Laurus Labs "We Promise, We Deliver" - Annual Report synopsis FY20-21

We are passionate. We exceed quality benchmarks. We transform patients’ lives.

Ever since we began our journey, we at Laurus Labs have consistently leveraged opportunities to build a sustainable and value-creating enterprise. The result is that we have now emerged as a leading integrated research and development (‘R&D’) driven pharmaceutical and biotechnology company in India.

We have been moving up the value chain into formulations, and have invested in developing products and building facilities to meet the most stringent regulatory expectations. We expect the formulation business to gain further momentum led by higher capacity/ANDA pipeline build-up for the US market. Our strong presence in the different therapies, consistency in compliance, and forward integration into formulations business have cemented the position as an integrated niche pharma player. Moving forward, we are convinced that with the right people, coupled with a culture of innovation, we will continue to deliver sustainable and balanced growth. With our core strengths reinforced, we stand reaffirmed to our promise to deliver on our purpose of building long-term value.

Introduction

Laurus Labs is a fully integrated pharmaceutical and biotechnology company, with a leadership position in generic Active Pharmaceutical Ingredients (APIs) and major focus on anti-retroviral, Hepatitis C, and oncology drugs. Today, they are one of the leading suppliers of APIs in the ARV therapeutic area for multinational pharmaceutical companies across different parts of the globe.

They also develop and manufacture oral solid formulations, provide contract research and manufacturing services (CRAMS) to other global pharma companies, and produce specialty ingredients for nutraceuticals, dietary supplements and cosmeceuticals. With their strong R&D and innovation capabilities, they work towards improving manufacturing process efficiencies and backward integration strategy to maintain cost competitiveness. Their aim is to improve access to quality and affordable healthcare globally, while conducting their business ethically and with utmost respect for the environment and communities. They completed 15 years of offering integrated solutions, and helped thousands of people globally to lead a healthy life.

Business Area

At Laurus Labs, they operate under four business units covering a wide range of therapeutic applications:

1. Laurus Generics - API

Development, manufacture and sale of APIs and advanced intermediates
Leaders in various high-value and high-volume APIs with a sizeable global market share
High potent manufacturing units

54% of the revenue is contributed through this business area

Products & Service offerings

Anti-retroviral (ARV)
Anti-diabetic
Cardiovascular
Proton Pump Inhibitors (PPIs)
Oncology

Filings

Commercialised 60+ products
Filed 61 DMFs

Infrastructure

Four manufacturing facilities, (4,186 KL) (1) (2)
~1,000 KL under expansion

Key highlights of FY20-21

Filed 292 patent applications and 150 patents granted
Strong ARV API sales and market share gain in first line treatment

Performance highlights

The Generic API division showcased a robust growth of 61% y-o-y due to increased focus of diversifying into new therapy areas. The anti-viral API business recorded a healthy growth of 70% with Rs. 1,852 crore sales. The growth was led by higher volumes for all key first-line APIs. Second-line ARV APIs continued to see healthy sales. Due to the demand increase from third-party API sales, we are expanding capacities for key APIs in the coming year. Oncology APIs showed 25% growth y-o-y increased by `52 crore with a total sales `263 crore. Other API sales stood at `506 crore, marking a sales growth of 56% over 2019-20 due to higher contract manufacturing orders from Europe.

They are one of the leading suppliers of anti-retroviral APIs and intermediates in the world and plan to further strengthen our capabilities in this area by focusing on:
Oncology: Laurus plan to strengthen its global leadership in current products by focusing on high potent molecules
Other APIs: It will focus on key therapeutic segments such as anti-diabetic, PPIs and CNS products commercialized for contract manufacturing opportunities
ARV APIs: Growth will be driven by introduction of second-line products, maintenance of existing product portfolio, launch of new first-line products – Lamivudine and Dolutegravir, and supply of APIs to EU and North America
2. Laurus Generics - Finished Dosage Form (FDF)

Development and manufacturing of oral solid formulations for low and middle-income countries (LMIC), North America and European Union (EU) markets
Backed by in-house API strengths

35% of the total revenue contribution from this line of business

Product & Service offering

Anti-retroviral (ARV)
Anti-diabetic
Cardiovascular
Proton Pump Inhibitors (PPIs)
Central nervous system (CNS)

Filings

Filed 27 ANDAs with USFDA, and nine final approvals and eight tentative approvals
Completed validation of two products
Filed 12 dossiers in Canada, nine in Europe, eight with WHO, two in South Africa, two in India and 14 in rest of the world (RoW)

Infrastructure

Capacity of 5 billion units/year
Capacity enhancement to 10 billion units/year in progress

Key highlights

Commenced marketing of in-licensed products in the US by leveraging our frontend
Completed three product validations for formulation
Strong demand in ARV segment for LMIC region

Performance highlights

During the year, this division achieved sales of `1,664 crore showing a growth of 102% y-o-y backed by a higher quantum of launches in the US as well as opportunities from in-licensing of products. The business witnessed growth in LMIC, in the developed markets of North America and EU, as well as in RoW markets.

Formulation to be the main growth engine

In order to supplement future growth, capex plans are already under way to increase capacity by 1.8x by 2022. They are also developing a robust generic pipeline for the developed markets. They have entered a partnership with a European generic player for contract manufacturing. To scale up this segment and cater to other players, company plan to double the capacity to 10 billion units per annum over the next 18 months. The growth will be driven by:

3. Laurus Synthesis

Contract development and manufacturing services for global pharmaceutical companies and several late-stage projects
Steroids and hormone manufacturing capability
Sale and manufacture of specialty ingredients for use in nutraceuticals, dietary supplements and cosmeceutical products with natural extraction capability

11% of the total revenue contribution from this line of business

Products & Service offerings

Commercial scale contract manufacturing
Clinical phase supplies
Analytical and research services
Nutraceuticals, dietary supplements and cosmeceutical products

Filings

API validation planned in Unit 5
Custom development of ophthalmic portfolio initiated
Laurus Synthesis Pvt. Ltd. (LSPL) – API validations planned

Infrastructure

Dedicated manufacturing (Unit 5) – 137 KL capacity for steroidal and hormonal intermediates
A dedicated block set up in Unit 4 for high-potent phytochemical APIs
LSPL – 147 KL capacity

Key highlights

50 active projects in the Contract Development and Manufacturing Organisation (CDMO) division
State-of-the-art cGMP facilities to manufacture new chemical entities (NCEs) and Intermediates
Commercial supplies on-going for four products
Expanded client base - Added two big pharma companies

Performance highlights

We recorded a growth of 35% during the year, achieving sales of `519 crore due to client additions and increasing commercialization of products.

The custom synthesis business witnessed improved traction with revenues growing strongly during the year. Going ahead, the growth is expected to sustain supported by client additions and increasing commercialisation of products. We have incorporated couple of subsidiaries to cater to the future requirements. Moreover, to cater to the increasing demand, we are also expanding capacities.

4. Laurus Bio

Recombinant products
Animal origin free products for safer and viral free bio manufacturing

During the year, company acquired 72.55% stake in Richcore Lifesciences from two private equity funds and the company has been renamed Laurus Bio Private Limited. We closed the transaction in the month of January 2021.

Laurus Labs’ recent acquisition in the biotechnology / biologics space – Laurus Bio – is expected to complement our growth strategies and yield substantial synergies. Laurus Bio operates through three distinct revenue streams – biotech, enzymes and CDMO, among which its revenues are equally split. Going ahead, the CDMO segment is likely to be a major contributor to growth as a major portion of the incremental capacities are towards this business. Laurus Bio will benefit from the dual synergies of Laurus Labs’ wide customer base, geographical footprint and strong chemistry skills and Richcore’s expertise in biotechnology and fermentation capacity.

Facilities - Delivering quality at scale

Laurus state-of-the-art facilities enables it to develop quality and affordable medicines. They currently have seven manufacturing facilities in Visakhapatnam, Andhra Pradesh, one API facility in Bibinagar near Hyderabad and a Kilo Lab at their R&D centre, Hyderabad. At seven of these facilities, they manufacture drug substances and one facility is well-equipped to manufacture both drug products and drug substances.

Future Capacity Expansion

Laurus continue to expand their manufacturing scale across key segments to leverage the opportunities, maximize its portfolio, and reach out to more customers. They are intensifying capacities in two stages. The first leg of debottlenecking is expected to be completed by April 2021 and would add up around 15% of the capacities, while the second leg of expansion would be done by December 2021. That will then almost double their formulations capacity. They are also expanding capacities in the form of backward integration of intermediates, additional API capacity for existing products and new products. At the same time, they are acquiring additional land for further expanding the manufacturing capacities and capabilities for Laurus Bio.

The plants are periodically audited by some of the most stringent regulatory agencies of the world - FDA (USA), FDA (Korea), MHRA (UK), TGA (Australia) and WHO-CGMP. The R&D centre is recognized by TGA (Australia), FDA (USA) and FDA (Korea).

Journey

Started its journey in 2005 and have yielded promising progress in this one-and-half decade. Today, they are among the world’s leading manufacturers of active pharmaceutical ingredients (API) for anti-retroviral (ARV), oncology, cardiovascular, antidiabetics, anti-asthma, and gastroenterology. They cater to the requirements of several Indian and global pharmaceutical companies.

From CEO's DESK - Dr. Satyanarayana Chava, Chief Executive Officer

"We leveraged our strong backward integration and demonstrated commendable execution capability in the formulation segment."

Formulation segment grown by 165x from 5crore to 825 crore from FY2018-19 to FY2020-21. The majority growth came from tender-driven opportunities via participation in global fund, PEPFAR and various in-country African tenders. To scale up this segment and cater to new players, we plan to double the capacity to 10 billion units per annum over the next 18 months. Growth in APIs has been strong with the launch of first-line products. Other APIs (anti-diabetic, CNS and PPI) are expected to be key growth drivers due to a robust orderbook and large capacity addition by the end of next year. With a dedicated R&D centre and manufacturing units, we are well positioned to meet the rising demand for NCE drug substances and drug products. We are in the process of setting up a dedicated R&D centre and greenfield manufacturing capacity for Laurus Synthesis Private Limited to support future growth.

During the year, we acquired a 72.55% stake in Richcore Lifesciences from two private equity funds, Eight Roads and Ventureast. The acquisition is aimed at diversifying and entering high-growth areas of recombinant animal origin free products, enzymes as well as building biologics to CDMO at scale. The company has been renamed as Laurus Bio Private Limited and the current promoters will continue to be on the executive board and run the day-to-day management of the Company. We are on course of commissioning large scale fermentation capability. We are also planning to acquire additional land for further expansion by creating close to million liters fermentation capacity.

All the four businesses have a robust growth outlook driven by improving demand and supported by capacity expansion plans lined up. We are enhancing our current portfolio, stepping up R&D activity and strengthening and expanding manufacturing capabilities. The synthesis business is expected to stage a strong growth over the next 2 years with sustained new client additions. Laurus Bio is also expected to grow substantially over the next 4-5 years and would make us a fully integrated player in the pharmaceutical and biotechnology space.

We are seeing improved footing in our formulation segment, apart from the tendering business, and are expanding capacities to meet the demand. Our brownfield expansion project for the formulation segment will be operational in a phased manner from August 2021 and will be fully operational by the end of 2021-22. We are also planning to add a block for High Potency API (HPAPI) to support growth in the Synthesis segment which is driven by new client additions and increasing commercialisation of products.

On ESG parameter - We ensure that all effluents are treated properly before being released into the environment. Our operational efficiency allows us to use resources conservatively and reduce waste. We also track our energy and water use closely and are working towards cutting down on both over a period of time. Our governance and risk processes are geared up to keep us informed and prepared for the risks that we face.

Since inception, we have followed the ‘research-first’ approach, which has been critical to our success in the past and will drive our growth in the future.

R&D Capabilities

Laurus continue to prioritize our resources and focus our research activities on diseases within their existing therapy areas where they believe there is the greatest potential to meet patient need. During the financial year, they invested 4% of their revenue on R&D and continue to build support infrastructure.

At Laurus Labs, they are seeking new ways of doing business in the short and long run. They actively leverage their market insight, and technological and evolutionary expertise to remain relevant and work with speed to explore the new avenues. While maintaining leadership in first-line treatment of drugs, they have swiftly moved up to second-line treatments (Lopinavir, Ritonavir and Darunavir) for HIV-AIDS patients and are progressing towards third-line treatments.

Laurus have a broad product portfolio, high quality operations and a steady stream of new product launches across markets, which will help them stay resilient to the changing landscape.

Strategic Focus Area

Awards & Recognition

Management Discussion & Analysis

According to the International Monetary Fund (IMF), the global economy is projected to grow at 6% in 2021 and 4.4% in 2022.

Industry Review

1. Global Pharma Industry

According to Grand View Research, the global pharmaceutical manufacturing market size was valued at US$ 324.42 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 13.74% from 2020-27. One dominant trends seen by the global pharmaceutical industry is increased use of medicines over the past decade, which has seen the rate of medicine usage outpace both population and economic growth. This expansion has been largely on account of the growing pharmerging markets, where a growing number of patients now have improved access to treatment options. According to IQVIA Institute of Human Data Science study, the global medicine market — using invoice price levels — is expected to grow at 3-6% CAGR through 2025.

Some of the trends that are likely to continue:

The pre-pandemic drivers of medicine use and spending have only been modestly impacted by the COVID-19 pandemic
The total cumulative spending on COVID-19 vaccines through 2025 is projected to be US$ 157 billion
Global medicine spending will be lifted by stronger pharmerging market growth through 2025; it will be offset by slower growth in the developed markets because of loss of exclusivity for original brands
Savings from biosimilars will reach an estimated US$ 285 billion over the next five years
The two leading global therapy areas — oncology and immunology — are forecast to grow 9-12% CAGR through 2025, followed by significant increase in new treatments and medicine use
Biopharma companies will continue to focus on global market growth, strengthening R&D, and transformation of digital and IT

2. API Industry

The global Active Pharmaceutical Ingredient market is expected to grow at a high single digit CAGR from 2020 to 2027 to reach US$ 364.17 billion by 2027. The API market is undergoing immense changes due to supply chain disruption by COVID-19. There is increasing preference to reduce dependence on China for API products

Market drivers and opportunities

Rising prevalence of chronic diseases
Increasing number of small molecules in clinical trials
Rapid growth in the oncology market
Adoption of biologics in disease management and increasing regulatory approvals
Innovations in API manufacturing
Rise in the elderly population is boosting the growth of the market
Rise in the adoption of artificial intelligence-based drug discovery instruments

Laurus opportunity landscape

Some of the key factors that are driving the market include the increasing prevalence of infectious diseases, cardiovascular conditions, and other chronic disorders. Laurus currently supplies APIs to nine of the 10 largest generic pharmaceutical companies and has an advantage in backward integration. It also has a leadership position in APIs like antiretroviral drugs (ARVs), cardiovascular (CVS) and oncology. It is a major supplier for ARV APIs to other ARV manufacturers and finished drugs in several LMIC markets.

3. Generics Market

According to Precedence Research, the generic drugs market size is projected to be worth around US$ 675.20 billion by the end of 2030. The global generic drugs market is expected to grow at a CAGR of 5.7% over 2021-30; the market was valued at US$ 387.92 billion in 2020.

Laurus opportunity landscape

Laurus has filed 27 Abbreviated New Drug Applications (ANDAs) with United States Food and Drug Administration (FDA) and has nine final approvals and eight tentative approvals. In addition, completed four products validation at commercial scale.

4. Anti Retroviral (ARV) Market

This was the last year for countries to make progress toward the 90-90-90 targets set by UNAIDS in 2014 with the goal that by 2020, 90% of people living with HIV would know their status, 90% of those who know their status would be on treatment, and 90% of those on treatment would be virally suppressed.

The pandemic has jeopardized the progress made in global action against HIV. There was sharp drop in HIV testing and viral load volumes as clients avoided clinics. In a survey conducted by the World Health Organization (WHO) in June 2020, 38 countries reported disruption in HIV testing services (HTS). ARV supply chains and HIV prevention outreach were disrupted due to lockdowns across the globe.

According to Clinton Health Access Initiative – HIV Market Report, the number of patients (re-) initiating ART (Anti retroviral therapy) continues to increase, with over two million adult patients added between 2018 and 2019. In GA Low Medium Income Countries (LMICs), adult ART coverage increased from 64% in 2018 to 70% in 2019. The rollout of Dolutegravir (DTG)-based regimens continues to scale up with more increase anticipated over the next few years. In 2019, 29% of the one lakh adults in GA LMICs were estimated to be on DTG-based regimens, with the number expected to increase to almost 90% by 2022.

Laurus opportunity landscape

Being the cost leader in many ARV APIs, Laurus is best placed to garner attractive market share in ARV APIs and the Finished Dosage Form (FDF) tender market. The ARV portfolio consists of ~12 APIs, covering both 1st line and 2nd line treatment regimens. Large-scale, improved manufacturing processes have been the key factors in making Laurus the preferred API supplier in the ARV segment. At present, Laurus is supplying to 80% of the players who participate in ARV tenders. Being a fully integrated player, Laurus has a natural advantage and a superior margin profile compared to non-integrated players

5. CRAMS Industry

The global market for Contract Research and Manufacturing Services (CRAMS) is expected to grow at 7% CAGR in 2019-25 on the back of increasing costs of R&D, coupled with significant revenue loss due to impending patent cliff that has forced major pharmaceutical companies worldwide to outsource part of their research and manufacturing activities to low-cost countries like India. CRAMS is one of the fastest-growing sectors in the pharmaceutical and biotechnology industry. The pharmaceutical market uses outsourcing services from providers in the form of contract research organisations (CROs) and contract manufacturing organisations (CMOs).

India offers significant cost advantages over matured manufacturing hubs in Europe and North America and has already emerged as one of the leading cost-competitive and quality manufacturing hubs for many global players including big pharma companies. Moreover, the current economic crisis along with the incessant pricing pressure and pro-generic agenda are driving pharma companies to influence the strengths of Indian pharma manufacturers. The domestic CRAMS market is expected to reach US$ 40 billion by 2030.

Laurus opportunity landscape

Laurus is uniquely positioned to address customer needs at any stage of the product lifecycle. With over 150 scientists to provide process chemistry services to global clients, our contract development and manufacturing organisation (CDMO) division is well positioned to offer development and manufacturing services across the value chain from pre-clinical to lifecycle management. Laurus has created a wholly-owned subsidiary – Laurus Synthesis Pvt Ltd – to increase its focus and dedicated R&D. Construction at two manufacturing sites has also started to provide scale and flexibility to this division.

6. Nutraceutical industry

According to Mordor Intelligence, the global nutraceutical ingredients market size is projected to reach US$ 167.30 million by 2026, from US$ 127 million in 2019, at a CAGR of 4.0% during 2021-26.

Major factors driving the growth are:

Growing demand for fortified food due to the increasing health awareness amongst consumers
Benefits from their potential nutritional, safety and therapeutic effects help improve health, prevent chronic diseases, postpone the aging process, or support functions and integrity of the body

A positive outlook towards medical nutrition owing to increasing weight management programmes, along with the management of cardiovascular diseases, is anticipated to propel the demand for nutraceuticals.

Laurus opportunity landscape

Laurus Labs has been at the forefront of the development and manufacture of pure, well-characterised specialty ingredients in the nutraceutical/dietary supplements and cosmeceutical segments. Its key strength lies in the development of alternative low-cost synthetic routes for naturally derived nutraceutical products. Patented combinations of nutraceuticals and pharmaceuticals may create rewarding business opportunities, going forward.

7. Indian Pharma Industry

As per the report on the Indian Pharmaceutical Industry 2021 by FICCI and EY, during 2020-30, Indian pharma industry is expected to grow at a CAGR of ~12% to reach at US$ 130 billion by 2030 from US$ 41.7 billion in 2020. Though the pharmaceutical industry has grown at a CAGR of approximately 13% over the past two decades, the CAGR for the last decade has been ~ 8.5%. The CAGR for the past five years has been ~6.2%.

Growth enablers

Consistent economic development and rapid urbanisation
Improved affordability in metropolitan and Tier-1 cities
Increasing access to modern medicines
Changing lifestyles and consumption patterns leading to increasing incidence of chronic ailments
Higher uptake of innovative medicines
Rising health awareness among the masses
Greater demand for insurance coverage, boosted by government and private insurer initiatives

About Laurus - An overview

Laurus Labs is a leading developer and manufacturer of generic APIs with a focus on products where it has cost leadership and holds an advantage by way of innovation in process chemistry and manufacturing efficiencies. Apart from manufacturing APIs, it develops and manufactures oral solid formulations, provides CRAMS services to several global pharmaceutical companies, and also produces specialty ingredients for nutraceuticals, dietary supplements, and cosmeceuticals companies.

Competitive advantages

Strong chemistry capabilities
A robust and growing customer base, which recognises the strength of partnerships
State-of-the-art infrastructure and facilities with highly capable personnel
Strong work ethic driven by sound systems and best practices, high quality standards and emphasis on customer service
Value creation through innovative science, customer centric approach and cost effectiveness

Strategy

Short-term strategy

Leverage API cost advantage and diversification into non-ARV APIs and formulations
Develop the synthesis business
Invest in fermentation capacity expansion at Laurus Bio
ESG integration

Long-term strategy

Further increase the agility of the Company by concentrating on key business enablers:

Compliance: Compliance with varied international regulations to maintain high quality standards and global customer base
Customer service: Sharp awareness of customer needs and determination to deliver quality product in a timely manner
Capacity and capabilities enhancement: Sufficient capacity to meet demand as well as respond to market opportunities; capability enhancement to keep up with technology advancements
Cost leadership: Continue to improve conversion cost to be more competitive and to stay longer in the marketplace
Continuous improvement: Continually improve Company’s processes using business excellence models
Continuity: Business continuity through risk mitigation and sustainability measures

Research & Development

Laurus Labs’ Research & Development (R&D) initiatives are evidence on its commitment to excellence and reinforces its belief in innovation and quality to meet and grow the Company’s business aspirations. The focus on R&D is also to increase process efficiency and manufacturing effectiveness in compliance with the Company’s core values and to support the execution of business strategies. R&D has helped the Company to develop breakthrough technologies that have led to new products, improved process chemistry, analytical chemistry, process intensification and establishing technologies at commercial scale. Laurus has a highly experienced team of dedicated scientists focusing on development of a variety of niche generic products across the spectrum of available dosage formulation technologies.

R&D team comprises of 750+ scientists (~16% of total employee strength) including over 60 PhDs
Kilo Lab at R&D centre accredited by global regulatory agencies

Foreword outlook

Going ahead, Laurus has charted a definite growth trajectory that involves strengthening its presence in the non-ARV space, fortifying its position in the formulations and synthesis segments and tapping the new area of biologics (through Laurus Bio). The Company is looking to build new capacities/facilities that would propel its growth in the coming years.

Financial Review

1. Consolidated P&L statement

The Company has been able to show growth in its margins despite of increase in R&D costs, with EBITDA and net margins stood at 33% and 20% respectively in 2020-21 compared to 20% and 9% respectively in 2019-20. This growth was led by better product mix and operational efficiencies.

Shareholders’ Funds increased to `2,597 crore in 2020-21 from `1,770 crore in 2019-20 mainly due to increase in profits.

The debt-to-equity ratio was 0.56 in 2020-21 versus 0.60 in 2019-20.

During the year under review –

The API Division has shown excellent performance and achieved a turnover of ` 2,621 crore. A Robust growth was achieved due to ARV-API, CVS, Anti Diabetic and PPIs
The FDF Division which has started its commercial operations two years ago, has achieved a record growth and contributed a turnover of ` 1,664 crore and also supplied ARVs to 47 countries in access market;
The Synthesis division also achieved its all time high growth and contributed a turnover of ` 519 crore.
The Company has undertaken expansion with a capex of ` 689 crore.
The Company has acquired 74% of stake in Richcore Lifesciences Private Limited on fully diluted basis (presently Laurus Bio Private Limited), with around ` 260 crore investment, which has bright future in Bio-pharma space in future.
The Company has also acquired a company in South Africa and renamed it as Laurus Generics (SA) Pty Ltd. to cater to the needs to South African Market.
The Company has incorporated a couple of subsidiaries to cater the future requirements of Synthesis division.
The Company has purchased 18 acres of land in Hyderabad to set up a greenfield Finished Dosage Forms Unit.
The Company has also applied to APIIC and got allotment of 40 acres land and 24 acres land to its subsidiary in Atchutapuram, Visakhapatnam district to set up greenfield projects in next couple of years time.
Maiden EIR received for Unit 4

5 Year CAGR