Gland Pharma coming with an IPO to raise upto Rs 6,480 crore

Gland Pharma

• Gland Pharma coming is coming out with a 100% book building; initial public offering (IPO) with face value of Rs 1 each in a price band Rs 1490-1500 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on November 09, 2020 and will close on November 11, 2020.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 1 and is priced 1490.00 times of its face value on the lower side and 1500.00 times on the higher side.
• Book running lead managers to the issue are Kotak Mahindra Capital Company, Citigroup Global Markets India, Haitong Securities India and Nomura Financial Advisory and Securities (India).
• Compliance Officer for the issue is Sampath Kumar Pallerlamud. 

Profile of the company

The company was incorporated as Gland Pharma Private Limited, a private limited company, at Hyderabad under the Companies Act, 1956 on March 20, 1978 and was granted the certificate of incorporation by the Registrar of Companies, Andhra Pradesh at Hyderabad. Subsequently, the name of the company was changed to Gland Pharma Limited pursuant to a special resolution passed by the shareholders of the Company on December 5, 1994, and a fresh certificate of incorporation dated April 25, 1995 was issued by the Registrar of Companies, Andhra Pradesh at Hyderabad consequent upon change of name and conversion into a public limited company under the Companies Act, 1956.

The company is one of the fastest growing generic injectables-focused companies by revenue in the United States from 2014 to 2019. It sells its products primarily under a business to business (B2B) model in over 60 countries as of June 30, 2020 including the United States, Europe, Canada, Australia, India and the Rest of the world. It has a consistent compliance track record with a range of regulatory regimes across these markets. It also has an extensive track record in complex injectables development, manufacturing and marketing and a close understanding of the related sophisticated scientific, technical and regulatory processes. It was established in Hyderabad, India in 1978 and has expanded from liquid parenterals to cover other elements of the injectables value chain, including contract development, own development, dossier preparation and filing, technology transfer and manufacturing across a range of delivery systems. It has a professional management team and one of its Promoters, Shanghai Fosun Pharma, is a global pharmaceutical major.

The company is focused on meeting diverse injectables needs with a stable supply of affordable and high quality products. It has established a portfolio of injectable products across various therapeutic areas and delivery systems. It is present in sterile injectables, oncology and ophthalmics, and focus on complex injectables, NCE-1s, First-to-File products and 505(b)(2) filings. Its delivery systems include liquid vials, lyophilized vials, pre-filled syringes, ampoules, bags and drops. It is expanding its development and manufacturing capabilities in complex injectables such as peptides, long-acting injectables, suspensions and hormonal products as well as new delivery systems such as pens and cartridges.

Over the years, the company has made substantial investments in its manufacturing infrastructure to support its product portfolio needs and reach. It has seven manufacturing facilities in India, comprising four finished formulations facilities with a total of 22 production lines and three API facilities. As of June 30, 2020, it had manufacturing capacity for finished formulations of approximately 755 million units per annum. Its API facilities provide it with in-house manufacturing capabilities for critical APIs, enabling it to control costs and quality and mitigate supply chain related risks around its key products. Its capabilities as a vertically integrated company include internal research and development (R&D) expertise, robust manufacturing capabilities, a strict quality assurance system, extensive regulatory experience and established marketing and distribution relationships.

Proceed is being used for:

• Funding incremental working capital requirements of the company.
• Funding capital expenditure requirements of the company.
• General corporate purposes.

Industry Overview

According to the IQVIA Report, the Indian pharmaceutical market was estimated to be $18 billion in 2019, growing approximately 11.6% CAGR from $11 billion in 2014. The industry has been able to offer a wide variety of high quality and affordable generics across the world. Increasing incidence of chronic diseases due to changing lifestyle, improving affordability, growing penetration of medical insurance, government policies such as Ayushman Bharat are expected to improve the diagnosis and treatment rates in India, driving the growth of the pharmaceutical industry despite population growth slowdown in 2020 to 2024. The market for injectable drugs is increasing as new ailments such as rheumatoid arthritis, multiple sclerosis, cancers and autoimmune disorders are now being treated through injectables solutions. Pharmaceutical companies are developing and investing heavily in the development of new complex molecules to target these diseases.

Biologics are gaining popularity in the pharmaceutical industry, and injectables, especially prefilled syringes, are witnessing increased adoption as the preferred drug delivery systems due to their ease of handling, less overfills and more safety to patients. In the coming few years, many biologic drugs will witness loss of patent exclusivity. This is expected to result in a surge in their biosimilar products thereby increasing demand for the injectable drug delivery devices for these formulations. Injectables form appears to have high entry barriers due to its inherent complex nature. Injectables manufacturers face high entry barriers such as high capital investments, operational costs, manufacturing complexities, stricter compliance requirement due to the sterile nature of products and high-quality standards, resulting in limited competition in the market. The capital investment for an injectables manufacturer is higher compared to that for oral solids. Injectable plants require 1.3-1.5 times more capital expenditure as compared to oral solids plants. Addition of new injectables lines is less capital intensive as compared to adding a new injectables facility. The high capital investment is necessary to ensure adherence to quality standards and minimize errors.

Pros and strengths

Extensive and vertically integrated injectables manufacturing capabilities: The company’s seven manufacturing facilities are situated in southern India including two sterile injectables facilities, one dedicated Penems facility, one oncology facility and three API facilities. Its manufacturing process is designed to facilitate production flexibility and deliver high and consistent product quality. Its four finished formulation manufacturing facilities with a total of 22 production lines possess the flexibility to accommodate different product requirements without the need to install new production lines. This allows it to adapt quickly to changes in product specifications, market demand and production requirements. In addition, it considers that diversification of product approvals across its multiple manufacturing units for its key products mitigates its exposure to regulatory risk with respect to any particular unit and provides increased certainty of supply.

Diversified B2B-led model across markets: The company’s primary business model is B2B, covering IP-led, technology transfer and contract manufacturing models, complemented by a B2C model in its home market of India. It consider that its various B2B business models enable it to (i) grow market share in key markets such as the United States, Europe, Canada and Australia, particularly the United States, while reducing the marketing investments it need to make, (ii) leverage the reputation of its marketing partners in their home markets to build its own presence in these markets, (iii) build its own reputation as a complex injectables manufacturer with a consistent compliance record attracting confidence from other potential marketing partners, and (iv) balance profitability and capacity utilisation while continuing to deliver high manufacturing and quality standards to a broad range of customers. It adopts the B2B IP-led model primarily for marketing its portfolio of products. Under this model, it enters into long-term development, licensing and manufacturing and supply agreements with leading pharmaceutical companies with strong and independent sales and distribution networks under which it receive licensing fees together with milestone payments tied to completion of specific product development stages.

Extensive portfolio of complex products supported by internal R&D and regulatory capabilities: The company is a vertically integrated company with demonstrated ability to advance a product from the R&D stage through commercialization. Its capabilities include internal research and development expertise, robust manufacturing capabilities (including the ability to synthesise and manufacture critical APIs in-house), a strict quality assurance system, extensive regulatory experience and established marketing and distribution relationships. As of June 30, 2020, it had a total workforce of 3,766 excluding contract labourers across these business divisions, including an in-house R&D team for product development, regulatory affairs for obtaining product registrations, manufacturing, supply chain management, and sales and marketing.

Experienced management and qualified team: The company has a professional and experienced management team with significant expertise in the pharmaceutical industry. It considers this facilitates effective operational coordination and continuity of business strategies. Its management team includes experienced senior executives, many of whom have been with it for a significant period of time. Its labourers possess a range of qualifications including scientific, pharmacy post graduate and graduate and it has a wellestablished record of developing its in-house talent. One of the company’s Promoters, Shanghai Fosun Pharma, is a global pharmaceutical major with extensive pharmaceutical manufacturing, distribution and R&D expertise internationally, and in China. Its relationship with Shanghai Fosun Pharma provides it with widened market access opportunities arising from its own continuing internationalisation. In particular, it has benefitted from Shanghai Fosun Pharma's established presence in China and Africa, both of which it consider to be key growth markets for injectables.

Risks and concerns:

Dependent on the sale of products to key customers and in key markets: The company is dependent on its key customers having presence in the generic injectables industry in which it operates. As the company is dependent on its key customers for a significant portion of its sales as well as the sale of its products in the United States, Europe, Canada and Australia, the loss of such customers and such markets may materially affect its business, cash flows and results of operations. Further, the volume of sales to its customers may vary due to its customers’ attempts to manage their inventory, market demand, product and supply pricing trends and customer preferences, among others, which may result in a decrease in demand or lack of commercial success of products of which it is a major supplier, which could reduce its sales and materially adversely affect its business, cash flows, results of operations and financial condition.

Significant portion of income depend on sales of key injectable formulations: A significant portion of the company’s yearly income is dependent on sales of its key injectables formulations for that year. Its key injectables formulations vary from year to year as a result of market demand and opportunities. As a result of increased competition, pricing pressures or fluctuation in the demand or supply of these products or products in the injectables category generally, its sales and margins from these products may decline in the future. If the sales volume or pricing of such products declines in the future, its business, financial condition, cash flows and results of operations could be materially adversely affected. Furthermore, its key injectables formulations could be rendered obsolete or negatively impacted by numerous factors, many of which are beyond its control, including development by others of new pharmaceutical products that are more effective than its and changes in the prescribing practices of physicians and manufacturing or supply interruptions.

Require certain approvals and licenses in ordinary course of business: The company is required to obtain and maintain a number of statutory and regulatory licenses, permits and approvals for carrying out its business and for each of its manufacturing facilities under various central, state and local governmental rules and regulations in India. A majority of these approvals are granted for a limited duration and require renewal. It cannot assure you that the renewals to such approvals will be issued or granted to it in a timely manner, or at all. If it does not receive such approvals or are not able to renew the approvals in a timely manner, its business and operations may be materially adversely affected. Further, the licenses, permits and approvals required by it are subject to several conditions and it cannot assure you that it will be able to continuously meet such conditions, which may lead to cancellation, revocation or suspension of the relevant licenses, permits and approvals.

Significant working capital requirements: The company’s business requires significant working capital including in connection with its manufacturing operations and its development of new products. It intends to utilise Rs 7,695.00 million (a part of the Net Proceeds) towards funding its incremental working capital requirements in Fiscals 2021 and 2022. The actual amount of its future capital requirements may differ from estimates as a result of, among other factors, unforeseen delays or cost overruns, unanticipated expenses, regulatory changes, economic conditions, technological changes, additional market developments and new opportunities in the generic injectables industry. The company’s sources of additional financing, where required to meet its working capital needs, may include the incurrence of debt, the issue of equity or debt securities or a combination of both. If it decides to raise additional funds through the incurrence of debt, its interest and debt repayment obligations will increase, which may have a significant effect on its profitability and cash flows.

Outlook

Gland Pharma, the Hyderabad-based company is one of the fastest-growing generic injectable companies. It manufactures a diversified range of high-quality complex injectables. The company offers products like sterile injectables, oncology, and ophthalmics, complex injectables (peptides, suspensions, hormonal products, long-acting injectables), NCE-1s, First-to-File products, etc.  The company’s products are developed and manufactured in India which has previously conferred R&D and manufacturing cost advantages on Indian pharmaceuticals manufacturers compared to their competitors in higher cost markets. It has a professional and experienced management team with significant expertise in the pharmaceutical industry. It considers this facilitates effective operational coordination and continuity of business strategies. On the concern side, if the company’s API production is interrupted or it fails to produce or procure high-quality APIs in the quantities it require in a cost-effective manner, sales of its products could be delayed or interrupted. Before obtaining regulatory approvals for the sale of some of its drug candidates in the future, it may be required to conduct extensive clinical trials to demonstrate the safety and efficacy of its drug candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to the outcomes. A failure of one or more of its clinical trials can occur at any stage of testing. 

On the performance front, the company’s revenue from operations increased by 28.81% to Rs 26,332.40 million in Fiscal 2020 from Rs 20,442.03 million in Fiscal 2019. The company’s restated profit for the year increased by 71.04% to Rs 7,728.58 million in Fiscal 2020 from Rs 4,518.56 million in Fiscal 2019. The company intends to continue enhancing its product portfolio to offer a diverse suite of products to cater to the growing demand for injectables. It will continue to identify, develop and launch new products and delivery systems from its pipeline to meet market needs and capture growth opportunities to sustain its revenue growth and profitability. It will continue to focus on developing products primarily for the U.S. market and leverage this product portfolio to extend across other markets.