Monday, August 29, 2016

Annual Report Analysis: Aurobindo Pharma 2016

This post is a continuation of our series "Annual Report Analysis". We read annual reports daily and pick out the most important ones where we feel something is happening which might be of interest to others as well. This is in attempt from our side to portray in words what we could decipher from an annual report.
However, one should keep cognizance of the fact that this is an academic exercise on our part to better educate fellow investors and in turn learn from the masters. Here i present you what we found most interesting in Aurobindo Pharma (Auro Pharma) for 2016 and beyond

  • Headquartered at Hyderabad, India, Auro Pharma is the 5th largest Indian pharma company in terms of consolidated revenues
  • Auro Pharma employs more than 15,000 professionals, from over 30 countries
  • Auro Pharma exports to over 150 countries across the globe with more than 87% of its revenues derived out of international operations
  • Auro Pharma has a robust product portfolio spread over seven major therapeutic/product areas encompassing neurosciences, cardiovasculars, gastroenterologicals, antibiotics, anti-retrovirals, anti-diabetics and anti-allergics (well diversified portfolio and not concentrated to any particular segment)
  • Auro Pharma has been ranked as #7 prescription supplier in the US as per IMS total prescriptions dispensed as at March, 2016. The Company is among the top 15 generics companies by sales in Europe (US formulation business contributed 55% to the overall formulation revenue during the year)
  • Auro Pharma is driving growth through several verticals. There is a determined foray into oncology and hormonal products, enzymes, peptides including microspheres, oral contraceptives, steroids, OTC offers, differentiated technology viz. nasal products, inhalers, patches and films (in coming few years Aurobindo will be in every segment to tap every opportunity)
  • Auro Pharma is in the process of developing a wide range of oncology and hormonal products. A new R&D Centre dedicated for generic research in the field of oncology and hormones has been set up at Hyderabad to develop anticancer drugs and hormonal products, both for solid and parenteral dosage forms. (Aurobindo spent 3.38% of revenue (Rs 470 crore vs Rs 347 crore YoY) on R&D in FY16
  • Auro Pharma has over 50 candidates for oncology in the pipeline, with over 15 products pegged for early stages of development (Oncology market set to grow from USD107 billion in 2015 to USD150 billion in 2020). The oral, solid dose formulations sections of oncology & hormone manufacturing facility has been completed and commissioned. The injectable areas of the oncology facility are expected to be commissioned in the later part of 2016
  • A new block to manufacture oncology API is being added keeping the future requirements. The manufacturing facility is expected to be operational in 2017-18 (backward integration to reduce cost and stable source of quality APIs )
  • Auro Pharma is foraying into inhalation and dermatology specialties with a basket of products. Initially, development work has commenced for 2 inhalation products, with another 4 in the pipeline, and 18 dermatology products have been selected for development (the global dermatology market stood at USD20 billion in 2015 and is poised to touch USD33.7 billion by 2022, rising at a 7.73% CAGR from 2015 to 2022)
  • Auro Pharma is striving to become a scientifically stronger company, with newer technologies and difficult to develop specialty generics. Aurobindo is foraying into specialty injection products. Plans are on-going to file the first product in 2017-18. The objective is to launch four identified products, which together account for a market size of around USD 3 billion
  • Auro Pharma is entering the vaccines business with a joint venture for developing pneumococcal conjugate vaccine (Global branded market of more than USD 6 billion and competition is limited)
  • Auro Pharma's subsidiary, Aurohealth manufactures and markets a robust pipeline of innovative liquid and solid dose store brand (OTC) over-the-counter products. The mission is to develop as many OTC products for the US retail market as possible, providing a consistent and reliable supply, at a fair price and of the highest quality
  • Auro Pharma's
  •  newly acquired US based entity Natrol manufactures and sells quality nutritional supplements in the US and select international markets. It offers branded products including vitamins, minerals, and supplements; diet and weight management products; sports nutrition products; and products for hair, skin, and nails  ( Nutraceuticals market is currently at around USD 38 billion and is expected to grow to USD 46 billion by 2018)
  • In terms of the filings to US FDA, a total of 398 ANDAs have been filed by Aurobindo as on March 31, 2016 out of which 251 ANDA approvals (215 final approvals including 10 for Aurolife Pharma LLC, and 36 tentative approvals; Tentative Approvals include 21 ANDAs approved under PEPFAR) have been received. The balance 147 ANDAs were under review for approval. During the year, Aurobindo filed 22 ANDAs, while 49 final approvals were received (strong pipeline to drive revenue going forward)
We view this not as an end result but a starting point in analysing a company, of noting down things which interests us and which we feel could act as a trigger going forward. We will continue this series with many more companies. Some of which are of interest and some are not. However, we want to use this as a measure of enhancing our learning of the subject. Till then Happy Learning.

Sanjoy Bandopadhyay

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