Pharma

Sector Update
July 20, 2020 Raising red flag over Global Fund & Institutional
drug suppliers amid COVID-19
Quick Pointers:
Companies Covered in the Report

CMP TP
 Global Fund-supported programs across countries witness disruptions.
Company Names Rating
(Rs) (Rs)
 Donors could divert their funds to COVID treatment.
Cipla Reduce 674 542
Aurobindo Pharma Acc 824 838
 New class of HIV treatment could end the road for Indian players.
Ipca Laboratories BUY 1,790 1,839
Ajanta Pharma NR 1,453 NA
We raise red flag over Indian drug suppliers who are exposed to Global Fund
Strides Pharma Sc. NR 427 NA
Laurus Labs NR 651 NA and sovereign Institutional tender business as the spread of Covid-19 could
Source: PL divert global attention away from serious diseases (Malaria, TB, and AIDS)
and the new class of HIV treatment could end the road for Indian ARV
(Antiretroviral) suppliers. The immediate threat to Indian suppliers because
of Corona virus (SARS-nCOV2) will be felt in near to medium term as 1)
COVID has disrupted 85% Global Funds activities for HIV, TB and malaria
because of reassignment of medical staffs to fight COVID-19 emergencies, 2)
contribution from sovereign and private donors would be significantly lower
than pledged amount, 3) roadblock in the distribution of a new class of ARV
drugs (TLD) vs existing ones (TLE) to HIV patients, 4) US (largest contributor)
could withdraw/reduce its allocation towards The Global funds and 5) price
erosion in malaria drugs due to rising funding gap and increased allocation
towards preventive medicines and diagnostic tests.

Complete cure for HIV would lead Indian ARV suppliers at risk: India supplies
well over 80% volume of all the HIV/AIDS drugs through its participation in global
tenders for country-wise procurement. AIDS being a terminal illness, the treatment
with ARV (Antiretroviral) medicines could only help AIDS patients to live longer.
With Gilead Science, Merck and Viiv healthcare having promising R&D pipeline
aiming at full cure for HIV, Indian generic ARV producer business will get impacted
from global tender business as HIV could be a one-time treatment. Laurus, Cipla,
Strides and Aurobindo and are key Indian listed players in this segment with
contribution of 69%, 10%, 10%, 5% to their total revenue from global tender
business. Globally Mylan, Teva and Aspen are also key players in ARV generics.

Surajit Pal
surajitpal@plindia.com | 91-22-66322259
Tausif Shaikh
tausifshaikh@plindia.com | 91-22-66322246
Headwinds set to increase for anti-malaria drug suppliers post COVID: In pre-
COVID-19 phase, anti-malaria drug suppliers were already facing issues of rising
funding gaps in the Global Malaria Fund. Price erosion of Anti-malaria medicines
has increased because more focus towards preventives (Insecticide-treated bed
nets) and diagnostics (Rapid Testing Kit). COVID-19 has led to emergence of new
headwinds with divergence of funds towards R&D of COVID tests and treatments,
which could further increase funding gaps and cause disruption of Global Funds
activities to lower demand for anti-malaria medicines. IPCA and Ajanta are key
players in this segment with revenue exposure of 5% and 14%, while Strides and
Cipla also participate in Global Fund tender. Guilin (China), Sanofi, Micro Labs and
Macleods Pharma also supply to Global Fund.

July 20, 2020 1

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US withdrawal from WHO will increase risk in Global healthcare: With current
US president Donald Trump intention to terminate its relationship with the World
Health Organization (WHO), this would create several uncertainties around global
health as US has been a largest contributor in multilateral healthcare funds for poor
countries. Along with in-house program, PEPFAR, it contributes 15% (US$450m)
of WHO’s budget and 33% of The Global Fund (US$4.6bn in 2020-22E). We expect
withdrawal of US from WHO (World Health Organization) would also have a
cascading effect on 1) rising costs of clinical trials and its progress for various
diseases and 2) increase in funding gap for Global Funds Malaria, HIV/AIDS and
Tuberculosis program.

US contribution to WHO (US$ m)

Voluntary Contribution Assessed Contribution

500

111
450
400

114

119
107

111
350
300

113
109

110
250

401
200
109

324
110
304

300
282
150

228
222

221

100
112

50 102
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: WHO, PL

Country pledge for the Global Fund 2020-22 Pooled Procurement Mechanism(PPM) program
% of total US $ m % of budget
Donors Type Country US$ (m)
pledge
Anti-retroviral 345 42%
Government United States 4,680 33
Long-Lasting Insecticidal nets 225 27%
Government United Kingdom 1,716 12
Antimalarial medicines 81 10%
Government France 1,429 10
Rapid diagnostic tests 69 8%
Government Germany 1,103 8
Diagnostic 39 5%
Government Japan 840 6
Indoor Residual Sprays 20 2%
Private Bill & Melinda Gates 760 5
Other essential medicine 16 2%
Government Canada 699 5
Laboratory & Medical supplies 13 2%
Government European Commission 607 4
Condoms 12 1%
Government Sweden 290 2
Annual spend by PPM 821
Government Norway 224 2
Others 1,681 12 Source: Global Fund, PL
Total 14,029

Source: Global Fund, PL

July 20, 2020 2

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Global programs disrupted due to COVID-19

 Medical staff reassigned to fight against COVID and existing funds diverted
towards COVID-19 treatment

 US contributes 37% of total Global Malaria fund

According to The Global Fund Survey majority of HIV, TB and Malaria

programs face disruptions because of COVID-19 due to 1) medical staff
reassigned to fight against COVID-19, 2) restriction on gatherings of people
and transport stoppages and 3) laboratory services focusing on Covid-19
tests and 4) stigma and reluctance of health workers from fear of getting
infected with the virus. It is also assumed approximately three-quarters of
HIV, TB and malaria programs would get impacted plus increase in the
number of deaths and infections for the first time in many years. US
contribution is highest to Global Fund and total global malaria of about 33%
and 37%. With the possibility of withdrawal of US from WHO, its contribution
to Global Fund also stands at risk as Global Fund and WHO worked together.
Even with US$1bn immediate funding by Global Fund members to help
countries fight COVID-19, the risk of existing pledge amount to be diverted
towards COVID seems possible.

Global Fund Allocation (US$ m): Allocation increased only at

2%(HIV),10%(Malaria),2% (TB) CAGR over 2014-19 .

HIV-AIDS Malaria TB
4500
4000
3500 571 601
815
3000
462 448
2500 1384 1317
1149
410 950
2000 953
585
1500
1000 1915 1876 1938
1474 1520 1664
500
0
2014 2015 2016 2017 2018 2019

Source: Global Fund, PL

July 20, 2020 3

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Malaria drug-makers to face multiple headwinds

 Rising funding gap of The Global Fund to further squeeze pricing of anti-
Malaria medicines, impacts Indian suppliers

 Fund allocation towards preventive, diagnostic and R&D on a rise

 US being largest contributor to malaria treatment pose significant risk in

diverging fund towards COVID treatment

Malaria is a preventable and treatable disease. The primary objective of

treatment is to ensure complete cure, that is rapid and full elimination of
Plasmodium parasite from patient’s blood. From a public health perspective,
goal of the treatment is to reduce infection transmission to others and to
prevent spread of resistance to antimalarial medicines. IPCA being global
leader in ACT medicines, has also made foray in other forms of anti-malaria
medicines: dispersible tablets and injectable. Ajanta is the only supplier of
generic dispersible ACT medicines while Guilin (China) is present in
injectable. Cipla and Strides remain volume-driven medicine supplier for
global tender business mainly in African and ASEAN countries. In case of
significant divergence in global funding for malaria treatment, all Indian
players will be impacted in FY21E-22E and the overall tender size has already
been reduced by ~50% in FY18.

The most common antimalarial drugs include:

 Artemisinin-based combination therapies (ACTs): ACTs are the first line

treatment for malaria as recommended by WHO. There are several types of
ACTs. Examples include artemether-lumefantrine (Coartem) and artesunate-
amodiaquine. Each ACT is a combination of two or more drugs that work
against the malaria parasite in different ways.

 Chloroquine phosphate: Chloroquine is a preferred treatment for any parasite

sensitive to the drug. However, research findings indicate that parasites
causing malaria are resistant to chloroquine which is no longer effective.

Other common antimalarial drugs include:

 Combination of atovaquone and proguanil (Malarone)

 Quinine sulfate (Qualaquin) with doxycycline (Vibramycin, Monodox, others)

 Mefloquine

 Primaquine phosphate

Oral monotherapy and Artemisinin resistance: Artemisinin and its derivatives

must not be used as oral monotherapy, as this promotes the development of
artemisinin resistance. Moreover, fixed-dose formulations (combining 2 different
active ingredients co-formulated in 1 tablet) are strongly preferred and
recommended over co-blistered, co-packaged or loose tablet combinations, since
they facilitate adherence to treatment and reduce the potential use of the individual
components as monotherapy.

July 20, 2020 4

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Latest demand trend for Anti-Malaria

Product No. of treatment courses (m) Key Suppliers
artemether + lumefantrine tablets - dispersible 8 IPCA, Cipla, Novartis, Ajanta, Strides and Mylan
artemether + lumefantrine tablets - non-dispersible 60 IPCA, Cipla, Novartis, Ajanta, Strides and Mylan
artesunate + amodiaquine tablets 16.5 Cipla, IPCA, Strides, Ajanta, Macleods and Guilin (China)
artesunate + sulfadoxine-pyrimethamine tablets 12 Guilin Pharma
dihydroartemisinin + piperaquine tablets 3000 Guilin Pharma
artesunate injection 60mg (Vials) 11 IPCA and Guilin Pharma (China)
No. of Tablets
chloroquine 155mg (base) tablets 1500000 Alliance and Remedica
primaquine 7.5mg tablets 3554000 Remedica
Sulfadoxine / Pyrimethamine 500/25mg, tablets 18304100 Guilin Pharma
Source: PL, WHO

Malaria Global Funding Gap (US$ bn) on an increasing trend

Malaria Amount Allocated Funding Gap

3.5

3.0
3.1
2.5 2.7
2.6
2.0 2.3

1.5

1.0 1.3
1.0
0.5

0.0
2016 2017 2018

Source: Global Fund, PL

Number of Testing Kit and Insecticide-treated bed ACT Courses delivered (m)
nets delivered for Malaria (m) 250
300 ITNs Rapid Diagnostic Kit distributed
200
250
150
200
100 198 206 214
150
259 153
245
221 224 50
100 200 197
178 170
50 0
2015 2016 2017 2018
0
2015 2016 2017 2018 Source: Global Malaria Report, PL
Source: Global Malaria Report, PL

July 20, 2020 5

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Gilead, GSK may finally achieve HIV Cure

 Gilead and GSK (Viiv Healthcare) are working towards HIV cure regime

 Curative treatment of HIV may cut short Indian ARV biz in 2-3 years

 Globally, India supplies well over 80% in volume of all the HIV drugs

With Gilead Science and other innovators targeting for complete cure of HIV,
there is a possibility of achieving curative treatment that could replace ARV
drugs in coming years. This may result in significant reduction of ARV tender
business of Indian generic majors. The implication of this could be 1) One-
time treatment may reduce the number of patients globally, 2) advance
treatment can reduce the number of dose, thereby reducing volume, 3) First-
Line of treatment to be shifted away from emerging business of TLD
combinations, may impact Aurobindo and Mylan, 4) PreP (pre-exposure
prophylaxis drug (Truvada and Descovy) is the new global trend to prevent
HIV cases, with GSK’s long-acting injectable Cabotegravir (every two months)
also in the race 5) Increase in API price may become unviable to participate
in long-term tenders and 6) low dosage Dolutegravir (DTG) may lead to a
decline in volumes of API business. ARV drugs are mainly procured by
Institutional clients through long-term tender route where leading Indian
players are Cipla, Aurobindo, Strides, Laurus and Hetero (not listed).

DTG (Dolutegravir) combinations is the new trend for HIV treatment: In 2019,
many low and middle-income countries along with WHO reported to be transitioning
to DTG-based TLD combinations for HIV treatment regimens due to fewer side
effects and lower dose per day than alternative drugs like earlier used TLE
(including other NNRTIs/PIs/INSTIs) and other triple combinations such as
Efavirenz (EFV), Ritonavir-boosted Darunavir and non-inferior to Raltegravir. The
agreements between the MPP and ViiV Healthcare were originally negotiated in
2014 to enable 94% of adults and 99% of children living with HIV in the developing
world to access generic versions of DTG in an accelerated timeframe. Currently, 18
generic manufacturers (17 sublicenses) are authorized to produce DTG and sell in
121 countries. These licensing agreements have also allowed generic
manufacturers to include dolutegravir in a newly developed fixed-dose combination,
tenofovir disoproxil fumarate/ lamivudine/dolutegravir (TLD), which combines the
WHO-preferred treatment regimen into a single pill.

Gilead and GSK (Viiv Healthcare) aims at complete cure regime: Both are
leading innovators and specialist in HIV treatment and preventive drugs. Gilead’s
earlier approach had been focus on Prep drug like Truvada and Descovy but now
they working towards complete cure with 4 products in pipeline. ViiV Healthcare is
a pharmaceutical company specializing in the development of therapies for HIV
infection that was created as a joint venture by Pfizer and GlaxoSmithKline in
November 2009. ViiV Healthcare's products have a market share ~19% of the
global HIV market, which makes it the second largest healthcare company,
following after Gilead Sciences. It has 16 products for HIV treatment and few under
development which could complete cure HIV.

July 20, 2020 6

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Gilead and GSK (Viiv Healthcare) Product Pipeline for HIV Treatment
Company Product Notes Clinical Stage
first-in-class bNAb for targeted elimination of HIV-infected cells with every two weeks
Gilead Elipovimab (GS-9722) Phase 1
dosing
Is a Potent Inhibitor of Acute HIV-1 Infection in Human Peripheral Blood
Gilead Vesatolimod (GS-9620) Phase 1
Mononuclear Cells with every two week dosing
In collaboration with Hookipa Pharma filed for FDA approval to begin phase 1 clinical
Gilead GS-9723 Pre-Clinical Trial
trial
Early stage for new class with activity at multiple stages of viral lifecycle. Can help
Gilead lenacapavir (GS-6207) some people living with HIV by reducing the burden of daily pill Subcutaneous Phase 2
injection every six months.
treatment of human immunodeficiency virus type 1 (HIV-1) infection in injectable
GSK cabotegravir + rilpivirine Registration
form with once in month dosage
Administered as an injection every 2 months, the investigational drug is 69% more
GSK cabotegravir effective at preventing HIV than currently approved Truvada and Descovy pre- Phase III
exposure prophylaxis
GSK3640254 is a next-generation HIV-1 Maturation Inhibitor (MI) which may be
GSK GSK3640254 Phase II
effective for HIV-1 infection with target for 90% effect in third dose.
Combined adnectin/fusion inhibitor that stops viral entry by targeting multiple sites of
GSK GSK3732394 Phase I
action; potential for self-administered once-weekly injections
An exclusive licensing agreement with the US National Institutes of Health for the
GSK GSK3810109 investigational broadly neutralising antibody (bNAb) N6LS, with potential for long- Phase I
acting HIV treatment and prevention
Source: Company, PL

New HIV Infection case (m) on a declining trend

2.0

1.9

1.9

1.8

1.8 1.9

1.7 1.8 1.8

1.7 1.7 1.7

1.6
2015 2016 2017 2018 2019

Source: WHO, PL

July 20, 2020 7

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Cipla – New risk for the oldest ARV player

Rating: Reduce | CMP: Rs674 | TP: Rs542  Primarily revenue from ARV tender.
Key Financials – Consolidated
Y/e Mar FY20 FY21E FY22E FY23E  Weak tender and latest class of treatment to be a threat.
Sales (Rs. m) 1,66,949 1,78,733 1,92,782 2,08,734
EBITDA (Rs. m) 27,689 31,475 33,853 36,654
Tender business detail: Primarily generates revenue from Africa tender business
Margin (%) 16.6 17.6 17.6 17.6
PAT (Rs. m) 15,940 18,297 19,836 24,979 for ARV drugs and launched malaria product Artemether/ Lumefantrine (AL) tabs in
EPS (Rs.) 19.8 22.7 24.6 31.0 FY19. Cipla began the fight with global pharma majors since CY01 by offering
Gr. (%) 3.1 14.8 8.4 25.9
DPS (Rs.) 2.0 2.0 - -
world's first ever recommended 3-in-1 fixed dose combination (Stavudine +
Yield (%) 0.3 0.3 - - Lamivudine + Nevirapine) to fight AIDS. Cipla has been awarded a share of the
RoE (%) 10.4 11.0 10.8 12.1
South African Government’s National ARV tender for TEE (Tenofovir, Emtricitabine
RoCE (%) 12.5 13.4 13.5 15.6
EV/Sales (x) 3.3 3.0 2.8 2.5 and Efavirenz) and TLD (Tenofovir (TDF), Lamivudine (3TC) and Dolutegravir
EV/EBITDA (x) 19.9 17.2 15.7 14.2 (DTG). The contract is effective from July 2019 and is valid for three years.
PE (x) 34.1 29.7 27.4 21.8
P/BV (x) 3.4 3.1 2.8 2.5
Revenue Mix (%) : SAGA (Ex-Private market)

SAGA (Ex Privte

Mkt)
10%

Other
90%

Source: Company, PL

Business Risk: Cipla made ARV drugs available at less than $1 per day ($365 per
year) compared to over $12,000/patient per year prevailing in most countries
throughout the world in 2001 but increased generic competition has now driven the
price of new triple therapy in poor countries to below $100 a year. With new class
of drugs in Gilead's and GSK product pipeline, AIDS/HIV treatment could achieve
complete cure in years to come which could lower its volume permanently.

SAGA (Ex-Private Mkt) US$m: CAGR decline 18% over FY18-20

350

300

250

334
200
253
226
150

100
FY18 FY19 FY20

Source: Company, PL

July 20, 2020 8

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Aurobindo – Growth led by DTG combinations

Rating: Accumulate | CMP: Rs824 | TP: Rs838  Supplier of latest ARV DTG combinations drugs
Key Financials – Consolidated
Y/e Mar FY20 FY21E FY22E FY23E  Lower risk as compared to peers
Sales (Rs. m) 2,27,380 2,56,300 2,79,199 3,04,375
EBITDA (Rs. m) 36,540 53,182 60,447 65,897 Tender Business details: Supplies ARV to Global funds and other country specific
Margin (%) 16.1 20.8 21.7 21.7
bodies through tender. ARBP has long list of ARV products in the offering but
PAT (Rs. m) 19,216 33,561 37,760 41,033
EPS (Rs.) 32.8 57.3 64.4 70.0 growth in the near-term has been driven by early entrant in DTG (Dolutegravir) led
Gr. (%) (25.6) 74.6 12.5 8.7 triple combination drug, TLD, after In-licensing agreement Viiv healthcare. This
DPS (Rs.) 3.0 3.0 3.0 3.0
Yield (%) 0.4 0.4 0.4 0.4
licensing agreement allows manufacturers to include DTG in more efficient fixed
RoE (%) 12.5 18.3 17.5 16.2 dose triple combination, tenofovir disoproxil fumarate/ lamivudine/dolutegravir
RoCE (%) 12.5 17.7 17.7 17.4
(TLD) which replaces earlier WHO-preferred treatment regimen.
EV/Sales (x) 2.2 2.0 1.8 1.5
EV/EBITDA (x) 13.9 9.5 8.1 7.2
PE (x) 25.1 14.4 12.8 11.8 Revenue Mix (%): Aurobindo less exposed to tender business
P/BV (x) 2.9 2.4 2.1 1.8

ARV
5%

Other
95%

Source: Company, PL

Business Risk: Few government agencies continued with older version of ARV
(TLE) due to price difference and Viiv healthcare had out licensed DTG to 17
generics. New risk will be rated to COVID, as new case detection for AIDS/HIV
patients would be lower as shifting of manpower to COVID.This would lead new
tender’s volumes to be lower with significant price erosion. We estimate growth of
8% for FY21E because of new tender win from Africa, while post FY22E growth will
be highly unlikely. However, ARBP has the least risk in tendering business
compared to others because of low exposure and backward integration of API’s.

ARV Rev (Rs bn): Current growth driven by DTG drugs

13.0
12.0
11.0
10.0
9.0
8.0 12.0 12.5
11.8
7.0 9.6 9.7
6.0 8.4

5.0
4.0
FY15 FY16 FY17 FY18 FY19 FY20

Source: Company, PL

July 20, 2020 9

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Ajanta Pharma: Increased Volume at steep price

erosion

Rating: Not Rated | CMP: Rs1,453  Anti-Malaria supplier to Global Institutions

Key Financials – Consolidated
Y/e Mar FY17 FY18 FY19 FY20  Competition in AL dispersible tablets
Sales (Rs. m) 19,833 21,258 20,554 25,879
EBITDA (Rs. m) 6,869 6,584 5,664 6,833 Tender Business Details: Africa Institutions biz delivering treatment for Malaria
Margin (%) 34.6 31.0 27.6 26.4
mainly Artimether-Lumefnatrine (AL) dispersible tabs. Ajanta was first generic
PAT (Rs. m) 5,068 4,686 3,870 4,716
EPS (Rs.) 57.6 53.3 44.4 53.6 company to get pre-qualification for this product from WHO and continues to remain
Gr. (%) 21.9 (7.5) (17.4) 21.9 only generic in dispersible tabs. It has been able to maintain its Rx share in oral
DPS (Rs.) 13.0 - - -
Yield (%) 0.9 - - -
solids at the expense of price cut in last few years. In FY19, revenue from AL
RoE (%) 36.8 26.0 18.1 19.3 declined 49% YoY due to lower allocation by funding agencies to malaria leading
RoCE (%) 45.7 34.5 23.8 27.6
to price erosion.
EV/Sales (x) 7.8 5.8 4.3 4.5
EV/EBITDA (x) 21.7 18.0 15.2 15.2
PE (x) 30.6 26.4 23.2 25.5 Revenue Mix (%): Africa Institution catering to Anti-Malaria Drugs
P/BV (x) 9.9 6.1 4.0 4.6

Africa Institution
14%

Other
86%

Source: Company, PL

Business Risk: Large share of revenues comes from AL dispersible tablets while
WHO has also listed other products like AL-non dispersible, Artesunate-
Amodiaquine, Artesunate + Sulfadoxine-Pyrimethamine and Artesunate injection
which have seen decent share increase for Malaria treatment in recent time. Earlier,
Ajanta has benefited due to limited competition and IPCA’s absence but in last few
years but now many players have entered in this segment.

Rev trend Africa Inst (Rs bn): CAGR decline of 18% over FY17-20

5.0

4.0

3.0

4.4
2.0 3.8

2.4
1.0 2.0

-
FY17 FY18 FY19 FY20

Source: Company, PL

July 20, 2020 10

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IPCA – Strong comeback after regulatory issue

Rating: BUY | CMP: Rs1,790 | TP: Rs1,839  Re-qualified for the Global Fund tender in FY18
Key Financials – Standalone
Y/e Mar FY20 FY21E FY22E FY23E  Near-term growth due to injectable supply
Sales (Rs. m) 46,487 51,261 58,416 66,669
EBITDA (Rs. m) 9,067 10,534 12,705 14,500
Tender Business Model: Global leader in anti-malaria drugs especially in
Margin (%) 19.5 20.5 21.7 21.7
PAT (Rs. m) 6,036 7,287 9,005 11,968 supplying AL (Non-dispersible) medicines for The Global Fund procurement
EPS (Rs.) 47.8 57.7 71.3 94.7 scheme and private sector co-payment mechanism. Also supplies AL dispersible
Gr. (%) 37.3 20.7 23.6 32.9
DPS (Rs.) 8.0 1.0 1.0 1.0 and injectable. Global Fund had stopped buying its anti-malarial drugs from IPCA
Yield (%) 0.4 0.1 0.1 0.1 in FY17 due to regulatory issue and in FY18 IPCA was re-qualified. Currently, Anti-
RoE (%) 18.2 18.6 18.7 20.4
Malaria tender contributes 5%to total revenue.
RoCE (%) 18.8 19.2 20.2 22.7
EV/Sales (x) 4.9 4.3 3.7 3.2
EV/EBITDA (x) 24.9 21.1 17.2 14.9 Revenue Mix (%): Anti-Malaria Tender Arm
PE (x) 37.5 31.0 25.1 18.9
P/BV (x) 6.5 5.2 4.3 3.5
Anti-Malaria
Tender
5%

Other
95%

Source: Company, PL

Business Risk: Fund allocation towards malaria control and elimination have been
on a declining trend estimated at US$2.7bn in CY18, compared to US$3.2bn in
CY17 while funds allocation towards R&D, preventive and diagnostic services have
increased. With guidance of US$35mn for FY21E v/s US$26mn FY20, the guidance
could be unmet for FY21E and FY22E could be bleak as Global Fund and other
Institution’s would focus to procure COVID related drugs.

Revenue trend (Rs bn): Made a comeback in FY18

2.0

1.5

1.0
1.7 1.8
1.6
1.3
0.5

-
FY17 FY18 FY19 FY20

Source: Company, PL

July 20, 2020 11

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Strides – Less backward integrated

Rating: Not Rated | CMP: Rs427  Supplier of Anti-Malaria, ARV, Hepatitis in global tenders
Key Financials – Consolidated
Y/e Mar FY17 FY18 FY19 FY20  Late entrant in institutional business
Sales (Rs. m) 27,554 28,451 30,117 27,520
EBITDA (Rs. m) 5,999 4,422 4,662 5,300
Tender business model: It manufactures anti-retroviral, anti-malarial, anti-
Margin (%) 21.8 15.5 15.5 19.3
PAT (Rs. m) 3,997 6,645 3,246 306 tuberculosis and Hepatitis. The contribution of the institutional arm is 10% to total
EPS (Rs.) 44.7 74.3 36.3 3.4 revenue. It has In-licensing agreements with Gilead, ViiV Healthcare and others for
Gr. (%) 115.3 -75.4 -1.7 -16.0
DPS (Rs.) 4.0 4.5 3.0 - DTG combination drugs in developing countries. Strides is also a supplier of Anti-
Yield (%) 1.0 1.1 0.7 - Malaria drugs to The Global Fund and have a licensing agreement with Gilead
RoE (%) 14.8 25.5 12.7 1.2
Sciences for Hepatitis B & C drugs.
RoCE (%) 23.4 45.7 29.3 12.0
EV/Sales (x) 2.0 1.9 1.8 2.0
EV/EBITDA (x) 9.0 12.2 11.6 10.2 Revenue Mix (%): Institutional biz with various products
PE (x) 9.3 5.6 11.5 122.4
P/BV (x) 1.4 1.5 1.4 1.5

Institutional Arm
10%

Others
90%

Source: Company, PL

Business Risk: With long-term agreements for institutional business, API price
increase due to disruption from China could impact its earning and macro factors
including the outbreak of Covid-19 that could result in a reduced focus/donor pool
for ARV, Malaria and other infectious diseases. Strides is less backward integrated
when compared to other ARV players.

Revenue (Rs bn) : CAGR decline 0f 35% over FY18-20

6.0

5.0

4.0

3.0
5.5

2.0
3.6

1.0 2.3

-
FY18 FY19 FY20

Source: Company, PL

July 20, 2020 12

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Laurus: Largest exposure to ARV products

Rating: Not Rated | CMP: Rs651  New class of drugs to lead volume decline for API biz
Key Financials – Consolidated
Y/e Mar FY17 FY18 FY19 FY20  Foray in US formulation
Sales (Rs. m) 18,654 19,971 22,401 27,586
EBITDA (Rs. m) 4,076 4,133 3,560 5,645
Tender Business Model: Laurus is one of the world’s leading suppliers of API’s
Margin (%) 21.9 20.7 15.9 20.5
PAT (Rs. m) 1,903 1,676 938 2,553 and intermediates of ARV products. It continues to participate in ARV tender for low
EPS (Rs.) 20.8 15.8 8.8 23.9 and middle-income countries. The combined contribution to revenue is highest
Gr. (%) -2.8 -23.8 -44.2 171.0
DPS (Rs.) 1.5 1.5 1.5 1.5 amongst Indian companies with 69%(40% ARV API and 29% FDF). Its generic
Yield (%) 0.2 0.2 0.2 0.2 formulation (FDF) mainly comprises of ARV products. There are 15 ANDAs filed in
RoE (%) 17.7 11.9 6.2 15.3
US for ARV products and has large capacity of products for first line of treatments
RoCE (%) 20.5 14.7 9.1 17.5
EV/Sales (x) 4.2 3.9 3.5 2.9 – Lamivudine & Dolutegravir along with Lopinavir / Ritonavir / Darunavir.
EV/EBITDA (x) 19.3 19.1 22.1 14.0
PE (x) 30.1 39.5 70.9 26.2
Revenue Mix (%): Highest Exposure to ARV related products
P/BV (x) 5.0 4.5 4.3 3.8

Others
31%

ARV API and

Generic FDF
69%

Source: Company, PL

Business Risk: ARV sales declined by 28% in FY20 primarily from lack of clarity
on the awards of supplementary tender in South Africa, where key customers are
not building up inventory. Nevertheless, the introduction of low dosage DTG will
lead to a decline in volumes of existing API business. Its growth in FY20 was on
account of foray and new approvals for ARV formulations in US. However, the
current growth would not be sustainable once new class of drugs get approval.

Revenue (Rs m): Anti-Viral API declined 28% in FY20.

20000 Generic FDF Anti - Viral API

18000
16000
14000 10863
12000
10000
8000 15144
13358
6000 12212
4000 8253
2000
0 52 546
FY17 2018 2019 2020

Source: Company, PL

July 20, 2020 13

 Pharma
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Aurobindo Pharma Accumulate 838 802
2 Cadila Healthcare Reduce 329 360
3 Cipla Reduce 542 634
4 Dr. Lal PathLabs Sell 895 1,762
5 Dr. Reddy's Laboratories Accumulate 4,326 3,887
6 Eris Lifesciences BUY 576 446
7 Glenmark Pharmaceuticals Sell 365 419
8 Indoco Remedies Hold 219 208
9 Ipca Laboratories BUY 1,839 1,636
10 Jubilant Life Sciences Sell 414 703
11 Lupin BUY 1,001 865
12 Sun Pharmaceutical Industries Hold 479 483
13 Thyrocare Technologies Sell 307 522

PL’s Recommendation Nomenclature

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

July 20, 2020 14

 Pharma

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Date: 2020.07.20 17:08:40 +05'30'