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Holder's Name No of Shares % Share Holding
Alkem set up its research and development facility for ANDA development at Taloja in
2003. In 2006 anti-infective drug Taxim of Alkem became the first anti-infective drug in the Indian
pharmaceutical industry to cross 1,000 million in terms of domestic sales in India. In 2014 Clavam other
drug from Alkem crossed 2,000 million mark in terms of domestic sales in India. In 2007 the company filed
its first ANDA for drug Amlodipine which was approved in 2009. Alkem has developed a portfolio of 705
branded generic drugs, with 13 of the brands featured among the top 300 brands in India for the fiscal year
2015 and a portfolio of 705 brands in India in the six months ended 30 September 2015. Alkem have 21
manufacturing facilities, 19 in India and 2 in US. 5 of the facilities are US FDA, TGA, UK MHRA approved.
• Management profile:
• Mr. Basudeo N. Singh (Executive Chairman, Co-Founder):
Over four decades of experience in the Indian pharmaceutical industry. In the
period extending 2007-2009, Mr. Singh had a stint as President of the Indian Drug Manufacturers’
Association. Recipient of ‘Business Leader of the Year 2014’ at the 7th Annual Pharmaceutical
Leadership Summit and the Pharma Leaders Business Leadership Awards 2014.
➢ Weaknesses:
I. Dependant on API supply
II. Suboptimal operating efficiencies as per industry standards
III. MFs decreased their shareholding last quarter
IV. Promoter decreasing their shareholding
V. API production covers only 1-2 months of production capability
VI. The Indian pharma companies are marred by the price regulation. Over a period of time,
this regulation has reduced the pricing ability of companies. The NPPA (National Pharma
Pricing Authority), which is the authority to decide the various pricing parameters, sets
prices of different drugs, which leads to lower profitability for the companies. The
companies, which are lowest cost producers, are at advantage while those who cannot
produce have either to stop production or bear losses.
VII. Indian pharma sector has been marred by lack of product patent, which prevents global
pharma companies to introduce new drugs in the country and discourages innovation and
drug discovery. But this has provided an upper hand to the Indian pharma companies.
VIII. Indian pharma market is one of the least penetrated in the world. However, growth has
been slow to come by. As a result, Indian majors are relying on exports for growth. To put
things in to perspective, India accounts for almost 16% of the world population while the
total size of industry is just 1% of the global pharma industry.
IX. Due to very low barriers to entry, Indian pharma industry is highly fragmented with about
300 large manufacturing units and about 18,000 small units spread across the country. This
makes Indian pharma market increasingly competitive. The industry witnesses price
competition, which reduces the growth of the industry in value term. To put things in
perspective, in the year 2003, the industry actually grew by 10.4% but due to price
competition, the growth in value terms was 8.2% (prices actually declined by 2.2%)
➢ Opportunities:
I. Increasing US & Indian pharma market size
II. Scope for higher penetration in US pharma market
III. Strong volume sales due to increasing demand and increasing health awareness
IV. Ample scope to diversify into the chronic therapy segment
V. Increasing reliance of Indian players on domestic
VI. API supply
VII. The migration into a product patent based regime is likely to transform industry fortunes in
the long term. The new patent product regime will bring with it new innovative drugs. This
will increase the profitability of MNC pharma companies and will force domestic pharma
companies to focus more on R&D. This migration could result in consolidation as well. Very
small players may not be able to cope up with the challenging environment and may
succumb to giants.
VIII. Large number of drugs going off-patent in Europe and in the US between 2005 to 2009
offers a big opportunity for the Indian companies to capture this market. Since generic
drugs are commodities by nature, Indian producers have the competitive advantage, as
they are the lowest cost producers of drugs in the world.
IX. Opening up of health insurance sector and the expected growth in per capita income are
key growth drivers from a long-term perspective. This leads to the expansion of healthcare
industry of which pharma industry is an integral part.
X. Being the lowest cost producer combined with USFDA approved plants, Indian companies
can become a global outsourcing hub for pharmaceutical products.
➢ Threats:
I. Increasing Trend in Non-Core Income
II. Delay in approvals/launches may impact the US business
III. Increased pricing pressure in the US
IV. China finished goods import regaining momentum
V. Weakening MR reach due to COVID-19
VI. Domestic and foreign legislation risks
VII. There are certain concerns over the patent regime regarding its current structure. It might
be possible that the new government may change certain provisions of the patent act
formulated by the preceding government.
VIII. Threats from other low-cost countries like China and Israel exist. However, on the quality
front, India is better placed relative to China. So, differentiation in the contract
manufacturing side may wane.
IX. The short-term threat for the pharma industry is the uncertainty regarding the
implementation of VAT. Though this is likely to have a negative impact in the short-term,
the implications over the long-term are positive for the industry.
• Competitive Analysis:
➢ Aurobindo Pharma:
ARBP has outperformed most pharma peers over past 12 months, driven by a
significant improvement in its operating performance post clearance of USFDA import alert and
ramp-up in US launches, including high-margin gCymbalta. With the recent acquisition in EU
(Actavis assets) and US (Natrol), the share of high-margin formulations in total revenues has
increased to ~80% (v/s 54% in FY10), positioning it among large-cap formulation players
Aurobindo pharma (ARBP)’s formulation business has been backed by its own APIs.
About 90% of the key intermediates and APIs required for formulations are captive-sourced. This
has facilitated the company to broaden its scope from just antibiotics and antiretroviral therapies
(ARV) to high-value growth segments such as controlled substances, injectables and life style
segments.
➢ Sun Pharma:
Over the last few years, Sun Pharma has been focusing on branded specialty
products which include New Chemical Entities, New Molecular Entities, Biologics and Novel
technologies. Sun Pharma is actively looking into business expansion through in-licensing, M&A and
out-licensing activities for branded products. Sun Pharma also has a strategic interest in
establishing Joint Ventures and Research Partnerships with world-renowned academia and
institutes.
Sun Pharma is looking for commercial, close-to-market and late-stage clinical
opportunities and/or M&A in below areas:
I. Ophthalmology
II. Dermatology
III. Oncology
IV. CNS
V. Orphan Indication
➢ Cipla:
Cipla has the largest product kitty in India and its product range is vast and varied. It
includes 1500 products for therapeutic segments and nearly sixty dosage-forms.
Cipla is the leading health-care company in India and its aim is to provide access to
high-quality medicines at affordable rates. In order to meet the needs of its patients, it has decided
to keep an economic and reasonable pricing policy. Its aim is to make life-saving drugs accessible to
every needy patient and therefore for those drugs it has kept a minimum pricing policy.
• Conclusion:
ALKEM ended FY20 on strong note – earnings were up 50% YoY, led by healthy growth in
the US (a key market), domestic formulation (DF) and improved operating leverage. While the COVID-19
pandemic could affect DF growth in the near term and subsequently impact earnings, we believe that
ALKEM has enough levers (new launches/increased market share in DF/the US and minimal regulatory risk)
to strengthen its earnings trajectory. : Management guided of 60% gross margins in FY21E, despite a soft
1H based on improving product mix (expect hospital based parenteral portfolio to ramp up faster) along
with improving US growth profile. This coupled with MR productivity and cost control measures shall aid
EBITDA margin expansion, aspirational target being 20% EBITDA margin in the next 2 years.