Thread by @ValueEducator

Detailed Analysis on the business of #Indoco Remedies💊💊

CMP - ₹389

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1. Company Overview
-Indoco Remedies is a pharmaceutical company that develops and manufactures a wide range of drug products for sale in the domestic and exports market.
-In the domestic market, they have several brands like Cyclopam, Febrex Plus, Sensodent-K,

Karvol Plus, ATM, etc. which are leaders in their respective therapeutic areas. Indoco generates 7 crore prescriptions annually from over 3 lakh doctors from various specialties.
-In the export markets, they have various partnerships through which they sell their products in 55

countries.
-They are also involved in manufacturing and sale of APIs and they have a CRO vertical called AnaCipher through which they offer certain research and analytical services.

2. Business Segments
-The company’s business can be divided into domestic and export

-In the domestic market, they sell branded generics under their own brand name by generating prescriptions. They also sell APIs to other formulation companies in the domestic market.
-Their export business can be further divided into regulated markets and emerging markets.

-In the regulated markets, they sell their products through various partnerships. In the US, the company has a partnership model where they manufacture the drug and it is sold through a partner and they get a share of the profit. (eg. they have a partnership with Teva for

manufacturing Brinzolamide).
-In Europe (mainly UK and Germany), they follow a contract manufacturing model where they produce drugs for other formulation companies.
-In the emerging markets, they sell branded generics in Africa, Asia, CIS and LATAM. They have their own field

force in parts of West Africa, Kenya, Sri Lanka and Myanmar. They follow a distributor model for the rest of the emerging markets.

3. Therapeutic areas
-In the domestic market, the company’s main therapy areas are stomatologicals, respiratory, anti-infectives and gastrointestinal. These 4 therapies together account for over 65% of the company’s revenues

-Apart from these, the company offers a range of therapeutic areas like gynecology, ophthalmology, women’s health, nutritional products, cardiology, metabolic disorders and primary care medicines

4. Products
-In the domestic market, they have several products like Cyclopam, Febrex Plus, Sensodent-K, Karvol Plus, ATM, etc. which are leaders in their respective therapeutic areas

-Brinzolamide is a key product that they export to the US which is marketed by Teva

5. Manufacturing facilities
-Indoco has a total of 9 manufacturing facilities - 6 for formulations and 1 for API.
-They also have a kilo lab at their R&D Center in Rabale and CRO in Hyderabad called AnaCipher.

-The facilities have been approved by most of the Regulatory Authorities including USFDA and UK-MHRA

6. Regulatory issues
-The company has faced significant regulatory headwinds in their export business. They received a warning letter from US FDA in 2017 for their Goa Plant 2 due to Ophthalmic Product Leakage. Soon after that, they also received a restricted GMP status from

UK-MHRA. Then in 2019, they received a warning letter for Goa Plant 1.
-So sales to the company’s main export markets were halted. This made the export business unprofitable as they were bearing a lot of idle costs for facilities that were generating no revenues

-The company received clearance from the US FDA for Goa Plant 2 in FY21 and the losses decreased. FY22 was the first year where the Goa Plant 2 was fully operational

7. Financials

8. Future Outlook
-In the domestic market, the company is making a shift towards chronic and sub-chronic therapies. Currently a majority of their revenues come from acute therapies which have lower stickiness and have a seasonal effect. Chronic products will help bring in more

persisting earnings and higher margins.
-The company has recently launched Lacosamide injection in the US - which is a complex generic. The company’s strategy is to manufacture complex products with lower competition and sell it through a partner like Teva.

-This business had suffered due to the regulatory issues faced by Indoco, but the company is set to launch 2 products in the US in FY23 and then 2 more in FY24. They will also be signing new partnerships in the US with more favorable profit splits.

-The company has also incorporated a new subsidiary in the UK and will be selling their own brands. The company followed a contract manufacturing model until now for Europe and selling their own products would improve margins for this business dramatically.

9. Risks
-Future regulatory issues: If the company has any further regulatory issues at their manufacturing plants, it would increase costs in the export business for another 2-3 years.
-Loss in demand for key products: The domestic business generates most of its revenues from a

few key brands. Any drop in their demand would impact their revenues.
-Rise in prices of APIs from China: Although the company is backward integrated for its US business, the domestic formulation business is highly dependent on API imports from China. During Q3 of FY22, the

company had to suspend sales of Paracetamol-based products due to high prices of the API. Any disruptions in China could negatively impact their domestic business which is their cash cow.
-Acute vs chronic mix: The company currently has a high exposure to acute therapies. Their

lower exposure to chronic increases risk as some of the acute products in their portfolio are seasonal. The company is however reducing this risk by launching new products in the cardiac and anti-diabetic segment.

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