Laurus Labs

Strengths & Strategy

Strengths & Strategy

Leadership in APIs in Select, High Growth Therapeutic Areas

We are a leading developer and manufacturer of generic APIs in select, high-growth therapeutic areas of ARV and Hepatitis C. (Source: Frost & Sullivan Report) We also manufacture APIs in oncology and other therapeutic areas. We are also a leading, independent supplier of APIs in the ARV therapeutic area to formulation companies catering to the large and fast-growing “donor-funded access-to-medicines” markets in low and middle-income countries of Sub-Saharan Africa, South-East Asia and Latin America. At the end of 2015, approximately 17 million people living with HIV were receiving ARV therapy globally and as countries continue to adopt the current WHO guidelines for treatment, approximately 23.5 million people are projected to be on ARV therapy by 2018, comprising approximately 22 million adults and approximately 1.4 million children. Further, with the change in WHO guidelines to initiate treatment earlier to all patients with HIV, regardless of their age and viral load, and Tenofovir Disoproxil Fumarate (“TDF”) / Lamivudine (“3TC”) (or Emtricitabine (“FTC”)) / Efavirenz (“EFV”) being the preferred first line treatment option for adults, pregnant and breast feeding women and adolescents, the market for this regimen will significantly grow. (Source: ARV Report) Our key products for ARV therapy include EFV, TDF, 3TC and FTC. We are well positioned to capitalize on the ARV API opportunity as a result of our portfolio and scale of operations. Further, we believe that we are favorably positioned to benefit from the near term patent expiry of ARV drugs in the regulated markets of US and Europe. (Source: ARV Report).

According to the WHO, it has been estimated that there are around 170 to 185 million people in the world chronically infected with Hepatitis C and between two and four million new cases of Hepatitis C are added every year. Of these, approximately 12 to 18 million people are infected with Hepatitis C in India. (Source: Hepatitis C Report) We have contracted with NATCO, for the manufacture and sale of Hepatitis C APIs comprising Sofosbuvir, Ledipasvir, Daclatasvir and Velpatasvir. We have a portfolio of DMFs in the Oncology therapeutic area, a market which is expected to grow steadily at 7% to 8% between 2015 and 2020 to reach a value of US$152 billion in 2020. (Source: Oncology Report) As of June 30, 2016, our Oncology portfolio consists of 15 active DMFs and we supply Oncology APIs to global generic multinational pharmaceutical companies.

Strong R&D Capabilities and Process Chemistry Skills

We believe our “research-first” approach has been critical to our success and a differentiating factor from our competitors. We are focused on undertaking dedicated R&D in our existing products and in areas where we believe there is significant growth potential. We believe that our systematic approach to selection of molecules, which involves evaluation of technical and commercial feasibility data, and customer feedback, is evident from our high proportion of active DMFs, with the commercialization of 30 out of the 37 filed Drug Master Files (“DMFs”), as of June 30, 2016. In addition, as of June 30, 2016, we have made applications in respect of 126 patents in several countries, of which 32 patents have been granted, and have commercialized 59 products since our inception. The Company’s total expenditure for R&D activities, including for product development costs, was INR. 906.52 million for the financial year 2016 compared to INR. 586.49 million for the financial year 2015 and INR. 424.40 million for the financial year 2014. As of June 30, 2016, we employed 599 scientists at our R&D centers, which constituted 25.0% of our total employee strength.

In April 2014, we implemented electronic lab notebook software at our R&D center in Hyderabad for recording experimental data which enables online access and improves the efficiency of our R&D efforts. We believe that our R&D efforts have led, and will continue to lead, to new, innovative processes that can increase the efficiencies of our existing products as well as address new opportunities that we have identified in the global market for our businesses.

We believe that our superior process chemistry skills and cost effective process optimization have led to new synthetic routes and product variants, and have given us market leadership for our key products in the ARV, Oncology and Hepatitis C therapeutic areas.

Industry Leading, Modern and Regulatory Compliant Manufacturing Capacities

We have three manufacturing facilities in Visakhapatnam and a kilo lab facility in Hyderabad, which have received one or more approvals from WHO, US FDA, PMDA, NIP Hungary, KFDA or BfArM. We believe quality is a key differentiator in our business and have made strong efforts to adopt uniform manufacturing standards across all our facilities and to achieve standardized product quality for all our markets. In order to meet the growing demand for our products, we have increased the aggregate reactor volume of our facilities to 1,833.6 KL, as of June 30, 2016. Post our planned expansion, our aggregate reactor volume will increase to 2,095.6 KL during the financial year 2017. We believe that our significant investment in enhancing our manufacturing capabilities has also resulted in economies of scale and helped us in consistently gaining market share in an expanding market for our key ARV APIs. We believe our manufacturing facilities are capable of large scale commercial production of APIs enabling us to position ourselves as suppliers of choice for pharmaceutical companies seeking to leverage our technical expertise, cost effective manufacturing and capacities. We are further building on our API strengths to forward integrate into FDF. As of March 31, 2016, we had invested INR. 2,013.66 million to set up an FDF manufacturing facility, which has a current capacity of 1 billion tablets per year and have civil infrastructure in place which could increase our manufacturing capacity at this facility to 5 billion tablets per year, after incurring additional investments.

Long-standing Relationships with Multi-National Pharmaceutical Companies

We have maintained long-standing relationships with multi-national pharmaceutical companies. Our top five customers have been with us for at least five years and these customers, in aggregate, contributed to approximately 67.8% of our total revenue and our cumulative revenue from such customers has grown year over year for the last three financial years. Further, we believe that our unique position as a preferred supplier of APIs to several major participants in the tender driven ARV markets insulates us from the wins and losses of our customers and significantly hedges us against revenue volatility. Our Oncology and other products are supplied to the US and European markets, where we believe our product quality, regulatory compliant manufacturing and customer relationships have helped us to strengthen our competitive position.

Experienced Promoters and Qualified Operational Personnel

We are led by qualified and experienced Promoters and key managerial personnel, who we believe have extensive knowledge and understanding of the global generic pharmaceutical business environment and have the expertise and vision to organically scale up our business. We believe that the knowledge and experience of our senior and middle-level management team members in the pharmaceutical business provides us with a significant competitive advantage as we seek to grow our business. Our core managerial team has an average pharmaceutical industry experience of more than 20 years and almost all of them have been associated with our Company since our formative years.

Our founder, one of our Promoters and our Chief Executive Officer, Dr. Satyanarayana Chava has been associated with the pharmaceutical industry for the past 23 years, especially in areas of R&D, technical operations, business development and organization building. He has 132 patents registered in his name, and he was featured on the cover page of September 2015 issue of Forbes India. Dr. Raju Srihari Kalidindi, who is also a Promoter of our Company, has 23 years of experience in the pharmaceutical industry and his areas of expertise include R&D, operations, regulatory affairs, sourcing and business development. Another one of our Promoters and our Chief Financial Officer, Ravi Kumar V V has over 25 years of experience in finance, IT, human resources and supply chain areas. Dr. Lakshmana Rao C V, also a promoter, has over 15 years of experience in quality control, quality assurance and regulatory affairs. Each of them has been instrumental in formulating and executing the core strategy of our Company.

Established Track Record of Delivering Growth

Our Company was incorporated in 2005, and we have delivered consistent growth over the last five financial years both in terms of financial and operational metrics. Our total revenues have grown at a CAGR of 41.1% from INR. 4,523.07 million for the financial year 2012 to INR. 17,913.65 million for the financial year 2016 and our restated profit for the year has grown at a CAGR of 57.5% from INR. 215.77 million for the financial year 2012 to INR. 1,326.51 million for the financial year 2016.


Strategy

Capitalize on Our Leadership Position in APIs in Select, High-Growth Therapeutic Areas

We are particularly focused on growing our presence in our key therapeutic areas, comprising ARV, Hepatitis C and Oncology. We have built a leadership position in the manufacturing of APIs in the ARV therapeutic area and believe that there are significant growth opportunities in this area as a result of expected increase in the HIV patient pool with the current WHO guidelines recommending initiating early treatment for infected HIV patients, regardless of age and viral load. At the end of 2015, approximately 17 million people were receiving antiretroviral therapy of the total 36.7 million people living with HIV globally, representing approximately 46% of the total HIV population. It is estimated that approximately 54% of people living with HIV do not have any access to HIV treatment which presents significant growth opportunity for generic drug manufacturers. (Source: ARV Report) In addition, many of the APIs in our current ARV portfolio for donor funded markets will bring significant near term opportunities for the US and European markets after the relevant patents expire in these markets.

According to the WHO, it has been estimated that there are around 170 to 185 million people in the world chronically infected with Hepatitis C and between two and four million new cases of Hepatitis C are added every year. (Source: Hepatitis C Report) The latest directly acting anti-viral drugs (“DAAs”), such as Sofosbuvir, Daclatasvir and the combination of Ledipasvir and Sofosbuvir (Harvoni) have brought about a significant change in the treatment and cure of Hepatitis C. (Source: Frost & Sullivan Report) Our Company has entered into a long-term license agreement with Gilead Sciences Ireland UC to manufacture and sell Sofosbuvir, Ledipasvir and Velpatasvir within specified jurisdictions. Our Company has also entered into a tripartite sublicense and technology transfer agreement with Bristol-Myers Squibb Company and the Medicines Patent Pool Foundation for the manufacture and sale of Daclatasvir for ultimate use in specified jurisdictions. Our Company has entered into an arrangement to manufacture and sell Hepatitis C APIs with NATCO, who commands a 38.5% share of the Indian Hepatitis C market, and positions us well to capture growth from higher patient volumes. (Source: Hepatitis C Report) In the Oncology therapeutic area, we are focused on increasing sales of our existing products and commercializing new products. We continually aim to utilize advanced technologies to bring in cost efficiency in existing API products and processes and enhance our product portfolio through investments in R&D.

Expand our API Portfolio

We intend to continue to leverage our process chemistry skills to expand our API product portfolio. We have developed several products in the anti-diabetic, cardio vascular and gastroenterology therapeutic areas and are currently in the process of setting up dedicated capacities to manufacture products in these therapeutic areas at our Unit 3 manufacturing facility. We believe that our regulatory compliant manufacturing facilities are attracting global generic pharmaceutical companies to engage us for the contract manufacturing of generic APIs. We currently have four customer contracts for our contract manufacturing services.

Leverage API Cost Advantage for Forward Integration into Generic Finished Dosage Formulation

We are further building on our API strengths to forward integrate and become a leading FDF player in the global generic pharmaceutical market. We believe that our presence in API production improves our ability to maintain quality and mitigates the demand-supply fluctuations that affect generics markets thereby providing for consistency and reliability of supply in an increasingly regulated global environment. As of March 31, 2016, we had invested INR. 906.52 million towards our R&D activities and INR. 2,013.66 million to set up a FDF manufacturing facility and intend to further increase our R&D and manufacturing capacities and expertise in development, manufacture and sale of oral solid formulations, which we believe offers significant growth opportunities in ARVs, Anti-diabetic, Cardio Vascular and Hepatitis C therapeutic areas. As of March 31, 2016, we had spent INR. 191.03 million towards product development expenses in our FDF business. Our API production presence at the same location will be key to the growth of our FDF business and allows us to capture significant operating efficiencies. We intend to file and market our own registrations in the US and European markets and also collaborate with generic companies having front end presence for the sale and marketing of our FDF products. We have recently filed one dossier with WHO and an ANDA application in the United States. We currently have contracts with generic pharmaceutical companies such as Citron Pharma LLC (“Citron”), NATCO and Dr. Reddy’s Laboratories Limited for the development of finished dosage products in the several therapeutic area on a profit and cost sharing basis.

Develop Our Synthesis Business

We leverage our strong process chemistry skills to provide synthesis services. As part of our synthesis business, we work with global pharmaceutical companies for providing analytical and research services, clinical research supplies and commercial scale contract manufacturing services. We also intend to provide services to some of our partners to improve process efficiency during the clinical phase of development. During the financial year 2015, we established our wholly owned subsidiary in the United States, Laurus Synthesis Inc., to directly offer process chemistry services to US clients. With a view to develop our pipeline for clinical phase manufacturing of new chemical entities and contribute to the supply chain of our customers, we established a presence in Greater Boston, Massachusetts, in 2015 with 12 scientists and five sales personnel who are focused on strengthening our synthesis business. We intend to focus more on the supply of key starting materials and intermediates for new chemical entities as the molecules move to Phase III and to a commercial stage, which would result in significant revenue.

Our Company has entered into an intermediate toll manufacturing and supply agreement with an entity in the Aspen Group, pursuant to which our Company manufactures and supplies certain hormonal intermediates to such entity. We have set up a dedicated manufacturing block at our Unit 1 manufacturing facility for this purpose. We are also in the process of setting up Unit 5 as a dedicated manufacturing block to manufacture and supply products exclusively to the Aspen Group. Our Unit 5 is expected to commence operations by December 31, 2016.

Strengthen Our Ingredients Business

We currently develop and manufacture specialty ingredients for use in nutraceutical, dietary supplements and cosmeceutical products. The nutraceutical and cosmeceutical sectors are undergoing consolidation globally and implementing quality standards similar to that of the pharmaceutical industry. Because of the implementation of such quality standards, we intend to leverage our strong process chemistry skills to strengthen our presence in the nutraceutical and cosmeceuticals sectors in the manufacture of nature identical substances. Our current portfolio of products are used as anti-oxidants, skin brighteners and UV protection agents. We are also developing capabilities for botanical extraction and purification, to capture the growing market of natural ingredients. We are currently in the process of setting up a separate manufacturing facility to add to our existing capacity for botanical extraction and chemical synthesis.

Top