Aurobindo Pharma steps up high-value bulk drugs play

Drug maker Aurobindo Pharma is pinning hopes on high-value active pharmaceutical ingredient (APIs) and formulation sales to lift its top and bottomlines in the coming quarters though its financials have been moving southward.

While analysts see profitability of the company taking a beating for at least next two quarters, Aurobindo officials feel that the situation has bottomed out and the key indicators of its financial health will now rise.

“So far the API (bulk drugs) focus has been on emerging markets. Now the focus would be on API supplies to advanced markets. Similarly, the focus would also be on high-value APIs, particularly in cardio-vascular and central nervous system segments. The strategy is already in place and is indicated through the slowing down of Ceph sales,” a company official told DNA Money.

The officials said the third quarter would see the return of normalcy in operations and financials though the performance would remain subdued for the full year. The formulation licensing revenue in the first half of the current fiscal was at Rs.35 crore, which would increase to Rs.50 crore in the second half, they said.
“Formulation supply revenue would be the key and not the licensing revenue,” an official said. For the second quarter ended September 2011, Aurobindo posted a net loss of Rs.80.16 crore as against a profit of Rs.198.32 crore in the same period of the previous fiscal. Net sales dropped to Rs.1,075.30 crore as against Rs.1,112.62 crore in the corresponding period of the previous fiscal.

“We believe that the operational performance is at its trough, hence expect a gradual recovery, pending overhang from FDA (Food and Drug Administration) issue,” an analyst tracking the company said.

A suboptimal growth in the US market due to lack of approvals and disruption in supplies from the FDA issue, lower Ceph sales and de-growth in European Union/rest of the world are said to be the key issues before the company.

Meanwhile, the company has gone back on its plan to restructure the operations for now. It was keen on spinning off the formulations operations and the strategy was seen as a preparation to dilute the equity.

However, based on a report submitted by a restructuring committee and other consultants, the company has decided to put the restructuring plan on hold, with an option of revisiting it at a future date.

“After analysis of presentations made by agencies appointed and  deliberations at the committee level, the board concluded it would be best to maintain a status quo and not attempt any segregation by way of restructuring and lose the operational economies of combined entity,” the company said in a communication to the exchanges.