RPG Life Science Limited (RPGLS)

RPGLS, formerly Searle (India), is a full spectrum, world class, customer focused, innovative pharmaceutical organization. Company develop, manufacture and market, for national and international markets, broad range of branded formulations, generics and bulk drugs developed through fermentation and chemical synthesis routes.

Company is present in the domestic as well as the international markets. It exports its products primarily to Europe, Latin America, Africa, Australia, CIS Nations & South East Asian countries.

RPGLS has changed its strategy regarding formulation business by becoming more market oriented to leverage opportunities available in domestic formulation business with:

 Launching new formulations (in high margin segment) at faster pace through own R&D as well as thru 3rd party license to increase depth of portfolio for existing therapeutic areas. New products would augment product portfolio of various business verticals and also enable company to tap growing market segments both in domestic and export markets.

 Venturing into new therapeutic areas like Oncology, Psychiatry and Diabetology. Company has set up 3 divisions — Empathy (neuro-psychiatry), Neolife (oncology – fast growing segment) and cardiovascular. These 3 units have contributed ~ 20% of company’s revenues in Q1 FY 2011. Dedicated divisions with its own sales force & portfolio of brands will drive growth faster.

To market the new launches, company plans to increase its sales force from 325 to 500 in FY 2011. These initiatives would lead to > 20% growth in formulation business for next few years.

As far as API business is concerned, company is expanding R&D team in order to introduce 7-8 new molecules with better profitability. Both plants (at Ankleshwar) are likely to be US FDA approved in next 12-15 months, which would facilitate entry in new markets. Even if one or two molecules click, company’s capacity utilisation is likely to improve significantly (< 40% at present).

RPGLS has entered into an alliance with Polish generic drug maker Polpharma for Clopidogrel, anti-clotting drug. They will distribute each other’s APIs in their respective areas of strength. This alliance will see faster new product introductions in different geographies (Germany, Poland and Greece).

Leveraging biotech capabilities – presently, company is selling biotech products (APIs) in India and unregulated markets, mainly Latin America. RPGLS started the process with high value oncology & immunosuppressant molecules and will expand this range as it moves forward depending on requirements of new clients that it may add. Company has 5-6 products – 4 products in Oncology segment and 2 in immunosuppressant segment. It has filed DMF to expand portfolio and make MAB (Monoclonal Antibodies).
Besides, it has tied up with global giants like Apotex (Canada), Teva (UK), Actavis (Israel) and Arrow Pharma (Australia), etc. Company will be their outsourcing partner for APIs / Formulations. These are product specific alliances.

 With Apotex – alliance is for Azathioprine, immunosuppressant. Apotex has filed ANDA dozier. US FDA approval is expected in 6-12 months time.

 With Teva, for immunosuppressant, Azathioprine and anti-epileptic – Lamotrigine.

 Actavis has filed ANDA for Haloperidol with company’s APIs for US markets. This business is expected to have major growth post FY 2012.

With these strategic initiatives, RPGLS has set the ambitious target of achieving turnover of Rs. 750 crore in next 5 years (Rs. 160 crore in FY 2010) @ CAGR > 35%. With more contribution from formulation business as well as exports, there will considerable expansion in profitability margins. Once company’s all plants become US FDA approved, there will be big jump in sales as well as profitability.

Company has 12.5 acres of land at Thane (MIDC), of which surplus land is ~ 4.5 acres. @ Price Rs. 10 crore / acre, it can fetch ~ Rs 50 crore (+). At CMP of Rs 105/-, the share (Rs 8/-) is trading at 14.9 times estimated FY 11 EPS of Rs 7/- and at 7.8 times estimated FY 12 EPS of Rs 13.5. In view of excellent future prospects, we recommend to ―BUY‖ the share at CMP.

Source: Geojit

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