Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Companies / News/  Cheap drugs pay for Aurobindo Pharma as USFDA approvals surge
BackBack

Cheap drugs pay for Aurobindo Pharma as USFDA approvals surge

Aurobindo Pharma has not only had more products approved for sale by the US FDA than its largest Indian peers, but the number has often totaled more than that of its biggest 3 local rivals combined

Aurobindo Pharma’s strength comes from the fact that it makes many of the component chemicals used to manufacture finished drugs, rather than buying those pharmaceutical ingredients from other companies. Photo: BloombergPremium
Aurobindo Pharma’s strength comes from the fact that it makes many of the component chemicals used to manufacture finished drugs, rather than buying those pharmaceutical ingredients from other companies. Photo: Bloomberg

Mumbai: While India’s largest pharmaceutical companies have seen drug approvals in the US slow overall, their research and development (R&D) spending has been on a run. Not so for Aurobindo Pharma Ltd.

Quarter after quarter, Hyderabad-based Aurobindo has not only had more products approved for sale by the US Food and Drug Administration (FDA) than its largest Indian peers, but the number has often totaled more than that of its biggest three local rivals combined, according to FDA data analysed by Bloomberg.

Aurobindo, which started out three decades ago making penicillin, is achieving this with an R&D budget that’s half to a third the size of those same competitors, according to data compiled by Bloomberg. Last quarter Aurobindo spent about $25 million on R&D and posted revenue of about $560 million, while Dr. Reddy’s Laboratories Ltd, which also exports to the US, spent about $79 million in research costs and logged $510 million in sales, according to company filings.

While Aurobindo’s lead in approvals lengthened in the wake of regulatory issues that have hampered competitors, it speaks to a fundamental difference in business strategy. Whereas Sun Pharmaceutical Industries Ltd, Lupin Ltd and Dr. Reddy’s built their US businesses by selling carefully selected, generic medicines that typically command higher margins because of a lack of competition, Aurobindo strives to out-compete rivals on price.

Aurobindo didn’t respond to requests for comment. Sun Pharma, Lupin and Dr. Reddy’s declined to comment.

The slowing drug approvals by the US FDA of India’s largest pharmaceutical firms stands in contrast to the growth of approvals seen by the country’s smaller manufacturers. In the first half of 2017, Indian firms got about 40% of new US approvals for generics, up from 35% just a year earlier—the bulk of them by Indian firms who are not among the top four, according to a Bloomberg News analysis.

That’s left the larger Indian incumbents, including Sun Pharma, Lupin and Dr. Reddy’s, to contend with more competition in their existing drug portfolio, even as their own new approvals have slowed amid increased regulatory scrutiny. Among the biggest players, Aurobindo stands apart.

Integrated manufacturing

Supported by a large-scale, integrated manufacturing system, Aurobindo is able to cut costs often to levels below those of India’s lowest-cost manufacturers.

“A large part of their portfolio is plain vanilla generic products," said Surya Patra, who tracks Indian pharmaceutical equities for PhillipCapital India Pvt. in Mumbai. “Whatever margins they enjoy in the US is because of their large scale."

Much of Aurobindo’s strength comes from the fact that it makes many of the component chemicals used to manufacture finished drugs, rather than buying those pharmaceutical ingredients from other companies. That allows it to squeeze savings along the supply chain, said Ranjit Kapadia, an analyst with Centrum Broking Pvt. in Mumbai.

“If you’re making all these steps in your own factory, then you’re getting a cost advantage," he said.

That advantage has been especially important amid political pressure to lower drug prices in the US, a consolidation of pharmacy chains leading to increased buyer clout, and a drive to approve more generic medicines, especially for diseases in which there are few treatments available.

Aurobindo’s broad portfolio of low-cost products helps buffer the impact on revenue of two customers becoming one, or a new competitor entering a therapeutic category, Kapadia said.

That’s led to another difference for Aurobindo: share performance. The stock has gained about 4.7% this year, compared to decreases of about 33% for Lupin, 21% for Dr. Reddy’s and 20% for Sun Pharma.

While Aurobindo executives said last month that the company hasn’t been immune to price-pressures, and that it too plans to move into more complex therapies that have fewer competitors but require more research, they still predict R&D expenditure to stay on the lower side of competitors, at around 6% of sales. Bloomberg

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 26 Sep 2017, 12:34 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie