Neuland Laboratories Limited – Transformation towards niche APIs?

Some takeaways from acquisition of Karuna Therapeutics by Pharma Giant Bristol Myers from the perspective of Neuland:

1. With this big acquisition, looks like KarXT is seriously poised for regulatory approvals. If approved, KarXT is expected to launch in late 2024 in the U.S. as a treatment for schizophrenia.

2. As per analysts, KarXT could generate more than $6 billion in peak annual sales for BMS if it were to be approved for all indications for which it is in development.

3. Neuland is CDMO partner for Karuna for manufacture of API for their projects including that of KarXT. Karuna might have other products in pipeline at early stages, there is a good possibility that Neuland might be involved in scaling up these early stage molecules with the innovator Karuna Therapeutics.

4. Karuna and Neuland started working on KarXT in mid-2019. Since then there has been various development on various fronts like scaling up, impurities reduction, signification yield improvements, registrations etc. Neuland is backward integrated for Regulatory Starting Material (RSM) . Neuland Labs has posted in good detail.

5. Neuland does’t seem to have any significant commercial relationship with Bristol Myers. Only connection I could found is that Dr. Christopher M. Cimarusti, Non-Executive Director of Neuland happens to have held executive leadership positions at Squibb Corporation and Bristol-Myers Squibb (BMS) in discovery and development. His last position with BMS was as Sr. Vice President, Pharmaceutical Development Centre of Excellence. But Neuland shares with very good relationship with Karuna Therapeutics.

6. Since the molecule is under development and not commercialised yet, I doubt this has been major contributor for the Neuland in terms of revenue thus far. However, management in the concalls indicated that development projects are exceeding their expectations but question is how much they can contribute. Management also saying that newly commercialised molecules have been the major contributors for increased CMS revenue.

7. Now the question is whether BMS would continue with Neuland for CMDO of KarXT. Patent has a limit and the way Neuland has greatly scaled up the molecule with integration of RSM and significant yield improvements despite CNS considered to be very Complex Chemistry and involves highly hazardous materials. Tech transfer and scaling up takes time. With my limited understanding I doubt BMS can totally ignore Neuland given the tight timelines for commercial launch if the molecule is approved.

For Neuland this could be big moment not only in terms of revenue but also to showcase their capabilities in case they are continued as CDMO of KarXT by BMS, be it 1st choice or 2nd choice, that can open many cross selling opportunities. Given many other projects in pipeline including peptides, valuations are still at discount to other CDMOs even without discounting KarXT thesis. This KarXT thing is turning out to be realistic optionality from binary outcome for Neuland.

Disclaimer: Invested, biased.