IN 2006, U.S.-BASED Mylan Laboratories announced the largest takeover in the history of Indian pharma — the generics drugs major was buying Hyderabad-based Matrix Labs for up to $736 million in cash. India, which had the largest number of US Food and Drug Administration (FDA)-approved plants, was a prime API destination, and the euphoria was palpable. Just a year before, Satyanarayana Chava — former COO, who played a key role in Matrix’s success — and a few team members had left the company to found Laurus Labs.

The plan was to set up a contract research and manufacturing (CRAMs) company. Convinced that knowledge-driven manufacturing was the way forward for India, Chava invested ₹60 crore to set up Laurus, a manufacturing and research-driven company. And even before the first manufacturing unit was commissioned, the company hired 350 scientists.

In the early 2000s, India was riding high on the chemistry skills of its pharmaceutical companies, with each vying to file Abbreviated New Drug Application (ANDA) under Para IV — the company that files ANDA gets an exclusive right to market a generic drug for 180 days. India also had the largest number of USFDA-approved plants outside the U.S. There was a cost advantage as well, as Indian companies could make cheaper drugs since manpower and infrastructure costs were much lower compared to the West. Matrix taught the Laurus team that cost arbitrage had to be combined with knowledge and manufacturing, which has been the USP of Chava’s company for 17 years.

Knowledge has similar value across the world, and one gets a particular value based on where the service is delivered, says Chava, founder-CEO of the company. “I believe the value of knowledge is more important than just service, so I decided, along with the team, that we need to invest in research & development (R&D) and manufacturing, and overlap the two.” The company currently manufactures active pharmaceutical ingredients (APIs) for select generic drugs used in anti-AIDS, Hepatitis C and oncology therapy.

For Laurus, getting into anti-retrovirals (ARVs) was serendipity though. Back in 2005, the company approached a client who was interested in developing a novel process for manufacturing ARVs, used for treating HIV infections. The Laurus team decided to work on four molecules, two proprietary and two for the client. However, when they went back after 2 years, the client had lost interest in the ARV space. The company had four patents and no takers. Chava and his team approached other manufacturers of ARVs, but nobody was willing to give a fair deal for the process.” We decided to manufacture on our own.” recalls Chava. “We took the entire market since our process was not only better, but cheaper as well,” he adds.

Laurus currently manufactures 500 kg to 12 tonnes of ARV APIs at its peak at different facilities, and Chava feels the company’s model has been vindicated. “If you are confident about the success of your product, it is cost effective to put up a dedicated greenfield facility. So far we have invested $600 million in API manufacturing and another $600 million in formulations facilities,” he says. At times, companies build multipurpose facilities, hedging its bets — if product A doesn’t succeed, there is product B. Laurus, however, built its greenfield facilities to order and the investments have paid off. The success of the initial four APIs led to more opportunities for increased ARV manufacturing, and by 2014, 80% of Laurus’ revenue came from ARVs.

But scaling up involves diversification. So, by 2015, the company decided to expand its product portfolio, and after listing in 2016, it invested heavily in formulations. To sound off the market, Laurus invited the first group of investors to visit its plants and meet the management.

“Building collaborative relationships are important qualities of leadership. A majority of Indian pharma firms have tied up with their global counterparts for sale of new drugs in the country. In times of unprecedented crises like Covid-19, guiding a team with respect and communication is an essential trait that a leader should possess,” says Vijay Chawla, partner & head, life sciences and head, risk advisory, KPMG in India. Clearly, Chava and his team meet the leadership qualities.

“Laurus has a time-tested management team. They had promised to move away from the manufacture of high-potent ARVs and invest in formulations. In 2021, around 40% of their revenues came from formulations,” says Siddhant Khandekar, vice president, research, ICICI Securities.

“Even though we are leaders in ARV APIs, only 25% of our revenue comes from that,” says Chava. “The products we started developing in 2017 are determining our success right now,” he adds. One-third of the company’s sales are customer driven through contract manufacturing projects, while two-thirds are guided by its own strategy. The customer-driven business is growing, thanks to large capacity investments and low attrition among senior leadership.

The process of taking a product from research to manufacturing along with approvals is a 4-5 year cycle. The strategy of 2017, therefore, is showing growth and profits in 2021. Laurus reported a profit after tax of ₹750 crore on revenue of ₹4,707 crore in FY22, a 3-year CAGR of 99.13% and 28.16%, respectively. The return on capital employed was around 24.56%.

“The company walks the talk in terms of diversification and is on track with its strategy for the future” says Khandekar of ICICI Securities. In March 2020, it received the US FDA’s approval to market hydroxylchloroquine tablets that were in heavy demand during the pandemic, which also aided growth.

Of Laurus’ total strength of 5,500, around 1,000 work in the R&D team, and another 1,000 in quality control. The company has 55 plus state-of-the-art R&D labs in India and the U.S. The management believes in empowering these teams since business rests on knowledge and quality. The cost arbitrage is the value created.

Audit ready 24/7 is the company’s policy, says Chava. The team is highly productive with average revenue of almost ₹1 crore per employee, he adds.

For big Pharma, environmental, social and governance (ESG) score, quality, sustainability and corporate governance are critical, which are the company’s top focus areas, says Chava. Laurus has a marquee clientele, including Aspen Pharmacare, Aurobindo Pharma, Cipla, NATCO Pharma and Strides Shasun, to name a few. “The golden period for manufacturing-based pharma companies has just begun. The government’s production-linked incentive scheme will add strength to that,” says Chava.

To further fuel growth for the future, Laurus is betting on biotech through investments and acquisitions. In 2020, the company signed an agreement to buy a 72.55% stake in Bengaluru-based Richcore Lifesciences for ₹247 crore. Richcore develops and manufactures biotech products critical for manufacturing biological drugs. It also has advanced R&D and manufacturing facilities, and helps companies scale up their bioprocesses by providing contract research, development and manufacturing services. The company has large-scale fermentation capabilities and manufactures animal origin free recombinant products, which help vaccine, insulin, stem cell-based regenerative medicine companies reduce dependency on animal and human blood-derived products. It focuses on precision fermentation (a kind of food technology) for manufacturing non animal-based products, including alternate foods, egg protein, alternate meat and alternate milk proteins.

Laurus has also invested in IIT Mumbai-based start-up, Immunoadoptive Cell Therapy Pvt. Ltd. (ImmunoACT), which is developing indigenous CAR T-cell therapy to cure specific types of blood cancer.

Next, the team wants to bring in products and therapies for orphan diseases (a term used to refer to neglected diseases) in India. Chava believes due to its social relevance, such products have funding opportunities from NGOs, crowdsourcing etc. “The mission has the potential to become a profitable business if the molecules can be taken to other Asian and developing markets,” says Chava.

“Pharma exports reported strong growth despite pandemic-led global supply disruptions and geopolitical concerns during the last couple of years,” says Chawla of KPMG India. “Pharma companies delivered life-supporting medicines at affordable rates to global markets,” he adds.

For now, it’s advantage Laurus, advantage India.

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