Ipca Laboratories is a clear outlier among pharmaceutical stocks in 2019. The drug maker, known for its aceclofenac pain brand Zerodol, has given its shareholders 44 percent returns in this calendar year till now. In 2018 too, Ipca gave robust returns of 33 percent.
Ipca, which was growing at frantic pace in the first half of this decade, lost steam in the middle due to regulatory woes. The drug maker's ambition to cement its place in the world's largest market for generic drugs was dealt a massive blow when three of its manufacturing sites at Silvassa and SEZ Indore and an active pharmaceutical ingredient (API) manufacturing site at Ratlam were banned from exporting to US in 2016.
The company faced another setback when Global Fund to Fight AIDS, Tuberculosis and Malaria stopped buying anti-malarial drugs after US FDA's action against the company. Nearly one-fourth of Ipca's export revenues were coming from anti-malarial drugs.
But Ipca focused on its domestic formulation business and the startegy paid rich dividends. Domestic formulation business constituted about 46 percent of Ipca's sales of Rs 3579.65 crore in FY19, and grew YoY at 16 percent. In FY20, domestic sales continued the same pace of growth by now constitutes more than half the sales.
In domestic formulation, Ipca focused on branded business. It decided to aggressively pursue the aceclofenac pain brand Zerodol. Zerodol isn't any new molecule, it is a generic with more than 100 competitors jostling for market share. But what worked in favour of aceclofenac, which itself is an analogue of diclofenac, is that it has lower gastric irritation. Most painkillers increase acidity, and doctors prescribe an additional antacid, forcing patients to take another additional pill. Aceclofenac benefit of lower gastric irritation helped the drug gain market share among painkillers.
Ipca built its brand Zerodol franchise and aggressively marketed with a sales force of around 1000 representatives. The drug is also not part of the National List of Essential Medicines (NLEM), which bolstered the push.
Currently, the Zerodol franchise generates annual sales of about Rs 500 crore, around 30 percent of Ipca’s domestic sales.
The company also has a strong focus on cardiovascular therapeutic segment with its flagship brand CTD (Chlorothalidone) used to treat patients with high blood pressure. CTD is the second-largest contributor to Ipca's formulation revenues contributing over Rs 100 crore in sales
Ipca's domestic formulation business outpaced industry growth with 16 percent year-on-year growth. IPCA is confident of maintaining the 1.5x growth momentum in FY20 and beyond, as it plans to double the sales of Zerodol franchise to Rs 1000 crore.
The company's other business verticals are also back on track. The API business is seeing significant traction led by increase in filings across multiple new geographies during the last few years. The API segment was also helped by gains in valsartan, where other drug makers have to cutback supplies due to issues of impurity. The API segment saw 18 percent YoY growth in FY19 to Rs 884.56 crore.
The exports grew overall rose 11 percent YoY to Rs 1730.84 crore. The institutional business, particularly of anti-malarial drugs, once a big revenue earner for Ipca has hit a plateau due to competition and lesser orders.
Ipca expects sales worth Rs 400 crore from its institutional business in the next 2-3 years. The company is banking on hormones to drive growth in institutional business.
The company’s formulations manufacturing sites at Silvassa and SEZ Indore and APIs manufacturing site at Ratlam continue to be under US FDA import alert.
The US formulations and APIs business continues to be impacted due to ongoing US FDA import alert for three of the Company’s manufacturing facilities. The company has filed 46 abbreviated new drug applications (ANDA) with US FDA out of which 18 ANDA applications are granted till date. Around 46 drug master files (DMFs) of the Company are also currently filed with US FDA.
In a recent US FDA re-inspection, Ipca's Piparia (Silvassa) formulations manufacturing unit in August, Ipca received 3 observations. This was the first FDA re-inspection of any Ipca facility since the import alert was issued four years ago.
The inspection is classified as official action indicated (OAI), which means US FDA isn't quite happy with the compliance of the facility, indicating that the resolution will take more time. On brighter side, none of the Ipca's facilities face any adverse action by other regulators. But if Ipca resolves USFDA regulatory compliance issues, analysts expect another growth lever opening up for the company.
"Ipca has clearly turned the corner and is set to deliver steady topline growth," said IDFC in its recent report on the company.
"Ipca has leveraged the tough times to sharply reduce fixed costs, which is magnifying the operating leverage with the resumption of revenue growth across segments. Resolution of outstanding FDA issues can add further tailwinds to growth FY22 onwards," the report added.