Aurobindo To Formalize Succession Plan In Dec As MD Readies Exit
Vaxxinity COVID-19 Vaccine Plans Hit Roadblock
Executive Summary
Aurobindo will formalize a succession plan in early December as managing director N Govindarajan, who has spent over a decade at the company, is set to move on. Meanwhile, though a settlement has been reached for generic Revlimid launch plans, development of a COVID-19 vaccine with partner Vaxxinity has hit a major roadblock
Aurobindo Pharma Limited’s board will meet in early December to formalize a succession plan necessitated by an impending exit of managing director Narayanan Govindarajan, company officials said during a call to discuss Q2 FY22 performance.
On 1 October, it announced Govindarajan’s resignation from his position as MD and director will be effective from the close of business on 31 December 2021.
While the notice to the Bombay Stock Exchange had cited “personal reasons” for the move, there have been murmurs in the industry over his differences with the board over the proposed acquisition of an animal health company.
When Aurobindo Pharma Limited declared its first quarter FY22 results, it also announced the board’s intention to acquire a 51% stake in Cronus Pharma Specialities Pvt. Ltd., for INR4.2bn ($56.5m). While the move into animal health caught analysts by surprise, with several raising questions over the business case, most brokerages hadn’t downgraded the stock.
However, share prices fell steeply. On the Bombay Stock Exchange, the closing price plummeted from INR825.7 on 12 August when the deal was announced to INR681.45 on 20 August when it was hastily terminated nearly a week later.
It has been recovering since, with intermittent dips, with the stock’s closing price on 10 November at INR700.05.
Perceived as upholding corporate governance standards at the company and improving the level of disclosures to investors, Govindarajan’s exit is seen as a setback. Also known as Govind to his peers, he has spent over a decade at Aurobindo, deftly steering the company to rapid growth in the US and other geographies.
“Govindarajan feels he has achieved what he set out to achieve and given the lack of executive freedom now, he thinks it’s time to move on,” an industry official told Scrip.
The company has appointed S Damodharan as chief operating officer (COO) for the API vertical and P Yugandhar as CEO of Eugia Pharma Specialities Limited, a wholly owned subsidiary focused on generic injectables and oncology. It’s not clear if the current COO Sanjeev Dani might take on a bigger role, but Govindarajan’s successor will have big shoes to fill.
Under his leadership, Aurobindo stitched a far-reaching deal in 2018 to acquire Sandoz International GmbH’s US generic oral solids and dermatology businesses in a transaction worth around $1bn. The deal with Novartis AG, however, had to be called off in 2020 when US Federal Trade Commission clearance couldn’t be obtained within anticipated timelines. (Also see "Aurobindo-Sandoz End $1bn US Deal" - Scrip, 2 Apr, 2020.)
Before joining Aurobindo Pharma as CEO for the active pharmaceutical ingredient (API) and contract manufacturing verticals in 2010, Govindarajan had a notable stint as CEO and MD at Shasun Pharma Ltd, now Strides Pharma Science Limited.
COVID-19 Vaccine Faces Setback
Meanwhile, the company's COVID-19 vaccine partnered with Vaxxinity, a United Medical Inc subsidiary earlier known as COVAXX, has faced a severe setback. (Also see "Indian Companies Find US Partners For COVID-19 Vaccines" - Scrip, 24 Dec, 2020.)
The candidate UB-612, that was undergoing Phase III trials in Taiwan, was denied an emergency use approval (EUA) by the Taiwan Food and Drug Administration (TFDA) in August citing failure to meet efficacy standards during an experts’ review.
“There is no change in the scenario”, Govindarajan said during a post-earnings call. The company was counting on exclusive rights to develop and commercialize UB-612 in India and to UNICEF along with non-exclusive rights in other select emerging markets to help drive revenues. While Aurobindo received approval from the Indian regulator to conduct clinical trials in India, it hasn’t made progress.
It will now seek other contract manufacturing opportunities for a newly set up viral vector vaccine facility. The company’s pneumococcal conjugate vaccine, currently in Phase III trials, is making progress though and an India launch is expected in the third quarter of FY23.
Investment In API Units Delayed
While the fallout of a delay or discontinuation of UB-612’s development didn’t appear to faze analysts much, they voiced concern over a delay in setting up fermentation-based API units to avail an incentive scheme rolled out by the Indian government.
Aurobindo is seeking clarity over certain finer points before committing to a large investment, officials said. The delay means it will take at least 18-24 months for the capital expenditure on setting up these new units to yield future revenues.
In the original scheme, both penicillin-G (pen-G) and 6-aminopenicillanic acid (6-APA) qualified for incentives, but in the final announcement only pen-G was eligible. “We also want to manufacture 6-APA because we committed to make 15,000 tons of Pen-G,” said Govindarajan.
“We made it clear that a majority of that would be converted to 6-APA. The process we developed originally [was one] where we don’t need to isolate pen-G to make 6-APA. Since the scheme is only for pen-G now, we have raised a query if it can be considered part of the scheme without isolating pen-G.”
The company has also sought clarification from the government over 7-aminocephalosporanic acid (7-ACA) as there has been a shift with certain cephalosporins using alternate key starting material.
During Q2, APIs contributed INR7.8bn or 13% of operational revenue, which was INR59.4bn. Operational revenue fell 8% compared to the same quarter last financial year but grew 4% quarter-on-quarter.
Net profit came in at INR6.9bn, lower than INR8bn in Q2 FY21 and INR7.7bn in the first quarter of FY22. The decline was on account of higher raw material and logistics costs apart from margin erosion on oral solid formulations and antiretroviral (ARV) products.
Revlimid Launch In FY23, Other Launches
However, a silver lining to the quarter was a settlement with Bristol Myers Squibb Company's Celgene Corporation over generic Revlimid (lenalidomide), which Aurobindo expects to launch in the US during FY23. Of late, multiple Indian companies like Torrent Pharmaceuticals Ltd. have reached a settlement over the drug ahead of its patent expiry.
During Q2, final approval from US Food and Drug Administration (FDA) was received for seven Abbreviated New Drug Applications (ANDAs), including for two injectables. It launched six products, including three injectables while it filed 27 ANDAs, including for five injectables. In addition, drug master files were submitted for three APIs.
Aurobindo now has 456 final ANDA approvals, 29 tentative approvals and 196 under review filings, giving it a healthy launch pipeline.
Among other forthcoming launches will be an oncology biosimilar in the European Union in the second half of FY22 and three more biosimilar candidates which are in various stages of clinical trials. Aurobindo also expects to file two depot injections and two metered-dose inhaler products in the US in FY23. (Also see "Aurobindo Files First Biosimilar In Europe With Pegfilgrastim" - Generics Bulletin, 23 Sep, 2021.) (Also see "Aurobindo Upbeat On Outlook, Transfers Biologics Biz" - Scrip, 5 Jun, 2020.)
Unit I has been inspected by FDA while the AuroLife Pharma LLC’s oral solids manufacturing facility in the US, which last received a warning letter, is undergoing an inspection, company officials said.
Analysts from Sanford C. Bernstein (India) Pvt Ltd expect Aurobindo to benefit from normalization of inventory levels in the US beginning Q4 of FY22 though ARV demand is likely to remain under stress, with prices coming down. The brokerage maintained its market-perform rating.
On the other hand, Nirmal Bang Equities Pvt Ltd reiterated its “Buy” rating, but lowered its target multiple to 16x from 18x with a target price of INR865 a share. It cited lower ARV sales, a significant delay in investments around fermentation-based API capacities, pressure on margins due to higher raw material costs and potentially higher upfront investment in biosimilars commercialization as reasons for the revision.