New US approvals to boost Aurobindo

More than 30 nods in the current financial year will drive earnings growth, going ahead

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At a time when Indian pharmaceutical bigwigs are facing the ire of the US Food and Drug Administration (US FDA) on issues of compliance and slow pace of new product approvals, Aurobindo Pharma continues to show resilience. The company’s run rate on new approvals continues to remain strong. In fact, in the past 10 days, it has seen four approvals for launches in the US. The stock hit an all-time high of Rs 882.7 on Thursday (intra-day).

The recent approvals include generics of steroid methylprednisolone injection, Olopatadine ophthalmic solution, Gastro Reflux Famotidine tablets, and anti-diarrheal Loperamide tablet. The first two products had a market size of $102 million (Rs 675 crore) and $235 million (Rs 1,555 crore) in twelve months ended October, according to IMS Health.

Methylprednisolone injections, which have limited competition, can add $15-20 million (Rs 99-132 crore) a year to revenues, according to analysts at Religare Institutional Equities.  It’s not just these four approvals, but the company’s more than 30 approvals in the current financial year are among the highest in the Indian generics space. Approvals are expected to drive earnings.

On the whole, there were at least six approvals over the past six months that have fewer than four competitors and a market size between $100 million and $400 million (Rs 661 crore to Rs 2,647 crore). Approvals like the one for Abilify (a psychotropic drug), with a market size of $7.3 billion (Rs 48,311 crore), should drive earnings in the second half of the current financial year.

The company is reaping the benefits of aggressive filings (382 cumulative filings as on September 30). Analysts at IIFL say, “Injectables portfolio would also get a leg-up from complex filings in peptides, penems, oncology, and hormones, especially peptides in the near term where an Angiomax approval can make meaningful contribution." Analysts at Religare estimate Aurobindo’s US business to grow 22.7 per cent at a compound annual growth over FY15-FY18 on a high base.

This is to be led by a rising share of complex generics, a large pipeline of Abbreviated New Drug Applications (168 pending), strong growth in injectables/controlled substances, and penetration of the over-the-counter segment through the acquisition of Natrol. In Europe, the acquisition of Actavis is likely to become profitable by the next financial year. Target prices of HSBC (Rs 955), IIFL (two-year target of Rs 1,220) and Religare (September 2016 target price of Rs 935) indicate decent upside from current levels of Rs 868.4.