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#Guficbiosciences Niche Small cap Pharma Company ?

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CMP - ₹ 215

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1. Company Overview

Gufic is an R&D focused pharma company that is involved in contract manufacturing, branded generics, herbal formulations and new drug delivery systems.

The company entered into the contract manufacturing business in 2007 and today it manufactures

lyophilized injectables for most of the large pharma companies in India.

Company then entered the branded generics business with the launch of several products in the critical care space.

Today, they are present in branded generic drugs across infertility, pediatric, herbal, dermatology, bone health and pain management therapies as well.

2. Revenue Split

Gufic’s pharma business is divided into 4 broad segments - their domestic business which consists of branded generics, their CMO business where they manufacture lyophilized injectables to large pharma companies,

their International business which consists of exports and their API business.

The domestic business is their largest business which contributes to about 50% of their overall revenues.

The CMO business is the second largest contributing approximately 30-35% of revenues.

The International business contributes to about 15-20% of revenues whereas API is the smallest segment which contributes to about 5-7% of revenues

3. Domestic Business:

The domestic business consists of 6 divisions divided into 3 categories - Gufic Super Speciality, Gufic Mass Specialty and Gufic Specialty.

Their domestic branded business is their best business and has the highest margins. They have a combined field force of over 1100 who cater to over 1 lakh 20 thousand doctors all over India. Let us look at each of the divisions

Criticare:
In the Criticare division the company has products in Antibacterial, Antifungal, Gastrointestinal, Pain and Blood products. The products in this division are used for critically ill patients like patients suffering from life

threatening conditions who are kept in the ICU. This is Gufic’s largest division and contributes to more than half of its domestic revenues. Gufic’s USP in this division is that most of the drugs that are used in critical care treatment are from MNC pharma companies,

so they end up being very expensive. Gufic provides a cost effective alternative to hospitals by providing the same quality drugs at a fraction of the price.

Ferticare: his division consists of drugs used for the treatment of infertility. The major product categories are Hormones, Recombinant Products, Infertility Supplements. Their key products in this segment are Puregraf, Cetrofirst, Puretrig and Gufigest

which are hormones used in the treatment of infertility.

Healthcare: Under Gufic Healthcare, they market and sell various Herbal Products and Nutraceuticals which are extracted from natural products. These products are mainly used for Bone Health, Pain Management, Immunity,

Gastro, Stress and Wound care. Their flagship brand in this division is known as Sallaki which is a product made from a plant known as Boswellia Serrata. Boswellia Serrata has historically been used in Indian Ayurveda to treat ailments like

arthritis, ulcerative colitis, coughs, sores and asthma.

Spark: Gufic Spark caters to the Anti Infective, Gastro, Gynaec, Pediatric, Respiratory and Nutraceutical areas. They have a field force of over 180 in this division and market the drugs to General Practitioners,

Physicians, Gynecologists and Pediatricians. The flagship brand in this segment is Stretch-Nil - which is a product used to reduce stretch marks during pregnancy.

Aesthaderm: Gufic Aesthaderm is primarily focused in Aesthetic Dermatology. The product categories they are involved in are Neurotoxins, Anti Aging, Hyperpigmentation, Sunscreens, etc. They have a field force of over 40 in this segment.

They are the first Indian company to launch a Botulinum toxin product in India under the brand name Stunnox. Apart from Botulinum toxin, they have a range of other skin care products that complement Stunnox in the Aesthaderm division.

Stellar: The products in this division are used in Bone Health, Pain Management, Fractures, Arthritis, Pregnancy, Post Menopausal segments. The division has a field force of over 60 and is primarily focused on orthopedic and gynecology products.

This division is Gufic’s entry into the sub-chronic therapies which are generally higher value and higher margin products.

Botulinum Toxin

Botulinum toxin is a neurotoxin which is one of the most poisonous substances on earth. It is produced by a bacteria called Clostridium botulinum and one teaspoon of the substance can kill the entire human population.

It causes muscle paralysis by blocking the connection of the muscles to the nerves that are responsible for the contraction of these muscles. However, when used in very very small doses, it can be used to treat various conditions.

Gufic has launched their brand of Botulinum Toxin in partnership with Prime Bio. Their product is priced at a lower price point than Botox and management says that the quality is comparable. In their agreement with Prime Bio, Gufic has purchased the cell line outright and

has full ownership of the cell line. They produce the toxin at their Navsari facility and also have a profit sharing agreement with Prime bio. The market for botulinum toxin is very small in India currently with management indicated it is anywhere between 60 to 120 crores.

Dual Chamber Bags

Gufic collaborated with Technoflex - a European company which is a leader in IV drugs to launch Dual Chamber Bags. Dual Chamber bags are basically polypropylene bags that have a seal which separates the powdered drug and its diluent.

By just squeezing the bag, it will break the seal separating the drug and diluent which can then be administered to the patient. The drug is packaged in the exact dosing quantity which eliminates reconstitution error, the bag is sealed which prevents

contamination and it saves a lot of time for medical professionals. Previously, Dual Chamber bags had to be imported which made them very expensive to use. Gufic is producing them in a cost effective way to make it affordable to the Indian public.

These products will be marketed under their Criticare division and they are looking to take a significant chunk of the lyophilized antibiotic and antifungal drug market.

CMO business:

Gufic is one of the largest contract manufacturers for lyophilized injectables. Their clients in this segment are the largest pharma companies in India like Abbott, Sun Pharma, Cipla, Dr Reddy’s and many others.

Gufic main strength is their capabilities in lyophilization and they provide over 170 lyophilized products to over 70 companies in India. They are one of the largest suppliers of Doxycycline, Tigecycline, Gonadotropins, Liposomal Amphotericin B,

Micafungin to Indian companies in the branded generic space.

International business: The business consists mostly of branded generics which are marketed in Emerging markets and in some Developed markets.

Currently, Asia and Europe are their biggest markets. Gufic has over 130 products in over 15 countries. They have over 150 in the pipeline that will be registered in over 30 countries.

The management has said that they are looking to increase the share of this business in the future. This is also evidenced in the increasing share of the export revenues. The increase in 2022 domestic revenue is due to the one off increase in Remidesivir sales due to Covid.

API business:
In the API business, they mainly manufacture Antifungals, Antibacterials, Anesthetics and intermediates for Antifungals. So the company is fully integrated for manufacturing antifungals. They have a dedicated facility to manufacture APIs at their Navsari Plant.

API is currently their smallest division but it is strategically a very important division for them. Gufic is majorly a formulation manufacturer and are dependent on imports to meet their API needs.

The API business provides them with backward integration for their APIs and reduces their dependence on imports for their key products. Currently, about 50% of the APIs produced are used for captive consumption and the remaining 50% are sold.

Capex:
They are putting up a Greenfield capacity in Indore. It will be a facility for Lyophilized and Liquid injectables which can cater to the markets of US and EU. They will be installing a capacity to manufacture 36 million lyophilized vials, 15 million pre-filled syringes

and 60 million million units of liquid injectables. Currently, the company has a capacity of 48 million lyophilized vials. This capex will increase their capacity by 75% and they will have the largest lyophilization capacity in India

and with the enormous increase in pre-filled syringe and liquid injectables capacity, this capex will increase their capacity by almost 1.5 times. They also have a big land bank in Indore which will be used for future expansions.

The civil work on the facility is done and it is expected to commercialize in Q1 FY24. The company has also installed a Penem block at their Navsari Facility. This block was supposed to be included in Indore but the company decided to shift it to Navsari

because they would be able to bring it online faster and it would save them on costs as the Navsari facility already has the basic infrastructure. This block has a capacity of 3 million lyophilized vials, 24 dual chamber bags and 30 million vials of dry powder injections.

The facility will begin production in Q3 FY23

Risks:

They are not fully backward integrated which means that they are exposed to the volatility in API prices. They are still largely a formulations company who depend on API imports to manufacture their formulations

which is a risk to the business.

Competition is also a big risk in the Pharma business and we have been seeing more and more pharma companies entering into the sterile and lyophilization space lately. And lastly, the company faces regulatory risk -

especially if they are entering into regulated markets whose stringent requirements can significantly increase manufacturing costs significantly

Watch the detailed video on #Guficbio



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