Concord Biotech
- Concord Biotech is coming out with a 100% book building; initial public offering (IPO) of 2,09,25,652 shares of Rs 1 each in a price band Rs 705-741 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 August 4, 2023 and will close on August 8, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 1 and is priced 705 times of its face value on the lower side and 741 times on the higher side.
- Book running lead managers to the issue are Kotak Mahindra Capital Company, Citigroup Global Markets India and Jefferies India.
- Compliance Officer for the issue is Prakash Sajnani.
Profile of the company
The company is an India-based biopharma company and one of the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology in terms of market share, based on volume in 2022, supplying to over 70 countries including regulated markets, such as the United States, Europe and Japan, and India. It commanded a market share of over 20% by volume in 2022 across identified fermentation-based API products, including mupirocin, sirolimus, tacrolimus, mycophenolate sodium and cyclosporine. As of March 31, 2023, it had a total installed fermentation capacity of 1,250 m3. In 2016, it launched its formulation business in India as well as emerging markets, including Nepal, Mexico, Indonesia, Thailand, Ecuador, Kenya, Singapore and Paraguay, and has further expanded to the United States.
The company manufactures (i) bio-pharmaceutical APIs through fermentation and semi-synthetic processes, across the therapeutic areas of immunosuppressants, oncology and anti-infectives; and (ii) formulations, which are used in the therapeutic areas of immunosuppressants, nephrology drugs and anti-infective drugs for critical care. APIs are active pharmaceutical ingredients which have effects such as preventing or curing diseases. Formulations refer to drug products that are used by patients, such as tablets, capsules or injections. Immunosuppressants are drugs that are typically used by patients undergoing organ transplants, as these drugs suppress the immunity of the patient such that the body accepts the transplanted organ. Further, immunosuppressants are also used for the treatment of autoimmune disorders. Anti-infectives are medicines that prevent or treat infections, and include anti-bacterial and anti-fungal medications. Oncology and nephrology drugs are used in the treatment of cancers and kidney conditions, respectively.
Proceed is being used for:
- Achieving the benefits of listing the Equity Shares on the Stock Exchanges.
- Carry out the Offer for Sale of up to 2,09,25,652 Equity Shares by the Selling Shareholder.
Industry overview
India's domestic healthcare market is growing rapidly and is projected to grow at a CAGR of 8% to 10% from 2023 to 2026. In addition to improving private insurance coverage and greater willingness to spend on healthcare, government policies provide catalytic stimuli. These policies include the Ayushman Bharat Program, the Ayushman Bharat Health Infrastructure Mission, and the Pradhan Mantri Bhartiya Janaushadi Pariyojana. India is a crucial supplier of generic drugs, supplying to address almost 40% of the total U.S. generic drug (formulation) demand and approximately 25% of the total drug demand in the United Kingdom. According to the Indian Brand Equity Foundation (“IBEF”), India also accounts for 60% of global vaccine production, contributing 70% of the WHO’s demand. This success can be attributed to the advanced capabilities in formulation manufacturing, the capability to meet global standards and governmental support.
According to the Ministry of Commerce & Industry, while India's formulations are expected to grow, and they accounted for approximately 77% of the pharmaceutical export share in the Financial Year 2023, there are opportunities to address bottlenecks in raw material (active pharmaceutical ingredients (APIs) and key starting materials (KSMs) manufacturing and expand its current share of approximately 18% in the pharmaceutical exports in the Financial Year 2023. Challenges facing India’s API and KSM sector include high dependence on China for raw materials, inadequate infrastructure in select areas such as fermentation and delays in land acquisition and environmental clearance. However, several factors, such as regulatory policies, provide stimulus to the API segment in India. India's growth trajectory of the API market is well-cemented for domestic API consumption as well as exports. The Indian API market, valued at $ 17 billion (Rs 1,377 billion) in 2022, comprises APIs manufactured for export and APIs consumed in formulation manufacturing. These formulations are domestically consumed as well as exported to the global market. While API exports accounted for $5 billion (Rs 356 billion) in 2022, APIs required for formulation manufacturing amounted to $12 billion (Rs 1,035 billion) in 2022.
Pros and strengths
Established presence across the complex fermentation value chain: The company has established capabilities across the fermentation value chain. The fermentation value chain encompasses aspects such as R&D, patents, key starting materials, API and formulation manufacturing, as well as marketing and distribution of fermentation-based products. In addition, it has honed its capabilities across the fermentation value chain, which it leveraged to build a track record across multiple products in various therapeutic areas. Over the last two decades since 2001, it has been able to build difficult-to-replicate technical expertise in the fermentation process, which has enabled it to develop and commercialize a wide spectrum of fermentation-based APIs. Fermentation is a challenging process requiring specialized manufacturing expertise, as it involves working with microbial strains and culture, controlling multiple process parameters and performing various purification steps. Small modifications to the process may lead to relatively large variances in the output. These factors, coupled with the complex technical capabilities, difficulties in scaling up operations and the substantial capital investment in infrastructure and resources required, have resulted in significant barriers to entry in the fermentation-based API space.
Global leadership in immunosuppressant APIs along with a wide spectrum of complex fermentation-based APIs across multiple therapeutic areas: The company is one of the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology in terms of market share, based on volume in 2022. It commanded a market share of over 20% by volume in 2022 across identified fermentation-based API products, including mupirocin, sirolimus, tacrolimus, mycophenolate sodium and cyclosporine. As of March 31, 2023, it had six fermentation-based immunosuppressant APIs. As of 2022, more than 90% of the approved and commonly prescribed small-molecule organ transplant drugs were fermentation-based. The global demand for immunosuppressant APIs is expected to increase, driven by the growth of the immunosuppressant formulation markets. In particular, the growth is expected to be driven by organ transplantation becoming more common, where patients would need to take immunosuppressants for the rest of their lives. However, the end use of immunosuppressants in organ transplantation requires stringent quality standards to minimize variations during the fermentation process.
Scaled manufacturing facilities with consistent regulatory compliance track record: The company has three manufacturing facilities in the state of Gujarat, India. Its API manufacturing facilities in Dholka and Limbasi are divided into a total of 41 manufacturing blocks to process different classes of APIs, which provides flexible plant configuration and allows it to scale up production volume to meet increased demand, such as through running parallel processes across different classes of APIs. It also has a formulation manufacturing facility in Valthera, which had an annual installed production capacity of 801.64 million units, with an average dosage capability of 0.45 million tablets, 0.36 million capsules and 646.46 bottles of dry syrup per shift, which is defined as eight hours of production. It has the ability to expand its installed capacity at the existing manufacturing facilities, which may help it reduce the need for significant capital expenditure on capacity expansion in the near term, as compared to setting up new manufacturing facilities. It focuses on undertaking measured capacity expansion in line with its plans of product launches and increase in product sales.
Diversified global customer base with long-standing relationships with key customers: Over the years, the company has established long-standing relationships with certain key customers, including leading global generic pharmaceutical companies. As of March 31, 2023, it had over 200 customers in over 70 countries for both its API and formulation products. For its APIs, it had filed 128 DMFs across several countries, including 20, 65 and four, respectively, in the United States, Europe and Japan, as of June 30, 2023. It supplies APIs to customers such as Intas Pharmaceuticals and Glenmark Pharmaceuticals, which have been its long-term customers. For the Financial Years 2021, 2022 and 2023, it recognized aggregate revenues of Rs 867.58 million, Rs 887.74 million and Rs 1,071.40 million from its long-term supply agreements with customers, constituting 14.06%, 12.45% and 12.56% of its total revenue from operations, respectively. For the Financial Years 2021, 2022 and 2023, it generated revenues from operations of Rs 2,725.28 million, Rs 3,101.90 million and Rs 3,778.11 million, respectively, or approximately 44.17%, 43.51% and 44.28%, respectively, of its revenue from operations for the same years, from its ten largest customers by revenue for the respective years.
Risks and concerns
Depend on a limited number of customers: While the company has not experienced any instances of discontinuation of the purchases from its ten largest customers by revenue in the past three Financial Years, its dependence on a limited number of customers may expose its to risks such as significant reductions in demand for its products from them in the future, including due to reasons beyond its control, such as them experiencing adverse market conditions or financial difficulties. Their demand for its products may also decrease in the future due to the deterioration of its relationships with them, potentially due to factors including disagreements or disputes relating to the quality, timeliness of delivery or pricing of its products. In addition, it may be susceptible to pricing pressures from them. It cannot assure that it will be able to maintain or increase the revenues generated from such customers, or maintain or improve its relationships with them. Also, while it seeks to broaden its customer base, it cannot assure that, in the event of any loss of the business of such customers, it will be able to derive revenues from other customers. Such occurrences may adversely affect its business, financial condition and results of operations.
Significant working capital requirements: The company’s business requires significant working capital, including to finance the purchase of raw materials and the development and manufacturing of products before payment is received from customers. Factors including unforeseen delays, cost overruns, unanticipated expenses, regulatory changes and economic conditions could result in increases in its trade receivables and/or write-offs of trade receivables, and may also require it to avail short-term borrowings in the future. Continued increases in its working capital requirements may have an adverse effect on its results of operations, cash flows and financial condition. Its sources of additional financing, in the event that it need to draw on them 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 does incur debt in the future, its interest and debt repayment obligations will increase, which may adversely affect its profitability and cash flows. It may also become subject to restrictive covenants in its financing agreements, which could limit its ability to access cash flows from operations and undertake certain types of transactions.
Face competition: The pharmaceutical industry in which the company operates is highly competitive. It competes with local companies, multi-national corporations and companies from the rest of the world. In particular, it faces competition in its overseas operations. Its competitors may have greater financial, manufacturing, R&D, marketing and other resources, more experience in obtaining regulatory approvals and broader product ranges. Its competitors may develop products that are more effective, more popular or cheaper than ours, which may render its products uncompetitive. In addition, it may compete for customers with larger pharmaceutical companies that have in-house API capabilities, which may acquire its existing customers. The entry of new competitors into the pharmaceutical industry may also further dilute its market share and affect its profitability. It cannot assure that its competitors will not gain significant market share at its expense in the future, particularly in the therapeutic areas in which it is focused. Such occurrences could adversely affect its business, financial condition and results of operations.
Changes in technology: The industry in which the company operates is continually changing due to technological advances, scientific discoveries and novel chemical processes, with frequent introduction of new and enhanced products and significant price competition. It cannot assure that it will be able to successfully keep up with technological improvements in order to remain competitive and meet its customers’ needs in a timely and cost-effective manner. The cost of implementing new technologies for its operations could be significant, which could adversely affect its business, financial condition, results of operations and cash flows.
Outlook
Incorporated in 1984, Concord Biotech is an India-based R&D-driven biopharma company. The company is ranked among the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology in terms of market share, based on volume in 2022. Concord Biotech has a Global presence. They are supplying their products to over 70 countries including the USA, India, Europe, and Japan. The company manufactures Active Pharmaceutical Ingredients (API) through fermentation & semi-synthetic process and finished formulations. It started with a single product and has grown to become a wide-spectrum solution provider. Concord manufactures fermentation and semi-synthetic-based products in therapeutic segments such as Immunosuppressants, Anti-bacterial, Oncology, Antifungals & others. This wide range of products has attracted customers across the globe. Concord also has a robust pipeline of products under development. On the concern side, the company uses highly-flammable and hazardous materials, such as mycophenolic acid, in its R&D and manufacturing processes. The improper handling or storage of these materials could result in fire, industrial accidents, injuries to its personnel, property and damage to the environment.
The company is coming out with an IPO of 2,09,25,652 equity shares of face value of Rs 1 each. The issue has been offered in a price band of Rs 705-741 per equity share. The aggregate size of the offer is around Rs 1475.25 crore to Rs 1550.59 crore based on lower and upper price band respectively. On the financial front, total income increased by 20.66% to Rs 8,884.77 million for Financial Year 2023 from Rs 7,363.49 million for Financial Year 2022, primarily due to an increase in revenue from operations. The company’s profit for the year increased to Rs 2,400.84 million for the Financial Year 2023 from Rs 1,749.29 million for the Financial Year 2022. Meanwhile, the company intends to acquire new customers globally and expand its international customer base, through increasing worldwide marketing activities for its APIs. In addition, it endeavors to increase the global market share of its APIs through additional regulatory filings. The company intends to expand into new formulations that have relatively higher growth potential and continually calibrate its product mix to improve profitability. It plans to leverage its API capabilities to continue to develop new formulations.
