Everything you need to know about Jubilant Pharmova

About Company and its Outlook: 

Jubilant Pharmova Ltd is an integrated global pharmaceuticals company having three business segments i.e. pharmaceuticals, contract research and development services and proprietary novel drugs.

The Jubilant group operates these businesses through various subsidiaries that includes:

1. Jubilant Pharma: This acts as their holding company for the whole pharmaceutical business which can be divided further into 3 segments,

• Speciality Pharmaceuticals: This includes the Radiopharma business and their allergy therapy products.
• CDMO: This is their contract manufacturing business of sterile injectables and non-sterile products and Active Pharmaceutical ingredients (APIs).
• Generics: This includes manufacturing and sale of Solid dosage formulations including CVS, CNS, GI, anti-inflammatory and anti-allergy categories.

2. Jubilant Infrastructure: It has a 256 acres chemical plant in Bharuch, Gujarat. It consists of 2 units, and is the largest producer of Vitamin B3 in India and 2nd largest globally.
3. Jubilant Biosys: It provides drug discovery services and contract research services in partnership with leading healthcare companies.
4. Jubilant Life Science NV: Supplies bulk chemicals like ethyl acetate and vitamins in Europe.
5. Jubilant Life Science (USA): Sales and Distribution of advanced intermediates, vitamins, life science chemicals and fine ingredients in the North America region.

Lets understand its business verticals one by one:

1. Radiopharmaceuticals:

Jubilant is very well positioned in a highly niche segment, manufacturing and distributing diagnostic imaging and therapeutic radiopharmaceutical products. For diagnostics the key products include MAA and DTPA ( in both of which Jubilant has a 100% market share in the United States ). For therapeutics, the key products include Iodine-131 (“I-131”), of which they are one of the only three manufacturers globally. In 2018, in order to further strengthen their position in this industry, Jubilant acquired the radio pharmacy network of Triad Isotopes Inc. for $20.4 million ( approx. INR 130 Crores then). Jubilant now operates the second largest commercial radio pharmacy network in the United States, with more than 50 radio pharmacies across 22 states.

The radio pharmacy business has contributed to the top line, adding around INR 4000 Crore yearly in the last two years. The impact on profitability though hasn’t been the same. Radio pharmacies, though complementary to their existing business, have some different dynamics as well. The radio pharmacy business is about scale and the margins are much thinner than in the manufacturing of radiopharmaceuticals. The complexity in the pharmacy business also arises due to the decay in the radioactive isotopes (contained in the radiopharmaceutical products). For example – Tc99m, an isotope used in many of Jubilant’s radio pharma products has a half life of 6 hours. This short half-life presents certain logistical challenges as customers have to be in a certain proximity to the radio pharmacy to use Tc99m product before it decays or expires. Handling, preparation, and storage of radiopharmaceutical agents require specialized training and specially-equipped facilities, resulting in comparatively high fixed and staffing costs as well. And hence the number of contracts determine the profitability of the company. 

Outlook:

The company is executing a detailed turnaround plan to grow top-line strongly with new customer wins, expand network to service newer geographies, increase product basket and enhance cost and procurement efficiencies. The Company is well positioned in the North American nuclear medicine market, which is expected to grow across the therapeutic segments of oncology, neurology and cardiology over the next five years. The Company aspires to be the leading manufacturer of nuclear medicine products in North America. With a strong presence in North America, it is expanding its distribution channels in the Latin America, European and Asian markets.

Over the last ten years, the growth is almost solely attributed to the radio pharma segment. Generics, APIs and Allergenic extracts have been largely flat or even de-grown in the last few years, as seen in the table below.

Revenue (in $ mil)	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
Radio Pharma	32.61	38.48	40.29	83.94	107.61	125.89	262.27	356.81	344.71	235.1	260.62
Generics (SDFs)	105.46	153.16	146.15	136.16	127.85	125.52	123.28	148.09	149.31	181.22	142.04
CMOs	122.07	129.9	116.22	71.62	85.98	91.75	99.48	113.42	118.77	171.15	163.75
APIs	88.15	93.59	88.22	86.56	87.88	96.98	85.41	99.1	84.62	75.56	67.23
Allergenic extracts	28.54	32.55	30.6	30	30.73	37.69	43.15	52.39	53.94	47.69	60.07

2. Generics:

The company primarily focuses on the manufacture and sale of solid dosage formulations for CVS, CNS, GI and anti-allergy therapeutic categories. As of March 31, 2022, the business had 13 commercial products in the US, 15 in Canada, 29 in Europe, and 32 in RoW. Additionally, they have filed a total of 98 ANDA filings in the US, 39 in Europe, 24 in Canada and 42 filings in other RoW countries so far. Further, the company has received 62 ANDA approvals in the US, 33 in Europe, 23 in Canada and 40 in RoW markets. Generics contributed 11% of the total Pharmaceutical revenue for FY22.

Within the United States, Jubilant is market leaders based on market share for several key products. The company bought a majority stake ( 82.5% stake) in Cadista Holding in 2005, a generic pharmaceutical company for around $30 million, before buying out the remaining stake in 2015 for another $33 million. The company currently has two manufacturing facilities for SDFs- one in Salisbury, Maryland in the US and the other located in Roorkee, Uttarakhand, India. The two sites collectively have an annual capacity of producing over 3.5 billion doses. The company has planned further capacity expansion at Roorkee facility, and increase SDF capacity by 1 billion doses and expand lines for manufacturing novel drugs

Currently, margins have gone down a fair bit since then, with increased competition in the generic market. Moreover, the consolidation on the customer side has led to more bargaining power for the customers and put pricing pressure on the manufacturers. Jubilant Pharma reported in FY18, that in the generics segment, top 3 customers accounted for 78% of their revenues, which was 49% in 2014.

3. API

Jubilant develops and produces APIs, which are principal ingredients for pharmaceutical formulations, and are also known as bulk drugs. As of March 2022, the company has filed 98 Drug Master Files (DMFs) in the US, 46 Certification of Suitability (CEPs) in Europe, 40 DMFs in Canada, 15 DMFs in Japan and 14 DMFs in Australia. The company is on track to obtain approval from the European Directorate for the Quality of Medicines & HealthCare (EDQM) for two APIs in FY 2023. According to Frost & Sullivan, Jubilant is one of the global suppliers based on market share for several key API products.

Unlike SDFs, Jubilant does not have revenue concentrated in a few products, with top 10 products contributing around 10-11% of Revenues. Jubilant manufactures APIs for captive consumption as well, but third-party customers account for more than 80% of their sales.

4. Contract Manufacturing of Sterile and Non Sterile Products (CMO):

CMO contributed 20% of the Pharma revenues in FY22. Jubilant has two product segments under our CMO business line: (i) sterile injectables, accounting for approximately 80.0% of CMO revenues is the primary product segment; and (ii) non-sterile products, accounting for the remaining 20.0% of CMO revenues. They offer services for a broad range of sterile injectables, including vial and ampoule liquid fills, freeze-dried (lyophilized) injectables, biologics, suspensions and water for injection diluents. They also offer products that include sterile ointments, creams and liquids and have a growing presence in topical and ophthalmic areas. Services for non-sterile products include semi-solid dosage formulations, including antibiotic ointments, dermatological creams and liquids (syrups and suspensions). Jubilant has an established position in this market and sees this business growing, due to the increased consolidation, with large pharma companies buying CMOs, and reducing their ability to service other customers, hence leading to a demand-supply disequilibrium in the market.  Jubilant has long term relationships with their top customers, with 6 of their top 10 customers having been customers for 10 years or more.

5. Allergy Therapy:

This segment provides products to the allergy specialty industry with an offer range of different allergenic extracts and standard allergy vaccine mixtures, including insect venom products for the treatment of allergies to insect stings. The Allergy Therapy segment contributed 8.5% of the Total Pharma Revenue in FY22. The products are distributed to allergists, ear, nose and throat physicians, general physicians and a few hospital-based clinics across North America, under the “Hollister Stier” brand. According to Frost & Sullivan, Jubilant Hollister Stier (JHS) is one of the top three players in the allergenic extract market in the United States with a market share of 17.6%. 

Demerger:

In Feb 2021, The company demerged its life sciences business into a new entity for unlocking value of the business. The company split into two parts where one of the listed entities was the pharmaceutical company ( under Jubilant Pharmova Ltd) that includes the radio pharma, CDMO, generics and novel drug discovery and development segments. The other was the Life Science Ingredient business ( under Jubilant Ingrevia) that includes the Specialty Intermediates , the Nutritional products (i.e Vitamin B3 ) and the Life science chemicals business.

Life Science Chemical business is a commoditized business with much less stable margins despite the company’s dominant position in this segment while the pharmaceutical segment has been the major contributor and driver of the company’s profitability over the last five years.

CAPEX:

Jubilant is accelerating capacity expansions to create new capabilities in our businesses. The company expects to incur capex of around INR 700-750 Crore in FY23 primarily towards expansion in CMO business and enhancement of CRDS capabilities and capacities. In addition, the company expects product development expenditure of Rs 250-300 Crore. In view of the strong demand from their customers, the company has approved further expansion of the Greater Noida facility, which will deliver both Chemistry and DMPK service.

Share price insight:

• With the current price of INR 335 as of October 4, 2022, Jubilant Pharmova is hovering near the low of its 52-week range of INR 656  – INR 282.
• Jubilant’s share price has de-grown by ~0.8x in the past three years (from ~INR 439 in August 2019 to INR 335 in September 2022) even after considering the demerger of the life science ingredients business into Jubilant Ingrevia.

Financial Snapshot:

Jubilant Pharmova’s revenues were at INR 1452 crore, depicting a dip of 11% YoY. Generics revenue declined 59% YoY to INR 178 crore due to: 

1) lower volumes due to import alert at Roorkee plant,

2) pricing pressure in the US market and 

3) lower Remdesivir sales. 

CDMO segment declined 29% YoY to INR 263 crore on a high base of Covid sales in Q1FY22. CRDMO revenues (API + Drug Discovery) grew 45% YoY to INR 280 crore as Drug Discovery Services revenue increased amid higher demand from Biotech companies for integrated services, functional chemistry and DMPK while APIs revenue grew YoY due to higher volumes. Specialty Pharma grew 14% YoY to INR 722 crore driven by Radiopharmaceuticals which recovered from easing of Covid-19 pandemic and Radio pharmacies business witnessed growth due to higher volumes led by recovery from Covid-19 and new products. Allergy immunotherapy continues to operate at volumes higher than pre-Covid levels. EBITDA margins declined 970 bps YoY to 13.3% mainly due to lower profitability in generics and radio-pharmacies segment. EBITDA de-grew 49% YoY to INR 192 crore while adjusted PAT declined 71% to INR 47 crore

Factors to consider:

1. Slower-than expected recovery in radiopharma and generics businesses.
2.  Regulatory hurdles from USFDA.

Recent Concall Highlights:

1. Jubilant will continue to ramp-up Ruby-Fill installations in the radio-pharma business. Radio pharmacy business witnessed growth due to higher volumes as  the management indicated at new product launches while turnaround plan is likely to post EBITDA breakeven by FY24.
2. In allergy immunotherapy, the management is looking to ramp up in the US and expand in non-US markets as well.
3. In the CMO business, the management is working to undertake capacity expansion at Spokane, by 100% (one line will be commercialized by FY25 while another by FY27). Another line extension at Montreal facility will come on-stream by FY27. In guidance terms, FY23 revenues is likely to be at preCovid levels while growth is likely to come post new capacities.
4. In Generics business, the management is looking to resolve USFDA import alerts for Roorkee facility. Jubilant is likely to mitigate some risk in generics by increased focus on non-US markets and transfer of products to CMO site.
5. In CDMO-APIs, resolution of OAI status for Nanjangud facility remains key while the company works on cost optimization and debottlenecking work. CDMO-API is undergoing asset replacement programmes for plant upgradation and capacity expansion with volumes expected to normalize in H2FY23.
6. Drug discovery services are likely to witness increased traction sequentially as, in general, the first quarter is softer than the fourth. Greater Noida facility is likely to fully ramp up by Q4FY23

Key Triggers:

1. Expansion of capacity for sterile fill & finish at Spokane by 100% and new filler & lyo line at Montreal
2. Increase in CDMO order-book visibility amid loss of Covid opportunities
3. Ramp up in Ruby fill installations, embarking on executing turnaround plans in radio pharmacies with a target to achieve mid to high single digit EBITDA.
4. Expansion into non-US markets and resolving regulatory concerns over Roorkee and Nanjangud facility

Industry Analysis:

As per IMF’s July 2022 World Economic Outlook report, global growth is projected to decline from an estimated 6.1% in 2021 to 2.9% in 2022. The ongoing Russia-Ukraine war has significantly contributed to the slowdown in global economic growth in 2022 and the global inflationary trends. Inflation levels in the US and several developed economies are at several decade high and have risen sharply in developing markets from February 2022 onwards. India too has witnessed a spike in inflation and weakening in the economic outlook for the year as rising inflation, supply chain disruptions and geopolitical tensions taper recovery. As per World Bank’s June 2022 forecast, the Indian economy is expected to grow at 6.1% in FY 2023 down from the 8.7% expansion in the previous financial year.

COVID-19 vaccinations are likely to be the largest driver of medicine spending from 2022 to 2027 driven by the need for rapid inoculation of a large number of people followed by frequent booster shots. As per IQVIA, spending on COVID-19 vaccines and novel therapeutics are expected to generate more than US$ 300 billion in spending between 2020-2026 and the outlook is a cumulative US$ 133 billion higher than projected prior to the pandemic. The global medicine market is expected to grow at 3–6% CAGR between 2020-2026, to reach about US$ 1.8 trillion in total market size in 2026, including spending on COVID-19 vaccines.

Amongst categories, oncology and immunology are forecast to witness higher growth and deliver 9–12% and 6–9% CAGR through 2026, respectively, driven by significant increases in new treatments and medicine use. Oncology is projected to add 100 new treatments over five years, contributing nearly US$ 120 billion in new spending and bringing the total market to more than US$ 300 billion in 2026. 

Despite global trade disruptions and a drop in demand for COVID-19 related medicines, India’s pharmaceutical exports grew in 2021-22 to US$ 24.6 billion up from US$ 24.4 billion in the previous year. In the year 2020-21, Indian Pharma exports had registered a sharp 18.8% YoY growth amid the COVID-19 pandemic. The Indian pharma industry has created a strong position in the global pharmaceuticals market with 60% of the world’s vaccines and 20% of generic medicines coming from India. India ranks 3rd worldwide for production by volume and 14th by value.