A Primer on India’s Oldest Pharma Company Ft Alembic Pharmaceuticals

“The company grew in all the business segments with India outperforming the market with 9% growth, Ex US generics grew 46%, API grew 31% and the US generics business grew 6%. We have also started commercializing products from our Oncology and Injectable Facilities”

Mr. Pranav Amin, Managing Director

Stock data

Ticker	APLLTD
Exchange	BSE and NSE
Industry	Pharmaceuticals

Price Performance:

Last 5 days	-3.58%
YTD	+34.57%
Last 1 year	+28.08%

Company description:

Alembic Pharmaceuticals Limited is a prominent pharmaceutical company based in India. Founded in 1907, the company has a rich history of over a century in the healthcare sector. Alembic is recognized for its commitment to research and development (R&D), innovation, and the manufacturing of high-quality pharmaceutical products. The company operates globally and has a diverse portfolio of pharmaceutical formulations, active pharmaceutical ingredients (APIs), and research and development services.

Business segments:

1. India Formulations:

Alembic Pharmaceuticals focuses on the development and manufacturing of a wide range of pharmaceutical formulations. These include generic medicines, branded formulations, and specialty pharmaceuticals that cater to various therapeutic categories such as cardiology, psychiatry, anti-infectives, and more. The 5,500+ Field Force caters to 2,25,000 doctors in India. The company possesses 7 brands, each of which generates more than Rs 150 crores in revenue. The company generates 36% revenue from formulations made for Acute diseases while the same for Chronic is 64%

2. International Formulations:

The company is present across the US, Europe, Canada, Australia, Brazil, and South Africa. The US is a key market for the company and sales in the US forms 68% of the division revenue.

Degrowth in the US Business:

The Company was featured among the Top 5 players for 47 products in the US. On account of greater focus on the US, Alembic Pharma has gradually stepped up its abbreviated new drug application (ANDA) filings in the last few fiscals: 23 in fiscal 2022 from eight in fiscal 2016. However, US sales degrew by 23% on-year due to significant price erosion and intense competition in FY22.

3. API:

The division manufactures approximately 100 APIs. which are also marketed to key formulators across 60 nations globally. In FY22, the Internal Consumption of API was 38% while that of sales is 62%

Business Model:

Alembic Pharmaceuticals follows a business model centered on the following key principles:

1. Quality and Compliance: 

The company places a strong emphasis on maintaining high-quality standards and complying with global regulatory requirements in its manufacturing processes.

2. Innovation: 

Alembic invests significantly in R&D to develop new drugs, improve existing formulations, and explore novel technologies, ensuring a competitive edge in the pharmaceutical market.

3. Global Expansion: 

The company has a global presence, with a focus on expanding its international operations through exports, partnerships, and alliances.

4. Diverse Portfolio: 

Alembic’s diverse portfolio of formulations and APIs allows it to serve a broad customer base, including patients, healthcare providers, and other pharmaceutical companies.

Manufacturing Facilities:

The company has 9 Manufacturing Facilities of which 6 are formulation facilities and 3 API manufacturing facilities. Eight facilities are located in Gujrat and one in Sikkim.

High R&D Expenditure:

The company has three R&D centers in Vadodara, Hyderabad and the US. In the past 5 fiscals, the company on average spent 12 – 14% (838 Crs in FY22) of its revenue in R&D to build a better ANDA pipeline and employs more than 1200+ individuals

New Drug Application:

As of FY22, the company had filed for 237 ANDAs, of which 167 were approved. It has filed 125 DMF filings. In FY22, the company filed 23 ANDAs and received approval for 23 ANDAs from  the US regulatory authority. It has also filed 15+ dossiers in other global markets and received approval for 10 of its products.

Completion of Capex:

The company incurred a CAPEX of 482 crs as part of its goal to spend 3000 Crs of CAPEX in a systematic manner which was envisaged in FY16 and since then the company has invested 2100+ Crs as CAPEX to enhance its manufacturing capacity.

Financials:

What we like:  

1. Leading Pharma company:

Alembic is among the top 25 players in the domestic formulations market. The company has a portfolio of about 200 formulation brands, of which three are among the top 300 domestic formulation brands in India. It has a share of 1.5% in the domestic market.

2. Strong R&D Focus: 

Alembic Pharmaceuticals has a robust R&D division that drives innovation and enables the development of new drugs and formulations, enhancing its product pipeline and market competitiveness.

3. Margins to recover: 

Largely the cost has shot up on account of higher filing fees and negative operating leverage led by new plants getting operationalized and higher COGS. This resulted in a sharp dip in margins from 27% in FY22 to 13% in FY23. This should improve as US revenues pick up from new facilities. Further management has guided lower R&D cost to tune of Rs 5 Bn vs Rs 5.7 Bn in FY23 along with softening of input prices. Overall guided for 16-18% OPM over the next 2-3 years.

4. India business to beat IPM: 

The company is setting up a second plant at Pithampur, Indore dedicated for India business which is likely to be commercialized by H2FY25. The current MR productivity stands at Rs 0.33mn per person per month. Given 1200 MRs added over the last 12-15 months, MR productivity should improve and drive domestic formulation business. Overall, outlook across segments- Specialty, Acute and Animal Health remains healthy.

5.  Gradual improvement expected in the USA business: 

The management has guided for new product launches coupled with higher volumes to aid growth in FY24 and FY25. It intends to launch ~20 products annually in FY24 and FY25. Overall guided for moderate growth in FY24 and thereby 12-15% growth in FY25. The company’s focus remains on complex injectables, oncology and peptides. Price erosion scenario in the US has seen moderation to low single digit. Currently all facilities for ALPM in US remains FDA compliant.

Factors to consider:

1. The pharmaceutical industry is subject to evolving and complex regulatory requirements, and changes in regulations can impact product approvals and timelines.
2. The sector is highly competitive, with many pharmaceutical companies vying for market share. Intense competition can affect pricing and market positioning.
3. Pharmaceutical sales can be affected by factors such as changes in healthcare policies, economic conditions, and patent expirations, leading to revenue fluctuations.

Conclusion:

Alembic Pharmaceuticals Limited is a well-established and respected player in the pharmaceutical industry, known for its commitment to quality, innovation, and global expansion. While it enjoys several advantages, it also faces challenges typical of the pharmaceutical sector, including regulatory complexities and market competition. Investors considering Alembic Pharmaceuticals should conduct thorough research and due diligence to make informed investment decisions.