Laurus Labs Ltd Q4 FY24 Earnings Conference Call Insights

Key highlights from Laurus Labs Ltd (LAURUSLABS) Q4 FY24 Earnings Concall

• R&D Progress
  • Advanced several pipeline projects across offerings and augmented technology/manufacturing platforms.
  • Deepened cooperation with major CDMO clients on green/sustainable tech like continuous flow chemistry, biocatalysis.
  • Significant investments in development & manufacturing capabilities for next growth wave.
  • Innovative cell & gene therapy (CGT) investments; successful NexCAR19 commercial launch in India.
  • Second large GMP integrated R&D facility under construction for CGT to service more patients affordably.
  • Collaboration with IIT Kanpur on gene therapy; GLP/GMP plant construction for viral vectors & gene therapy products
• Financials
  • 9% revenue growth to INR 5041 cr driven by formulations, CDMO, Onco APIs & Bio division.
  • EBITDA margins at 16% impacted by higher opex on growth projects & higher R&D spend.
  • Q4 results improved sequentially led by positive contribution from all businesses.
  • Gross margins at 52% for FY24; EBITDA at 16% impacted by opex on growth projects.
  • Q4 gross margins down 450 bps QoQ despite favorable product mix shift due to lower share of high-margin Bio/Synthesis, reduction in inventory overheads absorbed.
  • Capex of ~INR 700 cr invested, mostly in CDMO and Bio divisions.
  • Net debt at INR 2003 cr, targeted to reduce going ahead.
• ARV Franchise
  • ARV business stabilizing; market volumes largely stable aided by pricing trend over last few quarters.
  • Impact on ARV franchise broadly stabilized and expected to stay in current range.
  • Optimization programs to counter pricing impact; portfolio breadth & new markets to solidify leadership.
• Generics Business
  • 8 ANDA filings; 99 approvals including tentative; 2 US launches in Q4 & 2 more launches in preparation.
  • Diverse pipeline across ARVs, CVS, diabetes, CNS & GI.
  • R&D spend 4.8% of sales; first modified release generic product launch.
  • Maintaining market share leadership in first-line HIV treatment APIs.
• Oncology and Other APIs
  • Onco APIs reported highest ever Q4 sales; strong 27%+ growth in FY24.
  • Capacity expansion & new product validations at Vizag for Onco APIs.
  • Other APIs (CVS, diabetes, asthma) recovered sequentially led by CMO deliveries.
  • 4 new DMF filings in FY24 taking total to 83.
• CDMO Business
  • Substantial increase in RFPs from big pharma/biotechs; focus on early & late stage projects.
  • Over 70 active projects; commercial supplies for 10 products.
  • Crop Science CDMO contract; capacities being added at new animal health facility.
  • Leveraging scientific capabilities to diversify revenue streams.
  • No need for equity capital raise for growth or protection.
  • Meaningful revenue contribution from animal health and crop protection contracts expected.
• Bio Division
  • 28% growth led by CDMO services expansion & growing customer base.
  • Downstream capacity operationalized; 20% increase in R&D capacity.
  • Plans for larger fermentation capacities at Vizag & Mysore for opportunities in GMP pharma manufacturing.
• FY25 Outlook
  • Entering year with solid foundation, focused on sustainable profitable growth.
  • Prioritizing operating margin improvement, higher asset utilization, delivering on late-phase NCE opportunities.
  • Expecting pricing pressure in some APIs offset by volume growth and cost improvement measures.
  • Continuing investments to create long-term value for stakeholders.
  • Tax rate expected around 25% going forward under new regime.
  • Capex plan similar to current year focused on Bio and CDMO divisions.
  • High receivables due to higher Q4 revenues, expected to normalize.
• Integrated CDMO capabilities
  • Able to offer integrated services spanning biocatalysis, enzymes, chemistries across animal, crop & human life sciences.
  • Integrated approach with in-house enzyme manufacturing capability provides significant advantage over non-integrated players.
  • Deeper engagement with innovators who can access multiple capabilities from single vendor.
  • Complex projects involving continuous flow chemistry, biocatalysis becoming integral due to big pharma’s ESG commitments.
• China Diversification Opportunity
  • China-based CDMOs have significant US exposure; US pushing to reduce dependence on China under Biosecure Act.
  • India CDMOs like Laurus well-positioned to capture shift with existing capabilities and capacities.
  • More late-phase project RFPs indicate big pharma’s vendor diversification efforts have started.
• Formulations Business
  • New product launches in US align with strategy to be global leader in 15 high-volume growing products.
  • Aim for gradual market share gain post-approval without disrupting pricing.
  • Adding packaging lines to cater to new multi-year, multi-product tertiary packaging contract.
• Bio Division Strategy
  • Shifting strategy to produce pharma intermediates/APIs at Vizag and non-pharma at Mysuru.
  • Long-term plans for 10 food proteins with 1350 ton total capacity for contract manufacturing.
  • Food protein capacities not very large for B2B model.
• Gene Therapy Investments
  • Investing in R&D and manufacturing for gene therapy at IIT Kanpur.
  • Near-term impact on P&L due to Capex and Opex, but strategic for long-term growth.
• API Capacity Utilization
  • API capacity increased by 50% recently, but other APIs segment saw 25% revenue decline YoY.
  • New capacity meant for clinical trial supplies, not generic APIs.
  • Other APIs a smaller portion of overall API sales, so growth not critical for entire segment.
• Long-term Strategic Vision
  • Transition from pure-play API to integrated offerings across human, animal, crop sciences.
  • Early investments in new areas to capitalize on innovator de-risking.
  • Though growth not visible yet, exploring opportunities with partners for conviction areas.
  • Expect CDMO contribution to grow from 20% currently to 1/3 in next few years.