Alembic Pharmaceuticals outshines pharma peers as new drugs spur growth

MUMBAI: Alembic Pharmaceuticals is the second-best pharma stock in the BSE 500 in the past one year as an intense effort to discover new drugs for the US market appears to be paying off handsomely for the 100-year-old Vadodara-based firm.

The stock has gained 200% in the past one year, second only to that of Ajanta Pharma and the BSE Healthcare's 29% gain. Its second quarter results have beaten expectations and five brokerages have increased their target price to Rs 210-228. The stock ended Wednesday at Rs 203.7, up 4%.

Alembic's successful transformation from a small-cap stock selling cough syrups to a mid-cap generic player in the high-stakes US market was made possible by a shift in 2010 to discover new drugs and targeting the US market. Pharma was demerged from power and real estate and an R&D team was set up.

"A strong R&D team, which has helped to develop a strong product mix, especially in the US, is the reason for this strong performance," says Daljit Singh Kohli, head of research at India Nivesh, who has tracked the company since 48 and is still very bullish. "The company is seeing such a strong growth in the US that they had to increase their capacity," Kohli added. The R&D now employs 300 scientists and its efforts have transformed Alembic into an international generic drug player. In the past two years, the international business grew at 55%.

Alembic continues to ramp up its ANDA filings. ANDA (Abbreviated New Drug Application) is an application for a US generic drug approval for an existing licensed approved drug.

Once the licensed drug goes off patent, other generic manufacturers can launch the same drug provided approvals are given by the US FDA. The filings are done a year before the licensed drugs go off patent and a lot of strategic thinking goes into it. Alembic Pharma now has a pipeline of 59 ANDA filings and is likely to file another 3-4 ANDAs in the current quarter. It has received approvals for 30 ANDAs, of which it has already launched 16. The company has guided 10-12 filings every year. Alembic has ramped up capacity for one of the drugs, Desvenlafaxine, an anti-depressant for which it is seeing a high demand in the last quarter but the full benefits of this will be seen only from the current quarter.

Analysts expect Alembic's earnings to grow 30-40% from FY13-FY16. Earnings grew 45% in the past quarter driven by the international business which grew by 123% and branded business which grew by 65%.

Alembic's 19% operating margin beat expectations of a 15.6% growth. The domestic business grew 10%. The performance comes on the back of a period of strong growth. In FY11-FY13, Alembic's profit after tax almost doubled while peers such as Ipca and Unichem Labs increased their earnings only by 25% and 20%, respectively. Although the domestic business is still 40% of the company's overall revenues, growth in the US markets will be the key growth driver.