markets
The size of US & EU market is pegged at $12bn & it might go down due to patent expiry.

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Classes of ARV agents
There are 6 classes →

  • Reverse transcriptase inhibitors (RTI).
    These drugs bind & inhibit the reverse transcriptase enzyme to intercept the multiplication if HIV. These are further classified into nucleoside (NRTI) & non-nucleoside (NNRTI).
    Important example of NNRTI type drug include - Efavirenz (EFV).
    Important example of NNRTI type drugs include - Emitricitabine (FTC), Lamivudine (3TC), Zidovudine (AZT), Tenofovir or Tenofovir Disoproxil Fumarate (TDF)

  • Integrase Strand Transfer Inhibitors
    Strand Transfer Inhibitors prevent the integration of viral DNA into the host genome of CD4 cells by an integrase enzyme. Blocking integrase prevents HIV from replicating.
    Important examples include - Dolutegravir (DTG)

The drugs described (bold) in above two categories are the more important ones to understand when reports come out on ARV market.

  • Protease inhibitors (PI)
    PIs effectively block the functioning of protease enzymes

  • Fusion inhibitors (FI)
    This class of drugs acts by blocking HIV from entering the CD4 cells of infected patients.

  • CCR5 Antagonists
    This class of drugs prevent the infection by blocking the CCR5 antagonist receptor present on CD4 cells.

Treatments
There are two types of therapies - namely first line & second line.
Second line therapies are provided to the patients who have developed resistance to the first line therapies.

First Line Therapy
The recommended combination for first line patients consists of 2 NRTI & 1 NNRTI.
The most used are → TDF + FTC/3TC + EFV.

If this is not available, then next most used combination is - AZT + 3TC/FTC + NVP/EFV. The AZT based combinations are expected to decline.

From 2010, prices of these combinations have been declining in LMIC countries & are now stabilizing.

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Innovator Players
The major innovator players in US & EU market are -

  • Gilead Sciences (Brands - Atripila, Complera, Emtriva, Truvada, Stribild & Viread)
  • GlaxoSmithKline
  • Pfixer + ViiV Healthcare
  • Roche
  • Bristol Myers Squibb

Changes to watch out for

DTG

  • DTG is superior than EFV clinically. It is expected tat sales of DTG would pick up from FY18 onwards. I have been looking for smaller players in India who can play the DTG cycle. Mangalam Drugs & Organics is one such company but it has several other issues.
  • Aurobindo pharma has committed for 44$ per patient per year price for DTG & it received USFDA approval for DTG 50gm singles on Sept 22, 2016.

TAF

  • Tenofovir Alafenamide Fumarate (TAF) can disrupt market over next 2-3 years as TAF has better antiviral efficacy, improved renal & bone density profile at much lower dosages.
  • TAF is an alternate product for TDF which currently has 80% market share
  • TAF dosage would probably be 10x lower than TDF & that reduces cost
  • Gilead got approval for FDC names Bicktarvy (Bictegravir = BIC + FTC + TAF) is US.

Medicines Patent Pool ( medicinespatentpool.org)

  • With the goal to help LMIC countries access to generic medication & to encourage generic players to provide these without litigation, MPP was formed.
  • MPP encourages innovator companies to hand over their licenses to MPP which then MPP sub-licenses to generic players with country specific qualification. E.g. no charges in South Africa, nominal royalty payments in India.
  • ViiV has handed the license of DTG to MPP for further sub-licensing wherein it has waived royalty for sub-saharan Africa & charges nominal royalty to middle income countries like India. Sub licensees include - Anhui Biochem, Cipla, Desano, Dr. Reddy’s, Emcure, Hetero, Huahai, Laurus Labs, Mylan, Strudes Shasun etc.
  • Similarly TAF/BIC has been licenses to MPP by Gilead for further sub-licensing.

There is a lot of information available on MPP website & it is recommended to spend some time on this website.

With all this background, some notes on Laurus side -

  • Laurus claims to be the most cost effective manufacturer for EFV.
  • The company has supplied validation batches for DTG & is ready to capture any growth in DTG. Currently, no manufacturer is producing large commercial quantities as RM costs are not stabilized. Again the company expects to be lowest cost manufacturer for DTG as well.
  • Currently, there seems to be enough capacity for all important ARV APIs in the market.

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References:

https://clintonhealthaccess.org/content/uploads/2016/10/CHAI-ARV-Market-Report-2016-.pdf

Medicines Patent Pool, ViiV Healthcare Sign Licence for The Most Recent HIV Medicine To Have Received Regulatory Approval - MPP

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Hi Rupesh,
your research is very detailed and informative.

Can you please explain that if promoter holding is increasing (from 30.7 to 32.06%) but also till now in the past he has not pledged his shares. But now % of pledged share has increased to 18.35% of his holding. What does this indicate? is it that he is not being able to generate enough funds through debt funding?

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If funds raised through pledge of shares are used for project expenses as well as to buy shares from market it seems big positive for stock…you could find same type of activity in KPIT shares in the past…share price is double since that activity…and now promoter is selling.

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Though details are awaited, seems a good deal if the rights are limited to only China region and API supply is done by Laurus.

Disc: Invested (2.5% of PF)

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Investor PPT =>

Q2 FY19 Conf Call Transcript =>

One of the things that has been bothering me about Laurus is continuous capex guidance despite having almost ~800Cr of fixed assets lying idle. Finally management said that they will put capex for FY20 on hold and focus on getting current assets operational.

Now coming to results →

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The company has reported poor set of numbers in H1FY19 due to increase in RM cost prices due to China related shortages/issues. The company is doing backward integration and has guided that RM cost pressures would ease from Q3. The company has guided for 200 bps gross margin improvement over next two quarters and expects EBITDA margin to go back to 20% from Q3.

There were also few one time expenses in Q2FY19. Breakup of those is as follows - 17 Cr unrealized loss due to Rupee depreciation on forex loans, 14Cr fees to DRL due to renegotiation with DRL, ~10Cr for filing 4 ANDAs in the quarter ($180000 per ANDA). I hope these items would come to normal levels over next half year.

The split of revenue growth in different sub-segments is provided above. What is heartening to notice is the revenue from Synthesis has grown to 107Cr (growth of 62% Y-o-Y). Another important sub-segment to track is FDF generics where company generated 1mn$ revenue in HY19.

The company has capacity for 5bn tablets in FDF business. They have commitments for 0.5bn tablets and negotiation for another 0.5bn is ongoing. They expect 20% capacity utilization in FY20. The company expects EBITDA level break even in FDF business in FY19 & expects to be profitable in FY20. Currently ~150Cr of expenses are incurred in FDF business which are accounted for in P&L and not capitalized.

Some technical aspects →

  • The company has reduced the number of products in partnership with DRL from 18 to 7. Laurus will develop these 11 products.
  • The company has launched dolutegravir based combination (TLD) in South Africa with Aspen.
  • TAF which has lower dosage requirement and next big thing in ARV treatment - Dr. Chava said that he expects no significant business from TAF for next 3 years. The adoption rate is slow.
  • Market Size:
    TLD Market => 40 million packets * 6$ (Laurus has approval & expects sales in Q4)
    TLE market => 150 million packets * 6$ (Laurus does not have approval & it might take 9 months)
  • Laurus transferred Tenofovir ANDA to CASI pharma so that latter can get approval in China. If that happens, Laurus might get opportunity to supply API to them. The company is still trying to negotiate selling product in US on profit share basis with CASI pharma.

In summary, Laurus continues to be strong operating leverage story with several small triggers over next 1-2 years. There was half year turbulence due to RM costs. Key things to track is getting performance back to normal first & then checking if operational leverage is kicking in.

Disc - I hold, < 3% of portfolio, no transactions in last 90 days. This is not a buy/sell recommendation.

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Interesting article where two patients got cured of HIV by inserting CCR5 Delta 32 mutated gene.

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Rupesh, waiting for your comments and analysis post Q4 results.
As such the CEO is very positive about the possibilities.

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20190503 laurus q4 release.pdf (781.5 KB)
20190503 laurus q4 ppt.pdf (1.8 MB)

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Following are some notes →
TLD = Tenofovir + Lamivudine + Dolutegravir (DTG)
TLE = Tenofovir + Lamivudine + Efavirenz (EFV)

ARV API business & end market is in the state of flux. The company is one of the largest & most cost competitive producers of EFV in the world. But two thing have happened -

  • TLE400 is proving to be more effective & more recommended drug compared to TLE600. This means the volume required for EFV will go down from 600mg to 400mg.
  • The DTG acceptance is faster than company & frankly everyone else expected.

So EFV sales will go down & how much of it will be compensated by DTG needs to be seen.
The good part is company has capacities for Tenofovir & also started commercial production of the Lamivudine.
So company can produce all 4 APIs.
ARV API is not the exciting part of this story.

ARV FDF is a little bit exciting part of this story. The company has got USFDA approval for TLD. Further company has filed to TLE400 & TLE600 for approvals in both developed as well as developing world.

With these 3 formulations expected to get approval somewhere around Dec 2019, the company becomes a “one stop” solution provider for ARV therapies.
The company claims addressable market size for ARV in LMIC is 2bn$ & that in developed market is 10bn$ (I guess this is innovator market size & would go down considerably once generics are launched). Assuming 3bn$ as addressable market size & 10% market share - sales comes to 2000Cr. I am hoping to see this number in next 12-18 months in ARV API + FDF.

The parts that excite me the most are non-ARV businesses - Oncology API & Synthesis business in particular.

The synthesis business grew by whopping 66% in FY19. The company expects this business to grow another 35-40% in FY20. The good part is almost 50% revenue comes from non-Aspen already. The company claimed that it is working with 4 big pharma companies out of top 10.

The oncology API business grew by 34% in FY19. Company commercialized two Onco APIs in Europe in FY19 & expects to commercialize another two APIs in Europe in FY20. Dr. Chava claimed that Laurus has largest Onco API capabilities in the country. It would be great if people who track Onco API companies can validate this.

Things I would like to see in FY20 are =>

  • Improvement in gross margins as company claimed to have done backward integration in late Q3 or Q4.
  • There were some one off costs due to reduction in scope of partnerships with DRL & Rising Pharma in FY19. I hope no one-off costs come in FY20.
  • With revenue in FDF business, operating leverage should kick in as revenue is ~50Cr & expenses in P&L are ~140-150Cr.

One risk I see in this business is Forex fluctuations. The company has taken forex loans (ECB) loans & rupee movement + Hedging might result in losses which needs to be seen.

Disc - 1% of portfolio, no transactions in 6 months, not a buy/sell reco.

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Thanks for the clinical analysis @rupeshtatiya.:smiley::pray::+1:

Looks the company is in interesting times.

I also have initiated tracking investment.
20190503 laurus Q4-FY19-Concall.pdf (316.7 KB)

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@rupeshtatiya Any idea how we can verify the number of ANDAs filed by the company ?

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Interview of Mr. Satyanarayana Chava on BTVi

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Laurus Labs completed the USFDA inspection of its API facilities Unit 1 & 3 at Visakhapatnam

The Company is pleased to announce that it has completed the US Food and Drug Administration (USFDA) inspection of its API facilities in Units 1 & 3 at Parawada, Visakhapatnam, Andhra Pradesh, with two observations which are procedural in nature.

This is a regular surveillance audit by USFDA, and no data integrity issues were observed in the inspection.

A press release to this extent is also attached for your information and records.

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2019 Annual Report - http://www.bseindia.com/xml-data/corpfiling/AttachLive/111e31d7-2be8-4acd-a0f6-4e08079307fd.pdf

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Jan-19: HDFC securities research report:

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Annual report 2019 summary

Laurus Labs is a leading developer and manufacturer of generic APIs with focus on products where it has cost leadership, led by innovation in process chemistry and manufacturing efficiencies.

Apart from manufacturing APIs, we develop and manufacture oral solid formulations, provide Contract Research and Manufacturing Services (CRAMS) services to other global pharmaceutical companies, and also produces specialty ingredients for nutraceuticals, dietary supplements and cosmeceuticals.

54 DMFs filed

238 Patents filed ,81Patents granted ,19 Abbreviated New Drug Applications (ANDAs) and dossiers filed

2018-19 Highlights

  1. Generics APIs Revenue Contribution 84%

• Completed validation of all second-line ARV APIs and can now offer a complete basket of APIs
• Received DMF approvals from WHO for Dolutegravir and Lamivudine
• Lamivudine production capacity is now operational
• Completed FDA inspection of Unit 6
• Validation completed for key APIs in the diabetes segment

  1. Generics FDFs revenue contribution 2%
  • Began commercial supplies of FDFs to European markets
  • Started shipping Metformin tablets to the US markets
  • USFDA approval for Hydroxychloroquine ANDA
  • USFDA tentative approval and South Africa SAHPRA for triple drug combination of TLD (Tenofovir/Lamivudine/ Dolutegravir)
    • Commenced commercial supplies of TLD under Global Fund contract
    • Filed two major products in antiretroviral segment – TLE600 and TLE400
    • Transferred ANDA of Tenofovir to CASI Pharma and received $2 million
    • Formulations Unit 2 successfully completed regulatory inspections from various countries like USA, UK-MHRA, WHO-Geneva,Tanzania, Uganda, Kenya, Zimbabwe and Malawi
    • Significant number of Paragraph IV (PIV) and first to file ANDA
    • Entered into a strategic partnership with Global Fund for a three-and-a-half year period for ARV supplies

Filings
• Filed 18 ANDAs with the USFDA
• 3 dossiers in Canada, 5 dossiers
in Europe, 6 dossiers with WHO,
2 dossiers in South Africa,
2 dossiers in India and 81 in ROW. In addition, completed 1 product validations
• 3 ANDAs approved

  1. Synthesis revenue(11%)
    2018-19 Filings Highlights Commenced commercial
    • Completed several projects in various phases from pre-clinical to commercial, with development and manufacturing
    • New orders from existing Contract Manufacturing Organisation (CMO) partners and business opportunities for manufacture from several global companies

  2. Ingredients (3% revenue)
    Comprises the manufacture and sale of specialty ingredients
    for use in nutraceutical, dietary supplements and cosmeceutical products; it leverages existing R&D, process chemistry competence and manufacturing capabilities.
    • Set up a dedicated block in Unit 4 for global partner, C2 Pharma=
    • Started commercial supplies to C2 Pharma for Digoxin and other products
    • Expanding portfolio of natural extraction-based excipients

April–June 2018

  • Successfully completed Russian GMP Inspection for Unit 1 and 3
  • Commenced commercial supplies from Unit 5 to Aspen
  • Formulations Unit 2 successfully completed inspections from various countries like Tanzania, Uganda, Kenya, Zimbabwe and Malawi
  • Received Global fund Expert Review Panel (ERP) approval for TLD (Tenofovir, Lamivudine and Dolutegravir), enabling Laurus to participate in WHO and in country tenders (ROW)
    July–September 2018

• Completed capacity expansion for Lamivudine
• Initiated of commercial supplies to an innovator’s New Drug Application (NDA) filing
• Tenofovir (TDF) ANDA rights transferred to CASI Pharma for a consideration of ~$3 million, of which ~$2 million has been received, based on milestone payments
• Successfully completed JAZMP (Slovenia Regulatory Authority) audit for European supplies and started commercial production for contract manufacturing

October–December 2018

  • Completed USFDA inspection for Unit VI with 1 procedural observation
  • TLE600 filed in October 2018 with USFDA and WHO
  • 1 formulation product validation completed

January–March 2019
• Received TLD approval from USFDA and expecting approval from WHO soon
• Tenofovir approved by WHO, USFDA and also in several EU countries
• Validation for 4 formulation products completed
• Filed TLE400 in January 2019 with USFDA and WHO

CEO’S PERSPECTIVE
margins were affected as major raw material procurement prices increased due to shortage of intermediaries, environmental issues and closure of manufacturing facilities
in China. We have received all appropriate regulatory , expect margins to improve its OL kick in.

Risks:

Raw material cost fluctuation Delay in backward integration
Higher than expected price erosion in Hepatitis C or oncology products
Not realising expected sales Delay in regulatory approvals While TLD is expected
to remain the preferred regimen for HIV treatment, there are many products currently under development. These could potentially change the landscape in the long-term
Delay in commercialisation of few ingredients projects
Single product concentration risk
Significant portion of revenues from customer risk

. We are further targeting ~8-10 ANDA filings every year from the formulations facility. For the US market, we have also re-negotiated partnership arrangements with DRL and Rising Pharma by reducing products under partnership From 18 to 7. The balance 11 products will be developed solely by us on payment of the development fee to partners.

Antiretroviral (ARV) Market
According to Mordor Intelligence, the global ARV therapeutics market is expected to register a CAGR of 6.2% between 2018 and 2023.
Due to the continued increase in patient base and coverage rate, 24.1 million patients are expected to be under Antiretroviral Therapy (ART) in GA LMICs by 2022, translating to a growth of 6% CAGR (CY17-22E). The growth of the ARV market translates to 1.5% CAGR (CY17-22E). Being the cost leader in ARV APIs, Laurus is best placed to garner attractive market share (in 3 products) of the $1.8 billion ARV tender market. A substantial part of the revenues would start coming in from 2019-20E itself. Lower cost and patented processes have been the key factors in making Laurus the preferred API supplier in the ARV segment. At present, Laurus is supplying to 80% of the players who participate in ARV tenders.

In Cr 2019 2018 Increase
Revenue 2291 2056 11.5%
EBITDA 371 441 (16%)
Raw material costs 53.9% 51.7%
Employee expense 289 258 This increase was due to increase in employee strength around 300 comparing to 2017-18.
Other expense 41 32 The absolute increase is largely due to addition of new blocks, rupee depreciated by 4.13 (6.35%) comparing to 2017-18 resulted109 mn forex loss in 2018-19 and additional regulatory filings costs for FDF business.
PBT 119 237 (49.6%)
PAT 94 167 (44.1%)
Debt 1035 980

Ratios

Screen Shot 2019-06-30 at 8.10.15 AM.png

The chief reasons for decline in EBITDA, Net Profit Margin and Return on Net Worth include the sharp increase of raw material procurement prices due to shortage of intermediates, external issues and closure of manufacturing facilities in China.

Key Note:Gross block & Dep charges have doubled in last 3 years while sales have grown 29% , EBITDA has been same and pat declined during same period. If it can start utilising its assets and stop expanding capex at earlier rate there’s scope of good operating leverage in laurus.

Other risks:
Promoter pledge
Interest coverage ratio low side

Disclosure: This is not a recommendation and I am invested (<3% of portfolio)

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https://www.bseindia.com/corporates/anndet_new.aspx?newsid=4d90fb24-a7d1-42d3-b635-48369cb4cd0f

The Company is pleased to announce that it has completed the US Food and Drug Administration (USFDA) inspection of Unit 4 at Visakhapatnam, Andhra Pradesh, without any observations and no form 483 issued

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AGM19

CEO Speech

  • Dr. Chava got poetic and said “what we have achieved is a little & a lot more is ahead”
  • Previously we had to say that good revenue growth will come in the future. But in FY20, all units are running at good scale & are expected to generate revenue.
  • We expect this year to be very good
  • Investments take time to come to fruition - we started investing in FDF capacity in 2014, FY20 is when we will breakeven
  • Not looking to do a lot of CapEx, existing units are good enough for next 5 years

Q&A

Synthesis Business (Research)

  • The company delivered 3 APIs which were launched by the customers
  • The company also delivered one intermediate
  • 4 out of 10 top global companies are our customers
  • Revenue is equally split between Big Pharma, Mid Size Pharma & Virtual Pharma
  • The company has good molecules in Oncology (One molecule for NCE) & ARV space
  • The company is also working on few molecules in CNS space
  • The company expects to have good year in this business in FY20

API

  • The growth in API might be moderate due to change in therapy in the end market. The company is well positioned to handle the shift from EFV to DTG
  • The pick up in DTG is slow in South Africa market
  • The end market size by value or volume might degrow but the company is not losing market share (DTG is cheaper than EFV & EFV400 is requires lower volumes than EFV400)
  • The company supplies APIs to 9 out of 10 top global pharma companies
  • The company supplies 80% players who participate in ARV tender market
  • Oncology - The company has significant market share in Gemcitabine, it is an old, off-patent molecule. Carboplatin is another important molecule that company supplies.

Ingredients

  • After flat growth for last 2/3 years, the company expects to have good growth in FY20

Global Fund

  • Global fund empanels a group of suppliers every 3/4 years. Laurus got empaneled for HIV products (TLD will be significant product that will be delivered)
  • Global fund spends 300-400mn$ on drugs every year

FDF

  • The contract manufacturing for FDF is only for EU market
  • The company has front end in US - either its own or through a partner
  • Competition with existing customers - Mylan & Aurobindo are our two largest customers on API side & they are also competitors. Pricing of API & delivery is more important, we do not see this as a conflict.
  • The current capacity is split as follows -> contract manufacturing towards EU customers (15-20%), US front end (15-20%), LMIC + Global Fund (33%)
  • We are doing FDFs only where we have all the APIs in-house

Metformin

  • The company has 4% market share in Metformin
  • The company expects to launch this product in Canada this year & in EU by next year

Misc

  • The company recruited close to 1000 employees in FY18 & FY19
  • The company has not capitalized employee, R&D & OpEx
  • The company went through 50 customer audits in FY19
  • The capacities are fungible in case of change in demand mix but there is cost associated with it
  • Following can be said to be biggest competitors of the company - Divis, Hetero, Mylan, Aurobindo
  • The backward integration for key APIs are complete & the company expects gross margin to revert to FY18 levels
  • Dr. Chava has 30% of his shares pledged, with that money he has bought 2% of the company shares

Disc - I have bought share of the company in last 90 days. This is not a buy or sell recommendation. I am not a SEBI registered analyst. Any mistakes in above notes are solely mine.

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LAURUS LABS’ EXCLUSIVE DISTRIBUTION PARTNER, RISING PHARMACEUTICALS LAUNCHES PREGABALIN CAPSULES IN US MARKET

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