Aurobindo to replace Actavis' drugs with its own to lower cost

Hyderabad-based generic drug maker Aurobindo Pharma has said that over the next 24 months, it will replace half of Actavis products with Aurobindo's own low-cost high-margin products to bring down its overall costs.

In January, Aurobindo had inked a long-term commercial and supply agreement with Actavis to acquire its personnel, commercial infrastructure, products, marketing authorisations and dossier licence rights in seven European countries for 30 million euro. In April, the company had announced the completion of the acquisition of certain commercial operations in Western Europe from Actavis Plc.

During the recently-held second quarter earnings call, N Govindarajan, managing director, Aurobindo Pharma, said, “We will be switching the Actavis product with the Aurobindo product wherever we have better cost of goods and which is being done currently. We are on our way in terms of replacing our product with Actavis products.”

Govindarajan also said that the number is not large, just around 450 products of which 200 may get replaced on an ongoing basis over next 24 months. The company is likely to move the supply of some of the products from the Actavis facility to its own facility. “The next phase, which will take another 12 to 15 months more, will be moving some of the products to our own side, so as to reduce the cost of goods,” he added.

Aurobindo's product portfolio is spread over 6 major therapeutic/product areas encompassing antibiotics, anti-retrovirals, CVS, CNS, gastroenterologicals, and anti-allergics. On the other hand, Actavis products range is in therapeutic categories, including antibiotics, anti-inflammatories, oncology medications, cardiovascular treatments, respiratory products, dermatology products and treatments for central nervous system and metabolic disorders among others. Its biosimiliars program is developing treatment options within the oncology and women’s health therapeutic categories.

Clarifying more on this, he said, “In Phase I, we have integrated both Aurobindo and Actavis business together. So there is benefit coming out of that in all the countries where we had operations both for Actavis and Aurobindo.”

“Phase II is wherever Aurobindo products have a lower cost at higher margin, we are bringing them into Actavis portfolio. These two are ongoing. And the third will be when we will bring about 500 molecules that we have, which is of equivalent portfolio in the odd product form will be brought in-house into India, thereby reducing the costs and enhancing the margins,” he added.

For the quarter ended September, 2014, Aurobindo Pharma has clocked a consolidated total operating income of Rs 2,881 crore, an increase of 50.5%. Profit after tax during the period under review grew 58.4% to Rs 372 crore. While the US business grew 60% on year-on-year basis, the European business grew more than fourfold recording a sale of Rs 766 crore as against Rs 171 crore in the corresponding period last fiscal.

According to Nimish Mehta, founder director, Research Delta Advisor, the company wants to bring down the cost. “It is difficult to say which category of products would get replaced. They both have a large basket of products, so there might be certain overlapping of products that Aurobindo may be targeting. What they also meant is if they are supplying from Actavis plant, they will stop that and will be supplying from Aurobindo plant. They want to bring down the cost, so they feel Indian sourcing will help them to bring down the material cost.”