Aurobindo Pharma to diversify its product pipeline to fuel growth

The complex products tend to have low competition and better margins hence the focus on these type of products would be positive for the company.

New Delhi, January 16, 2018:  Aurobindo Pharma (Aurobindo) has indicated of diversifying its product pipeline by focussing on R&D, manufacturing and supply chains over the next three years i.e. FY19E-21E. Company plans to increase ANDA filings in oncology, respiratory, topical and injectable drugs in the US market. It also expects to launch first set of biosimilars and vaccines during this period according to indiainfoline.com.

Post 2022E, Aurobindo expects to launch products like inhalers, transdermals, biosimilars, etc. as well as OTC products in the advanced markets. Over the past several years, the company has been focussing on R&D, which is reflected in its total R&D spending (as a percent of revenue) going up from 3.3% in FY14 to 4.3% in FY17. In the first half of the current fiscal, its R&D spend was 4.4% of revenue.

The R&D spend is likely to go up further as company indicates of increased focus on complex products, which is a welcome move in our opinion. The complex products tend to have low competition and better margins hence the focus on these type of products would be positive for the company.

According to the reports published in indiainfoline.com Aurobindo manufactures injectable generic formulations (80% FY17 revenue) and active pharmaceutical ingredients (API – 20%). Out of the total formulation exports, the US business contributed 45% and Europe contributed 22% in FY17. Its product portfolio is spread over seven therapeutic/product areas, including antibiotics, anti-retroviral, cardiovascular, central nervous system, gastroenterological, anti-allergies and anti-diabetics.

Company has pipeline of 465 ANDs with 313 approvals, 38 tentative approvals and 114 pending approvals. Aurobindo appears to be one of the few companies in the US generic market that is gaining volumes on the existing portfolio. This is partially offsetting price erosion in the company’s base business. Aurobindo is one of the pharma companies with lower regulatory overhang compared to its large cap peers. The stock is trading at P/E of ~12x on FY20E earnings.