Nowhere is India’s epithet—pharmacy of the world—more apt than in the case of some big pharmaceutical companies. One such company is Aurobindo Pharma, which has steadily grown over the past 10 years to become the second-biggest Indian pharma company behind only Sun Pharma. Its consolidated revenues grew from Rs 4,550.56 crore in FY12 to Rs 23,366.55 crore in FY22. Ten years ago, it was placed sixth (see table ‘Coming from Behind’).
So, how did the Hyderabad-headquartered company reach such stratified air? Aurobindo has adopted a strategy of focussing on its forte of biosimilars (medicines that are highly similar to their branded reference medicines) along with gradually advancing in speciality pharmaceuticals (large, injectable, protein-based molecules, or small molecules used to treat complex conditions such as cancer and hepatitis C or common chronic diseases such as rheumatoid arthritis and asthma). It is making steady progress in developing biosimilars in the oncology and immunology segments, even as it has products in the pipeline for rheumatology, dermatology, ophthalmology and respiratory disease treatments, says K. Nithyananda Reddy, Co-founder and Vice Chairman. “We are targeting a market opportunity of over $50 billion. We have a mix of biosimilar products in the pipeline,” he says.
As other manufacturers also crowd the biosimilars space, Aurobindo is looking at diversifying towards the speciality disease business. And its export markets are crucial to its strategy of diversifying towards high-margin speciality generic (non-branded) formulations and the speciality diseases segment.
In FY22, Aurobindo’s revenues from international operations stood at 82 per cent of its gross revenues, and its key markets remained the US and Europe, which represented around 75 per cent of the company’s consolidated revenues. “We are making inroads into the speciality segment in the US, and have firm plans to expand in China. We are also reinforcing our prominence in the EU market, and other key growth markets such as Canada, South Africa and Brazil,” says Reddy.
Having built robust manufacturing capability with a strong presence in injectables across delivery systems, the company is counting on the speciality business to be its key growth driver. It has also ramped up its R&D spending significantly—6.7 per cent of revenue was spent on R&D in FY22—without sacrificing profitability, which reflects the operating leverage in its business. Going forward, Aurobindo intends to fund its expansion through internal accruals. A spokesperson of the company outlines the strategy: “We are strengthening our product pipeline and building a diversified portfolio in the speciality generics segment. While we continue to fortify our pipeline in oral solids, liquids, and suspension, we will also evolve our portfolio towards products with entry barriers to ensure sustainable growth.”
The pharma major says an India expansion plan is in the works, too, crucial to which is its recent acquisition of Telangana-based Veritaz Healthcare’s business and certain assets for a cash consideration of Rs 171 crore. With this acquisition, Aurobindo plans to expand into the Indian branded generics market. “This acquisition will help us launch and market biosimilars and other products in India. We have significantly increased investments to expand capacity during the year, which positions us well to execute our growth plans,” says Reddy. Arun Kejriwal, a market analyst and Founder of Kejriwal Research & Investment Services, says the acquisition of Veritaz gives Aurobindo entry into the domestic market with a wide portfolio of products. “It will help them tap the Indian market and give them some sort of product diversification in the sense that they would be able to grow in the Indian market,” he says.
Aurobindo aims to have Rs 1,000 crore in sales in India in three years—it was Rs 267 crore in FY22— and says it is prepared to allocate whatever capital is required to meet that target. “We had net cash of $211 million as of December 2021. We are also in the process of restructuring the business,” says Reddy.
The company has major products in segments such as oncology and endocrinology, while it is developing products in the dermatology and respiratory segments as well. It is working on respiratory products such as nasal sprays, whose global market is forecast to reach $44.4 billion by 2027 at a CAGR of 5.5 per cent, per an Emergency Research report. A success area of the company is peptides used in therapeutic segments such as endocrinology and oncology, where its R&D team has developed a process for synthesising complex peptides and scaled it up for commercial production. To cater to future demand, it also plans to set up a second manufacturing unit in Hyderabad.
“Another area we are making good progress in is immuno-oncology. It ensures strategic continuity of our products portfolio into the latter half of this decade and beyond in this critical therapeutic segment. We are developing 15 biosimilars, which reflects our commitment towards building a robust biosimilars business over the medium- to long-term,” says Reddy, adding that the company has constructed an injectable production facility in the US that will be dedicated to manufacturing high-value, low-volume products.
Kejriwal believes Aurobindo has done well in recent times, and is probably looking at even better times. “Recently, if you see the stock, it has been under severe selling pressure and is trading close to its 52-week low. I believe there is a lot of steam left in it,” says Kejriwal.
Param Desai and Akshaya Shinde, analysts at Prabhudas Lilladher, are also bullish on Aurobindo. “The company has multiple growth drivers in place with investments in vaccines, injectables, biosimilars and PLI (production-linked incentive scheme) that are expected to be reflected from FY24. At the current market price, the stock is trading at 11.4 times its FY24 price-to-earnings estimate,” they say, adding that the company’s overall reported global injectable sales of $72 million in Q1FY23 is guided for double-digit growth, aided by new launches.
When revenues of pharma companies were falling due to the pandemic, Aurobindo was optimising its supply chain to ensure timely delivery of products globally. Recently, the company entered into a licence agreement with US-based Vaxxinity to develop, commercialise and manufacture its peptide-based UB-612 vaccine for Covid-19 for the Indian and United Nations Children’s Fund (UNICEF)-aided markets. The company also got the Drugs Controller General of India’s (DCGI) nod to manufacture and distribute Molnupiravir—used to treat mild to moderate cases of Covid-19 in adults—as Molnaflu.
According to the company’s FY22 annual report, on top of the challenges caused by the pandemic in FY21 and FY22, the onset of war between Russia and Ukraine in Q4FY22 set the stage for volatility in commodity prices, hitting the company’s margins and profitability, which led to a dip in the bottom line in FY22. “However, the diversified spread of our product portfolio and the vast number of markets that we operate in helped us to minimise and mitigate the extent of the negative impact, and we were successful in maintaining an Ebitda margin of 18.7 per cent despite these headwinds,” the company stated in its annual report.
From a single unit manufacturing semi-synthetic penicillin at Puducherry, Aurobindo Pharma has come a long way since its humble beginnings in 1988. Whether it can keep this run going depends on how it meets some key challenges, including rising competition, workforce attrition, pricing pressures for generics, and price erosion for new launches and older molecules.
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