Orchid Pharma's most important medical advance in 32 years

Orchid Pharma had received approval from the Drugs Controller General of India on 6 June to produce and sell Enmetazobactam. (Image: Pixabay)
Orchid Pharma had received approval from the Drugs Controller General of India on 6 June to produce and sell Enmetazobactam. (Image: Pixabay)

Summary

  • Orchid Pharma recently made headlines for securing US FDA approval for a new drug

India has established a dominant presence in the global pharma industry, renowned for its high-quality, affordable generic medications.

Over the past five decades, Indian pharma sector has witnessed phenomenal growth, capturing a significant chunk of the global market.

In the late 1960s, imported medicines dominated the Indian market. Domestic production was a mere 5%. However, fuelled by a vision of self-reliance and affordable healthcare the share of these 'Made in India' medicines in the Indian pharma market is now a robust 80% in 2020.

Today, India stands as the world's third-largest pharmaceutical producer by volume, a testament to its massive production capacity. This achievement is further bolstered by its position as the thirteenth-largest by value, highlighting a growing focus on innovation.

With the pharma sector leading the stage, Orchid Pharma has recently made headlines for securing US FDA approval for its new drug.

This marks a significant milestone for Indian innovation in the pharmaceutical space.

New blockbuster drug announcement

On 6 June, Orchid Pharma made a significant announcement that largely went unnoticed in the post-election noise.

The company revealed that it had received approval from the Drugs Controller General of India (DCGI) to produce and sell Enmetazobactam.

Additionally, the DCGI approved the production and marketing of the finished dosage form (FDF) of Cefepime and Enmetazobactam as a dry powder injectable.

This antibiotic combination is specifically indicated for complicated urinary tract infections (cUTI), including acute pyelonephritis. Other uses include hospital-acquired pneumonia (HAP), ventilator-associated pneumonia, and bacteremia associated with or suspected to be linked to cUTI or HAP.

Orchid Pharma's new drug addresses the urgent need for effective treatments against severe infections caused by resistant bacteria, a critical issue in the global fight against antimicrobial resistance (AMR).

What makes this special?

Enmetazobactam stands out as one of the few drugs discovered by an Indian firm, and notably, it is the first Indian-discovered drug to receive USFDA approval.

This approval is significant, as antimicrobial resistance (AMR) has been declared a “silent pandemic" by the United Nations and the World Health Organization, causing approximately five million deaths annually.

The World Bank estimates that AMR could lead to US$ 1 trillion (tn) in additional healthcare costs by 2050 and US$ 1 tn to US$ 3.4 tn in GDP losses per year by 2030.

Orchid Pharma's new combination drug provides a powerful treatment option against severe infections caused by resistant bacteria, addressing a critical need in combating AMR. This development is crucial in the ongoing battle against bacterial infections, which are becoming increasingly resistant to existing antibiotics.

The significance of this achievement is further underscored by the fact that it is the first time an Indian-discovered drug has received USFDA approval, marking a milestone in the Indian pharmaceutical industry.

This approval will help Orchid Pharma to expand its access to advanced and affordable treatment options for Indian patients.

Further, Orchid Pharma aims to launch its new drug, Enmetazobactum, by next quarter. The company has since applied to the Tamil Nadu government for permission to manufacture the drug at its Chennai plant.

This breakthrough, along with Orchid Pharma's strategic moves such as backward integration and licensing new drugs, highlights the company's growth phase.

Orchid Pharma's growth plan

Orchid Pharma, experiencing a turnaround under its new promoter Dhanuka Group, aims to become a fully integrated powerhouse of cephalosporin antibiotics.

The Chennai-based drug maker was acquired by Gurugram-based Dhanuka Laboratories in March 2020 for 11.2 bn through the insolvency and bankruptcy process.

Since the takeover, Orchid Pharma has been growing its revenue by around 20% annually, driven by a focus on cost efficiency and improved sales. The company prioritized becoming debt-free and successfully achieved this goal last year.

Looking ahead, Orchid Pharma has outlined multiple pillars of growth. A key strategy involves backward integration, with a planned investment of 6 bn in a new facility in Jammu.

This facility will manufacture 7-aminocephalosporanic acid (7ACA) with a capacity of 1,000 metric tonnes per annum under the government's production-linked incentive (PLI) scheme.

The unit is expected to be commercially operational by the end of FY26 and is anticipated to enhance the company's margins significantly.

A close look at its financials

The company's financial performance shows a strong picture over the past three years.

Orchid Pharma has demonstrated strong revenue growth over the past three years. From March 2022 to March 2023, the company achieved an 18.9% increase in total revenues, followed by an even more impressive growth of 23.1% from March 2023 to March 2024.

The compound annual growth rate (CAGR) of Orchid Pharma's revenue over the three-year period from March 2022 to March 2024 is approximately 21.01%. This consistent upward trajectory indicates effective business strategies and robust market demand for their products.

Meanwhile, in FY22 Orchid Pharma recorded a net loss of 569 m. By March 2023, the company turned profitable with a net profit of 552 m, which further increased to 947 m by March 2024. This turnaround underscores significant improvements in operational efficiency and profitability.

Further, the net profit margin has also shown remarkable improvement to 11.6%.

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What next for Orchid Pharma?

Looking ahead, Orchid Pharma plans to launch a new division called Orchid Antimicrobial Solutions, which will market the generic and novel antibiotic Enmetazobactam to hospitals.

Originally invented by Orchid and outlicensed to Allecra Therapeutics for further development, Enmetazobactam allows Orchid to receive royalties of 6-8% on sales from Allecra.

The drug is expected to generate sales of around US$ 1 billion over the next 10 years, according to Manish Dhanuka.

In addition, Orchid Pharma is focusing on another novel antibiotic, Cefiderocol, to treat drug-resistant infections.

The company has received a sub-license from the Global Antibiotic Research & Development Partnership (GARDP) to manufacture and supply Japanese drug maker Shionogi's drug to 135 low- and middle-income countries, including India.

To support this initiative, Orchid is investing US$ 10-15 million to create a dedicated manufacturing facility.

Furthermore, Orchid Pharma will be merged with Dhanuka Laboratories within the year, streamlining operations and reinforcing its growth trajectory under the Dhanuka group's leadership.

Conclusion

The government of India has implemented several initiatives to strengthen the pharmaceutical sector, including the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP), the Production Linked Incentive (PLI) Scheme for pharmaceuticals, the Promotion of Bulk Drug Parks Scheme, and the Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS).

Additionally, a recent EY FICCI report projects that the Indian pharmaceutical market will reach a value of around US$ 130 bn by the end of 2030.

The domestic pharmaceutical formulations market is expected to grow at a compound annual growth rate (CAGR) of 10%, reaching 5.5 trillion (tn) by 2034.

Emerging markets such as Latin America, Africa, Russia and the Commonwealth of Independent States, and Southeast Asia are expanding at 1.5-2 times the rate of regulated markets.

These trends are poised to bolster Orchid Pharma's position, enabling it to capitalise on domestic and international growth opportunities.

All being said, the stock market is a tricky place.Top pharma sector stocks, like other sectors, are influenced by economic conditions and market fluctuations.

You need to look out for fundamentally strong pharma companies to make the most of the current opportunity.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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