The successful integration of the Lannett Company (acquired a year ago) during the quarter strengthened the company’s position in complex generics, controlled substances and government business. The company expects meaningful benefits from SG&A rationalisation, procurement synergies, manufacturing transfers and improved capacity utilisation. The acquisition helped the company launch its first product in the respiratory (inhalation) segment at the end of August. This is the generic equivalent of asthma and chronic obstructive pulmonary disease treatment formulation Advair and can help the company tap into a market of upwards of $650 million. In September, the company also received final approval to manufacture and market the generic equivalent of the QVAR inhaler, used in treating asthma, which has a market size of about $300 million.
A favourable regulatory compliance record is also positive. The US FDA’s routine inspection at Lannett Company towards the end of August led to four observations. The company pointed out that the completion of the routine FDA inspection at Lannett, with only four observations that are procedural in nature, is a constructive development and an important step as Aurobindo continues to strengthen the facility and advance future regulatory filings and product opportunities in the US, it added.
Analysts led by Amey Chalke of JM Financial Research believe that respiratory and contract development and manufacturing organisation, or CDMO, would be the next leg of growth, with nine-ten respiratory opportunities, of which four key products are expected around March 2027, while the CDMO revenue target of $400 million over the next three-four years shall come from formulations, active pharmaceutical ingredients (APIs) and peptides. The brokerage has a buy rating with a target price of ₹1,975.
The company is planning to increase formulation CDMO revenue from $20 million annually to $200 million to $300 million by 2030-31, while API CDMO currently generates $10 million annually and could scale up to $50 million in three years. Peptide CDMO could contribute $50-100 million if development progresses as planned.
The June quarter performance was a near-term trigger and was aided by a strong show in the European business and a steady performance in the US market. This helped the company post 16.3 per cent growth in the June quarter. The European business grew 25.6 per cent Y-o-Y, driven by robust performance across all key markets. The US business, which accounted for 41 per cent of sales, grew 8.1 per cent Y-o-Y on the back of volume gains and new product launches. Growth markets, too, saw a significant jump, rising 37.7 per cent Y-o-Y.
The US market growth in the quarter was aided by the launch of ten products. The company also received ten final abbreviated new drug application (ANDA) approvals and filed nine ANDAs in the quarter. Its cumulative pipeline remains strong, with the company having filed 896 ANDAs and received 737 final approvals and 33 tentative approvals.
Operational performance was robust, with gross margin expanding by 153 basis points Y-o-Y to 60.4 per cent, aided by a favourable business mix and ongoing operational efficiencies. Operating profit saw 20 per cent growth Y-o-Y, with a margin of 21 per cent, up 60 basis points Y-o-Y. Margins at the operating level were supported by profitability gains in the European market, which crossed the 20 per cent mark due to captive sourcing and ongoing cost optimisation initiatives.
Axis Securities points out that Aurobindo Pharma’s future outlook remains strong, supported by upcoming product launches and strategic initiatives in areas such as entry into biosimilars, peptides and CDMO services. The brokerage has, however, revised its recommendation from buy to hold, given its above-average valuation, with a target price of ₹1,600.
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