Eris Lifesciences – 100% of sales from India Pharma Market

Margin revival continues for Eris. As they turnaround acquisitions, their appetite for newer acquistions keep increasing, with them now acquiring nephrology and dermatology brands from Biocon at 3.7x EV/sales. They are confident of increasing margins of acquired portfolio from 20% to 30% in a years’ time. Concall notes below.

FY24Q2

• FY24 guidance: 2000-2100 cr. sales, 700-710 cr. EBITDA (30% growth), 410-415 cr. PAT (without Biocon acquisition)
• Capital allocation strategy: focus on using operating cashflows to expand into newer therapies through acquisitions (Strides gave them Nephrology, Oaknet gave them Dermatology, Biocon adds to Nephrology and Dermatology)
• Acquired 12 brands in Nephrology (Organ transplant focused power brands like Tacrograf and Renodapt; 65 cr. sales; 40 MRs) and 9 brands in Medical dermatology (Psoriasis and Atopic Dermatitis; 35 cr. sales; 50 MRs; Psorid is 25 cr. brand) from Biocon for 366 cr. (including working capital; 3.7x sales; 280 cr. will be from debt). Total personnel: 90 MRs + 30 others. Very high MR productivity (9 lakhs YPM). Will reach 30% EBITDA margin in FY25 from 20-22% currently
• Amortization will be 17-18 cr. annual amortization (20 year window)
• Psoriasis market is 1100 cr. (2-year growth of 20%). This acquisition makes them second largest in psoriasis with 11% market share
• Nephrology market is 3000 cr. growing at 11%
• When there is personnel acquisition (and not only brand acquisition), then leakage of sales is lower
• In Glenmark acquisition, have reached 100% of sales but for Dr Reddy have only managed to get to 90-92% by Q2
• Organic growth: 7-8% (vs covered market growth of 2.5% in H1)
• Launches
  o 2 FDCs in oral diabetes approved (Gliclazide-Dapagliflozin, Gliclazide-Sitagliptin) and will be launched this quarter. Both are first to market
  o Launched 2 “at-risk” products (Linares & FCM) in Q2
  o Launched 4 products in dermatology in Q2 (Hydroheal, Nova, Efatop Hydra, Crisanew)
  o Pipeline increased to 14 from 10 in Q1: Added 2 FDCs in gynecology, 1 first time to Indian launch in cardiovascular and 1 in respiratory therapy in FY25
• Their 50 cr.+ brands reduced from 15 in Q1 to 13 in Q2. 100 cr.+ brands increased from 4 in Q1 to 5 in Q2
• Will start commercial production in dermatology in Q4FY24
• Insulin: 10 cr. sales in Q2FY24; (-1.8 cr.) EBITDA loss
• Market coverage: 83% in diabetes, 54% in cardiovascular, 50% in dermatology

Disclosure: Invested (position size here, no transactions in last-30 days)