LAURUS LABS LTD - Q2 FY21 RESULTS AND REVIEW

 

LAURUS LABS LTD

Q2 FY21 RESULTS AND REVIEW

 

As a leading research-driven pharmaceutical company, Laurus Labs aims to improve the quality of life for millions around the world

Laurus develops innovative medicines that greatly improve health outcomes for patients with an unremitting focus on quality and affordability.

It works with all the top 10 generic pharmaceutical companies in the world. Laurus sells its APIs in 56 countries. Its major focus areas include anti-retroviral, Hepatitis C and Oncology drugs.

Continuous innovation is the lifeblood of its business. Therefore, it undertakes dedicated R&D in areas that have significant growth potential. It has filed 262 patents in which it owns 121 patents. It has commercialised 60+ products since inception across three distinct business units: Generics API, Generics FDF and Synthesis.

As a company, it conducts its business with utmost transparency and integrity. This helps it attract the best talent and win the trust of our stakeholders. Given that it operates in a highly regulated sector, it adopts a high-watermark approach to compliance to ensure that it exceeds the requirements of all applicable international standards.

ANNUAL REPORT 2019-20

 

Strategy Takes Shape:

The financial year 2020 marked a decade of transformation and diversification strategy. From a one-product company in 2010 to an Active Pharmaceutical Ingredients (APIs) company thereafter, it has now emerged as one of India’s leading manufacturers of generics APIs for various complex therapies.

We are also thriving on growth opportunities in formulation manufacturing, addressing the critical needs of the world’s key pharmaceutical markets.

It is leveraging the high-growth potential in the contract development and manufacturing space through our synthesis business.

Its approach is to identify and invest proactively in state-of-the-art Research & Development (R&D) and manufacturing infrastructure to ramp up supply of critical medications across geographies; with continued emphasis on best-in-class quality and global compliances.

The journey from APIs to formulations to synthesis and ingredients businesses is the outcome of this integrated strategy, which it has successfully executed in all these years. 

Its business lines (Generics APIs, Generics FDFs, Synthesis/Ingredients) leverage deep synergies and research-driven chemistry skills.

Its ecosystem of operations helps it ensure better and faster access to much-needed medications to drive positive health outcomes for all.

2019-20 HIGHLIGHTS (CONSOLIDATED)

Financial

Revenue Rs.28, 317 million ; (y-o-y growth of 24%)

Profit After Tax Rs.2,553 million; (y-o-y growth of 53%)

EBITDA Rs.5,695 million (y-o-y growth of 172%

OPERATIONAL

Patents Granted 116 ; R&D Spent :Rs.1,602 mln;

Products commissioned since inception :60+

SOCIAL

Employees                  3,872

CSR Expenditure :       Rs.45.52 million

Dividend Per Share     Rs.2.50 (on FV of Rs.10)

STRENGTHS DRIVE INTEGRATION

Laurus Labs is a fast-growing research-driven pharmaceutical company, which operates in three business lines — Generics APIs, Generics Finished Dosage Forms (FDFs) and Synthesis/Ingredients — with globally benchmarked manufacturing capabilities and compliances.

It is one of the leading manufacturers of APIs for  Anti-Retrovirals (ARVs), Oncology, Cardiovascular,  Anti-Diabetics, Anti-Asthma, and Gastroenterology. One of our fast-growing, high-margin business segments is finished dosage formulations. We develop and manufacture oral solid formulations, provide Contract Research and Manufacturing Services (CRAMS) and Contract Development and Manufacturing Organisation (CDMO) to esteemed global pharmaceutical companies. We also produce specialty ingredients for nutraceuticals, dietary supplements, and cosmeceuticals.

Its strategy is to sharpen focus on products where it enjoys cost leadership to strengthen margins and drive better health outcomes. More importantly, innovation in process chemistry and manufacturing efficiencies remain the distinctive characteristics of our operations.

At Laurus Labs, the road ahead is clear to it and it is  making the most of opportunities in formulation  manufacturing to serve key markets of North America, Europe and Low Middle-Income Countries (LMIC). 

Its broad innovation spectrum, manufacturing capabilities, talent pool and clients are our major focus areas. It offers a broad and integrated portfolio of products and services to the global  pharmaceutical industry.It builds on its foundation and experience to help its  clients reach relevant markets quicker; and contribute  towards improving access to quality and affordable  healthcare worldwide.

Strong R&D capabilities

Its dedicated R&D team is committed to developing processes and products to create a diverse range of cost-effective medicines.  Its research effort drives our aspiration of becoming a respected, profitable and integrated global pharmaceutical company

Modern and regulatory compliant  manufacturing facilities

It has six manufacturing facilities in Visakhapatnam and a kilo lab facility in Hyderabad, which have received approvals from WHO, US FDA, PMDA, NIP Hungary, KFDA, ANVISA, JAZMP – Slovenia, EU  (Germany), COFEPRIS and BfArM. 

It adopts uniform manufacturing standards across all our facilities and achieve standardised product quality for all markets.

Robust compliance

It has progressively reinforced its compliance with the standards in regulated markets. It continues to strengthen its compliance culture through consistent investments in people, technologies and processes.

Long-standing relationships with  multi-national pharmaceutical companies

It continues to maintain long-standing relationships with multinational pharmaceutical companies. Key reasons powering these relationships with customers include product quality, regulatory compliant manufacturing and customer relationships.

COMPREHENSIVE CAPABILITIES WITH EXTENSIVE REACH

Generics APIs

Working with top 10 large global generic pharma companies

Anti-retroviral (ARV) - Incremental HIV patients added to patient pool will support future revenue growth.

Expanding in second line treatment will also add to growth

Oncology - Leadership in select oncology APIs, new products added to support commercial launches on patent expiry. Backward integration completed for a key API

Other APIs - Strong opportunity in other API space on account of diversified products on anti-diabetic, Central Nervous System (CNS) and Proton Pump Inhibitors (PPIs)

Generics FDFs

Leveraging API synergies for forward integrationTargeting various high-growth markets like LMIC, US,  Canada and Europe

Therapeutic focus areas remain on key segments of ARV, CVS, CNS, PPI and anti-diabetic

Currently has 5-billion-unit capacity

Capacity expansion initiated in the existing Unit 2 building  and will be operational by September 2020

Proposed construction of second formulation block to enhance the capacity to 10 billion units per year expected to be completed by FY 2022

Synthesis/Ingredients :

Focus on supplies of key starting materials, intermediates and  APIs for New Chemical Entities (NCEs)

Completed several projects in various stages from pre-clinical to commercial scale

Working with large global innovator pharmaceutical companies,  mid and small biotech companies

Ingredients - Leverage process chemistry skills to strengthen presence  in nutraceutical and cosmeceutical sectors as they adopt quality standards at par with pharma industry

Proposed to incorporate a wholly owned subsidiary Laurus Synthesis Pvt. Ltd. to handle this division, going forward

Built to world-class standards, ita manufacturing facilities enable us to produce high-quality and affordable medicines.

Facility : (Commencement of operations) : Product and service offerings  :  Capacity  : Approvals received

Kilo Lab 2006 : IKP Knowledge Park, Genome Valley, Turkapally :   Pre-commercialisation activities for APIs, ingredients, custom synthesis and contract manufacturing  :  43 Reactors and capacity of 4.3 KL;  :  USFDA, KFDA and PMDA

 

Unit 1  :  2007 Jawaharlal Nehru  Pharma City, Vishakhapatnam    :    API, incudes capacity for ingredients, synthesis and contract manufacturing    :    323 reactors with 1196 KL capacity     :    approvals of - USFDA, WHO-Geneva,  NIP – Hungary, KFDA, COFEPRIS, PMDA, ANVISA & JAZMP – Slovenia

Unit 2    :    2017 : APIIC, Atchutapuram, Visakhapatnam (SEZ)    :    

FDF and API

FDF – 5 billion tablets/capsules

API – 12 reactors with 83 KL

BVG Hamburg Germany, USFDA, WHO – Geneva, JAZMP – Slovenia and various African Countries

Unit 3

2015 : Jawaharlal Nehru  Pharma City, Vishakhapatnam; 230 reactors with 1,737 KL; USFDA, WHO – Geneva,  NIP – Hungary, COFEPRIS, KFDA, ANVISA & JAZMP – Slovenia

Unit 4

2018 ; APIIC, Atchutapuram, Visakhapatnam;

API, includes capacity for ingredients, synthesis and contract manufacturing; 52 reactors with 205 KL; COFEPRIS – Mexico and USFDA

Unit 5

2017; Jawaharlal Nehru Pharma City, Vishakhapatnam (SEZ); Dedicated hormone and steroid facility for Aspen; 46 reactors with 125 KL

Unit 6

2018 : APIIC, Atchutapuram, Visakhapatnam; APIs (largely manufacturing intermediates for captive consumption); 45 reactors with 265 KL; USFDA

 

2019-20 KEY FACTS

257 Patents filed

26 Abbreviated New Drug Application (ANDAs)/NDAs

60 Drug Master  File (DMFs) filed

200+ Customers  served 

Delivering with an Optimal Portfolio

Generics APIs :

The business comprises the development, manufacture and sale of APIs and advanced intermediates in the ARV, Hepatitis C, oncology, cardiovascular, anti-diabetic, anti-asthmatic, gastroenterology and ophthalmic therapeutic areas

PRODUCTS : ARV Hepatitis C Oncology Anti-diabetic Large volume APIs for cardiovascular, anti-asthmatic, gastroenterology therapeutic areas Small volume APIs for the ophthalmic therapeutic area

2019-20 HIGHLIGHTS

Capacity expansion completed for Lamivudine  

Filed 257 patent applications and 116 patent granted as on March 31, 2020 

Unit 4 completed its maiden USFDA inspection – EIR received  

Unit 2 successfully completed USFDA inspection – EIR received;

FILINGS : Commercialised60+ products; 60 DMFs filed;

REVENUE CONTRIBUTION : 57%

GENERIC FDFS:

Developing and manufacturing oral solid formulations. Building on API strengths to forward integrate and become a leading FDF player in the global pharmaceutical market.

PRODUCTS

ARVs 

Anti-diabetic 

Cardiovascular 

PPIs   

CNS

2019-20 HIGHLIGHTS

Received approval under ERP for TLE400 and TLE600

Dolutegravir Sodium tentative approval by USFDA under PEPFAR 

Pregabalin launched in July 2019 by our partner, continues to enjoy double-digit market share

Unit 2 underwent successful USFDA inspection – received EIR 

Launched HCQS in US

FILINGS :

Filed 26 ANDAs with USFDA  and 6 final approvals and  5 tentative approvals in addition completed 

2 product validation 

10 in Canada, 6 in Europe,  8 with WHO, 2 in South Africa, 2 in India and 11 products filed in various Rest of the World  (RoW) markets

REVENUE CONTRIBUTION :29%

 

3. Synthesis/ Ingredients:

Contract development and manufacturing services for global pharmaceutical companies and several later stage projects executed 

Steroids and hormone manufacturing capability

Sale and manufacture of specialty ingredients for use in nutraceuticals, dietary supplements and cosmeceutical products with natural extraction capability.

 

Commercial scale contract manufacturing

Clinical phase supplies

Analytical and research services

Nutraceuticals, dietary supplements and cosmeceutical products

 

State-of-the-art cGMP facilities to manufacture NCEs and intermediates  

Completed several projects in various phases from pre-clinical to commercial, with development and manufacturing 

New orders from existing CMO partners and business opportunities for manufacturing from several global companies  

Digoxin API validation completed

 

Commenced commercial supplies from Unit 5 in 2017 

Dedicated manufacturing (Unit – 5) capacity (125 KL) for Aspen 

Set up a dedicated block in Unit 4 for global partner, C2 Pharma

REVENUE CONTRIBUTION : 14%

 Encouraging Progress

Increased sales of Formulations in regulated markets

New molecule launches in the API category

Sustained high growth in the Synthesis business

 

CEO’S MESSAGE

We registered our highest ever revenue, EBITDA and profitability during the reporting year. Our formulations business led by  LMIC tender business continues to deliver robust growth, resulting in 30% revenue contribution for the year. Along with the tender business we are also pursuing emerging opportunities in developed markets of North America and Europe. We continue to file 8-10 ANDAs a year as we see many long-term opportunities in the US generics space. On the other hand, our Custom Synthesis business sustained its growth trajectory with higher volumes from the CDMO business. 

With higher volumes and introduction of new products, our ‘Other API’ business segment has registered attractive growth during the year. We do expect this growth rate to continue and improve in the coming quarters. 

Our integrated strategy is delivering outcomes and we are investing in the future to drive sustainable long-term growth. With the improvement in margins and profitability in 2019-20 and the COVID impact on supply chain petering out soon, we remain highly optimistic of delivering even better performance across parameters, going forward.

Foundation continues to be strongWe have delivered more value from our differentiated market portfolio, successfully launched new products, become a more trusted strategic partner for customers and improved service standards. Also, we have increased capacity utilisation and improved business processes. Besides, we simplified our organisational structure, implementing crucial changes that mean operational decisionmakers, intellectual property and business activities are now more closely located and aligned.We have reached maximum utilisation levels of our formulation unit and with healthy outlook and order book, we continue to invest further in our FDF infrastructure and also in the development. When it comes to ARV, our degrowth stemmed primarily from lack of clarity on the awards of supplementary tender in South Africa where our key customers are not building up inventory.

Once the tender results are clear, we will be able to improve our ARV sales in the coming quarters. We have completed filing of  our second line ARV APIs of Lopinavir and Ritonavir and we expect to do formulation development of second line API as well. In the other API segment, we performed well, the growth was primarily driven by contract manufacturing of APIs to other generic companies. Synthesis business continued to show gains in line with scale up in engagement with Aspen. Our consolidated revenues stood at ` 28,317 million in  2019-20, against ` 22,919 million in 2018-19. We have once  again demonstrated excellence in our operational efficiencies.  Our EBIDTA grew by 53% to ` 5,695 million, vis-à-vis  ` 3,712 million in the previous year. Our PAT grew by 172% to ` 2,553 million in 2019-20.  For the year ending March 2020, we declared an interim dividend of 15% amounting to ` 1.5 per share. Our asset utilisation rates have improved with Unit 2 running at near full capacity. With attractive business opportunities and healthy order book for 2020-21, we continue to invest in our FDF infrastructure. At the same time, we remain confident of achieving positive free cash flow status from 2020-21 onwards.

Dr. C. Satyanarayana

Chief Executive Officer

 

Key business highlights – 2019-20       

Pregabalin launched in July 2019 by our partner, continues to enjoy double digit market share       

2 product validation completed for formulation apart from filling of 26 ANDAs and NDAs       

6 products have received final approval and 5 products have received tentative approval       

Unit 2 underwent successful USFDA Inspection — Received EIR       

Filed 257 patent applications and 116 patent granted as on March 31, 2020       

Units 1 and 3 underwent USFDA inspection — Received 3 minor observations, EIR awaited       

Formulation contributed significant revenue of ` 824 crore serving Africa, North America and Europe

Formulation capacity utilisation at peak and planning for expansion       

All the units are operating at optimum capacity       

Revenue in foreign currency (exports) increased by 166%       

Certified as Great Place To Work by GPTW for the second time for the year 2019-20

 

Strategy

Short-term strategy

Capitalise   on   leadership   position   in   APIs   in   select,   high-growth    therapeutic    areas.    Deeper    foray    into    regulated markets       

Expand  API  portfolio  in  key  therapeutic  areas,  such  as  ARV, Oncology, CVS, Anti-diabetic and PPIs     

Leverage  API  cost  advantage  for  forward  integration  into Generic FDF       

Develop    synthesis    business    through    various    global    innovators including Aspen   

Expanding from synthetic process to natural extraction

Long-term strategy       

Compliance:    Compliance    with    varied    international    regulations     to     maintain     quality     standards     and     global customer base       

Customer  service:  Sharp  awareness  of  customer  needs  and  determined  towards  delivering  quality  product  in  a timely manner       

Capacity    and    capabilities    enhancement:    Sufficient    capacity   to   meet   demand   and   respond   to   market   opportunities. Capabilities enhancement to keep up with technology advancements     

Cost leadership: Continue to improve our conversion cost to be more competitive and stay longer in the marketplace       

Continuous    improvement:   

Continually    improve    our    processes using business excellence models     

Continuity:  Business  continuity  through  risk  mitigation  and sustainability measures

 

Outlook

Laurus Labs is leveraging its API skills and forward integration capabilities  to  supply  finished  dosages,  which  would  enable  it  to  expand  margins.  The  Formulations  business  led  by  Low   Middle   Income   Countries   (LMIC)   tenders   delivered   significant  growth  in  a  very  short  time.  With  an  enhanced  focus  on  growth  opportunities  arising  from  LMIC  markets,  the  contribution  from  the  Finished  Dosage  Forms  (FDF)  business is expected to improve. The API division maintained its  growth  pace  due  to  the  addition  of  new  high-value  products. Going forward, we have a solid foundation in place and, with our streamlined and strengthened portfolio, we are well-positioned in attractive markets.

 

Profit & Loss statement` million

Year              2019-20        2018-19 Growth (%)

Net sales 28,317         22,919          23.6%

EBITDA         5,695     3,712            53.4%

PBT               2,936     1,198            145.1%

PAT               2,553     938               172.2%

Revenue from operations (net)

Revenue from operations increased by 23.6% to ` 28,317 million in 2019-20. This increase was mainly driven by significant shift in business model and the growth of FDF sales.

Material costs

Raw materials consumed decreased to 49.9% in 2019-20, against 53.9%   in   2018-19.   Major   Raw   material   procurement   prices   increased significantly due to shortage of intermediates, resulting from environmental issues and closure of manufacturing facilities in  China,  leading  to  lower  gross  margins.  This  was  mitigated  through alternative sourcing/in house manufacturing.

Employee expenses

People-related  expenses  increased  from  `  2,892  million  in  the  financial year 2018-19 to ` 3,449 million in the year 2019-20. This increase was due to increase in employee strength of around 260 comparing to financial year 2018-19.

Other expenses

Other  expenses  include  marketing,  R&D,  administrative  expenses  and distribution which stood at ` 5,089 million in the financial year 2019-20  against  `  4,111  million  in  the  previous  year  2018-19.  As  a  percent    of  revenue,  other  expenses  are  at  18.0%  revenue,  as  compared to 17.9% in previous year.

Net profit

The   net   profit   increased   by   172.2%   to   `   2,553   million   in   2019-20.  This  represents  PAT  margins  of  9.0%  of  revenue  versus  4.1%  in  2018-19.  This  increase  is  due  to  improved  performance  from businesses like FDF and Custom Synthesis.

 

The  debt-to-  equity  ratio  was  0.60  in  2019-20  versus  0.66  in  2 018 -19.