Madhusudhan Kela and Sunil Singhania bought this stock only four months ago. And now, the stock is on steroids

Shares of Shilpa Medicare have surged 121 percent year-to-date.

Only four months ago, veteran investors Madhusudan Kela, Sunil Singhania and a bunch of domestic institutional investors subscribed to this drug-marker’s QIP. The robust drug pipeline combined with expectations of a revival in its flagship contract drug manufacturing business (CDMO) was making investors lap up the stocks. Now the story of Shilpa Medicare seems to be only getting better. The latest development that has further stoked the rally in the stock is the company’s successful clearing of the phase 3 trials of fatty liver drug SMLNUD07, also known as NorUDCA.

The positive development steered bullishness for the drugmaker, sending its stock over 11 percent higher intraday on August 26 to a record high of Rs 777.90. It has already surged 121 percent year-to-date. The stock currently trades at a P/E of 160.08.

What's more encouraging is that NorUDCA is part of a long list of drugs under Shilpa Medicare's pipeline which are currently in the phase of clinical trials.

Other key drugs in that list include anti-cancer medication--Bortezomib, androgenic alopecia drug--SMLTOP09 (market size $2.9 billion), Parkinson's disease drug--Rotigotine, cancer drugs--Aflibercept, and Lenvatinib.

Earlier this month, the drugmaker also completed the phase 1 clinical trials for Albumin and expects to commence the phase 3 trials by Q4 of FY25. Those trials are likely to be completed over next 9 to 12 months post commencement with filing for product approval in various geographies expected to commence in FY26.

Albumin is used to treat or prevent shock following serious injury, bleeding, surgery, or burns by increasing the volume of blood plasma.

It's worth noting that all these drugs are complex in nature and face limited competition across major markets, making them margin accretive and hence, analysts are keenly tracking the launch timelines of these products. Nuvama Institutional Equities also noted that the drugmaker is cautiously moving into specialty products with high margins and longer market cycles and thereby, has several regulatory triggers ahead.

Brokerage firm KR Choksey believes these new assets that are under development will drive growth for the company through licensing income. Analysts at Arihant Capital Markets also maintained similar growth outlook for Shilpa Medicare anticipating future growth to be driven by an expansion in the formulation business, new product pipeline, licensing income accrual and stake sale in certain businesses.

After suffering from earnings pressure in the CDMO business due to price decline in active pharmaceutical ingredients (APIs) and industry headwinds, the company's efforts into the segment over the past two years are seen moving in the right direction.

In July, Shilpa Medicare's CDMO customer, Unicycive, reported positive clinical trial results for Oxylanthanum Carbonate (OLC), a molecule aimed at treating chronic kidney diseases. Following this success, Unicycive plans to file for a New Drug Application by mid-2024, with potential approval by mid-2025.

Consequently, Unicycive has secured a long-term manufacturing and supply agreement with Shilpa Medicare. A binding order for OLC tablets is expected by June 2025, with further deliveries scheduled through mid-2026. Shilpa Medicare is also set to earn $10 million in milestone income through the product's filing, approval, and launch.

Further, in order to meet growing demand, Unicycive will also fund the construction of a new manufacturing block at Shilpa’s site. This collaboration is expected to drive growth in Shilpa Medicare's CDMO segment and strengthen its API business, according to KR Choksey.

Shilpa Medicare's improving prospects have attracted market veterans such as Madhusudan Kela and Sunil Singhania, who participated in the company's recent Qualified Institutional Placement (QIP) executed in April this year. Funds managed by these investors, along with institutions like ICICI Prudential, Bandhan Mutual Fund, and SBI Life Insurance, were allotted shares during the QIP.

This heightened investor interest is also reflected in the company's shareholding patterns. Foreign institutional investors increased their stake significantly to 9.08 percent by the end of the June quarter, up from 5.63 percent in the previous quarter. Domestic institutional investors expanded their holdings even more sharply, rising from 1.65 percent to 7.61 percent over the same period.

Also Read | Shilpa Medicare up 15 percent on hopes of $10 million milestone pay as client succeeds key trial