Aurobindo Pharma Ltd

Aurobindo Pharma Ltd - SWOT Analysis

Aurobindo Pharma Ltd (Aurobindo) is a leading global pharmaceutical company that
manufactures and sells generic formulations and active pharmaceutical ingredients (APIs).
Vertically integrated operations, market leadership and improved performance of US
Formulations segment are the key strengths of the company drive its growth, even as product
recalls could be a cause for concern. Acquisitions, growing healthcare market in India and
regulatory approvals are expected to provide opportunities for growth to the company.
However, competition, government regulations and pricing pressures are likely to hamper its
operations in the future.

Aurobindo Pharma Ltd- Strengths

Strengths - Established Market Position

Aurobindo is one of the largest generic pharmaceutical companies worldwide with presence in
more than 150 countries. The company reports approximately 90% of its revenue from the
international markets and holds a strong position in the US market and in many European
countries, including Italy and France where it ranks among the largest generic companies.
According to the company, it is 7th largest generic company by sales globally; second largest
listed Indian pharmaceutical company by revenues; and second largest generic company by
prescription dispensed in the US. The company manufactured more than 40 billion diverse
dosage forms. Aurobindo is also one of the leading suppliers of APIs from India and one of
the market leaders in semi-synthetic penicillin. The company’s product portfolio is spread
across seven therapeutic areas, including antibiotics, antiretrovirals, cardiovascular, central
nervous systems, gastro-enterologicals, anti-diabetics and antiallergics, among others.

Strengths - Vertically Integrated Operations

Integrated operations provide greater flexibility and significant control over operations thus
creating enhanced value for its customers. Aurobindo is a vertically integrated pharmaceutical
company that delivers novel solutions. It provides drug development and substantial
manufacturing services from discovery to development to commercialization. This includes
complete R&D for identifying and advancing substances for further development,
manufacturing facility, sales and marketing operations. The company’s operations from
conception to commercialization provide several advantages such as reduced manufacturing
and delivery times, lower costs, direct sourcing of raw materials and quality control to each of
its divisions. Approximately 70% of the company’s API requirement is being met in-house.
The company is also focused at vertically integrating the manufacturing plants for most
generic formulations to ensure timely material availability; and operations to decrease the
dependency on import of APIs and intermediaries. Aurobindo has large manufacturing
capabilities for diversified product portfolio and efficient regulatory affairs team to ensure
market compliance. The company has 27 manufacturing and packaging facilities worldwide.
These facilities are approved by leading regulatory agencies such as US FDA, UK MHRA, EU
GMP, WHO, Health Canada, South Africa-MCC and Brazil ANVISA. Aurobindo also operates
a large R&D facility in India for formulations and API’s.

Strengths - Improved Performance of US Formulations Segment

The US Formulations segment is the main growth driver for the company. Improvement in the
performance of the segment strengthens the company’s operations and enhances its
revenue. It offers generic formulations, and non-penicillin’s and non-cephalosporin products in
the US. In FY2021, the company filed 55 ANDAs including 16 injectables; and received
approvals for 42 ANDAs including 17 injectables. The segment reported revenue of
INR123,245 million in FY2021 compared to INR114,835 million in FY2020, which shows an
increase of 7.3% due to an increase in the orals business and maintained customer supplies.
In FY2021, the US Formulations segment accounted for 49.8% of the company's revenue.
Within the segment, orals contributed 67% of the segment’s revenue, followed by injectables
with 15%, branded oncology with 6%, dietary supplements with 9% and OTC with 3%.

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Aurobindo Pharma Ltd - Weaknesses

Weaknesses - Product Recalls

Product recalls made by the company not only generate substantial negative publicity about
its products and business, but also prevent commercialization of other future product
candidates. In January 2021, Aurobindo Pharma Ltd. voluntarily recalled bottles of Famotidine
tablets due to a label error in which Famotidine 20mg and ibuprofen 400mg tablets were
found in a batch of famotidine 40mg tablets. The drug is used for treatment of
gastroesophageal reflux disease and In December 2020, AuroMedics Pharma, a subsidiary of
Aurobindo Pharma recalled 3,094 cartons of Acetaminophen injection due to failed pH
specifications and discoloration. The drug is used to treat mild to moderate pain and reduce
body temperature. US FDA has classified both the actions as Class II recalls.

Aurobindo Pharma Ltd- Opportunities

Opportunities - Acquisitions
The company expands its operations and improves its presence through acquisitions. In
FY2021 the company signed multiple contracts to acquire subsidiaries which lead to 79 total
number of subsidiaries of the company as of March 2021. In April 2021, Aurobindo acquired
Auro Steriles LLC as a wholly owned subsidiary of Aurobindo Pharma USA Inc. It also
incorporated Eugia Injectable Inc as a wholly owned subsidiary of Eugia Pharma Specialities
Ltd and Nurya Brands Inc as a subsidiary of Auro Health LLC. In February 2021, Wytells
Pharma Pvt Ltd was acquired as a wholly owned subsidiary of Eugia Pharma Specialities Ltd
and an indirect subsidiary of the company. These acquisitions could enable Aurobindo to
establish itself as one of the leading generics companies globally.

Opportunities - Regulatory Approvals

New approved products provide enough opportunities for the company to improve its market
share. In February 2021, the company received final approval from US FDA to manufacture
and market Droxidopa capsules in 100 mg, 200 mg and 300 mg, indicated to treat orthostatic
dizziness and lightheadedness for patients with low blood pressure. In December 2020, the
company received regulatory approval from the US FDA to manufacture and market
Dexmedetomidine Hydrochloride injection in 200 g/50 mL and 400 g/100 mL single dosage
forms, indicated for sedation of patients during treatment in an intensive care setting.

Opportunities - Healthcare Market: India

Aurobindo is an India based pharmaceutical company with presence in key therapeutic
segments such as cardiovascular, neurosciences, gastroenterology, anti-retrovirals, anti-
diabetics and anti-biotics, among others. The company could capitalize on the growing
opportunities in the Indian market. Increased foreign direct investment, rising medical tourism
and strong pharmaceutical exports are the major drivers of growth in the pharmaceutical
market in India. Growing population, improving standards of living in rural and urban areas
and growing general awareness of health issues and government support are expected
improve healthcare spending in India. According to in-house research, the population in India
is expected to grow to 1.39 billion by FY2021. People aged above 65 years are expected to
increase to 10.21% in 2021. The Indian pharmaceutical market is expected to increase to
approximately US$372 billion by FY2022. The major factors that are expected to drive the
Indian pharmaceutical market are increasing insurance coverage, especially in the private
sector; increasing access to medicines; increasing affordability due to increase in purchasing
power; increasing compliance rate due to growing general awareness of common diseases;
and increasing demand for high-quality healthcare services.

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Aurobindo Pharma Ltd - Threats

Threats - Compliance with Industry Regulations

Regulatory framework plays a vital role in developing and doing business in domestic and
international markets. Stringent regulatory and legal requirements and an evolving
compliance landscape in the pharmaceutical industry could impact the company’s costs by
increasing the time and cost of bringing drugs to market. Increasing regulatory requirements
and globalization market are increasing the demands and responsibilities of company. It has
to follow regulations including registration, filings and data submission to enter diverse
markets. In India, the Central Drugs Standard Control Organization sets standards and
regulatory measures for medications. It offers guidance on health issues and medicines and
regulates the standards of imported drugs and clinical research in India. Receiving marketing
approval for new medicines from the regulatory body is time consuming and expensive.
Products distributed outside India are also subject to government regulations, which vary from
country to country. The company has to comply with different regulations governing product
standards, packaging and labeling requirements, import restrictions, tariff regulations and tax
requirements. In the US, the FDA; in Europe, the European Medicines Agency (EMA); and
other regulatory bodies in respective countries where Aurobindo sells its products, regulates
the pharmaceutical industry. Non-compliance with applicable laws and regulations or failure to
maintain, renew or obtain necessary permits and licenses could impact the company's results
of operations and financial performance.

Threats - Competition Risks

The Pharmaceutical industry is very competitive and is affected by new product
developments, new technologies, government regulations and other factors. Aurobindo’s
operations in the pharmaceutical industry face strong competition from multiple
pharmaceutical companies in India and globally. Introduction of new products by competitors
could weaken Aurobindo’s competitive advantage thereby affecting revenues and lead to loss
of market share. Important competitive factors include safety and ease of use, product
efficacy, marketing effectiveness, price and demonstrated cost-effectiveness, product
labeling, customer service and R&D of novel products and processes. Some of the
company’s key India based competitors include Cadila Healthcare Ltd; Cipla Ltd; Dr. Reddy's
Laboratories Ltd; Emcure Pharmaceuticals Ltd; Lupin Ltd; Sun Pharmaceutical Industries Ltd;
Alkem Laboratories Ltd. and Torrent Pharmaceuticals Ltd. Aurobindo’s API segment
competes with Divi's Laboratories Ltd. In international market space the company competes
with generic product manufacturers such as Mylan NV and Teva Pharmaceutical Industries
Ltd. Some of the firms have greater financial, technical and marketing resources than
Aurobindo. To mitigate the risks and compete effectively, the company has to manufacture
products at competitive costs, launch new products and enhance manufacturing capabilities
to ensure sufficient levels of production. Upon investing, the company’s profits might suffer if
they are not accepted in the marketplace as anticipated.

Threats - Pricing Pressures

Some of the company’s products are subject to regulatory pricing controls and other
pressures on pricing. The product pricing initiatives taken by domestic and international
governments exert pressure on pharmaceutical companies. The price controls will limit the
financial benefits of growth in the life-sciences industry and the timely launch of new products.
Healthcare services are regulated by governments, insurers and other private payers.
Henceforth, pricing and reimbursement remain challenging in several markets. Pharma
companies have to work hard to mitigate pricing pressures by expanding into various
geographies and complex products, promising high margins. In the US pharmaceutical
market, pricing pressure is driven by factors such as growing competition, payer consolidation
and restrictive reimbursement policies. It is further intensified by cost control tools such as
price protection clauses and exclusionary formularies clauses.

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