Concord Biotech

APIs (80% of FY24 revenue):

• The global API market as of 2022 was valued at ~$219 billion, which is expected to grow at a CAGR of 6.1% till FY26. Of the total market, biological APIs accounted for 37% and Small molecule APIs accounted for the remainder of 63% share.

• The global API market can be broadly segmented into therapeutic areas such as anti-infective, oncology, immunosuppressants, and others. Of these immunosuppressants accounted for 7% of the market and is expected to grow by ~9.7% and oncology market which accounted for 19% is expected to grow at a CAGR of 19.7%.

• The Indian API market valued at ~17 billion, it comprises of APIs manufactured for exports and APIs consumed in formulation by Indian formulation companies. These formulations are domestically consumed as well as exported to the global market. The total India API market is expected to grow at a CAGR of 11.1%.

• The fermentation market is expected to reach ~USD 14 bn by CY26, representing a CAGR growth of 3.6% over CY22–26.

• Fermentation vs synthetic route:

• Fermentation is a process used for cultivating microorganisms or other organic material into important pharmaceuticals such as antibiotics, therapeutic proteins, enzymes, and insulin. It is typically carried out in temperature-controlled tanks (fermenter) which requires addition of nutrients at the correct concentration to maximize the productivity of the organism of interest.

• The slightest adjustment to this process can yield significant variations in the final output. As a result, this approach stands in stark contrast to chemical synthesis, requiring a highly specific and quality-centric approach.

• Some of the advantages vs synthetic include low-cost of starting materials for fermentation and ability to recycle agricultural waste/ by-products. Fermentation in comparison to chemical synthesis, does not involve using as many harmful or toxic solvents or chemical raw materials, thereby avoiding producing dangerous waste.

• API via the fermentation route is more complex and costly compared to the synthesis one. But the products which are obtained thru the fermentation process, it is difficult to make same from synthesis route.

• Semi-synthetic API : Semi-synthesis is a type of chemical synthesis that utilizes compounds isolated from natural sources as starting material, such as bacterial or cell cultures or plant material. These natural biomolecules are usually large and complex. Generally, semi-synthetic derivatives outperform original biomolecules with respect to potency, stability or safety

• Concord’s API offerings:

• As we saw, fermentation API market remains an extremely niche area having low competition as compared to chemical APIs. The process of making APIs via fermentation route remains a highly challenging and multi-step process that involves microbial strains with multiple controllable parameters.

• The complexities in the manufacturing process and the requirement of capex commitment have resulted in creating significant barriers to entry into the fermentation-based API space. The small molecule fermentation API companies are largely concentrated in Asia, with China accounting for more than 50% of the global supply

• The recent shutdown of manufacturing plants in China due to environmental and quality concerns has changed the competitive dynamics leading to increased opportunities for players in India. The shift in trend from China towards India offers new market opportunities for Concord.

• Concord offers API products within immunosuppressants, anti-fungal and Oncology.

Immunosuppressants – There are drugs or medicines that lower the body’s ability to reject a transplanted organ. Another term for these drugs is anti-rejection drugs. These drugs are used when a patient is going through any kind of organ transplant.

Antifungals – These are medicines that kill or stop the growth of fungi that cause infections.

Oncology – Cancer

• Globally the company holds market share within these products of more than 20% primality in the immunosuppressants therapies. These APIs are niche in offerings and also have limited competition.

• Within fermentation also, there are few therapies which are easier to manufacture and have a lot of competition. Chinese players are present in vitamins, statins and anti-biotics where competition and volumes are higher compared to the categories that Concord focuses on.

• The primary selection criteria for Concord entails a higher focus on high-complexity APIs. This enables Concord to spend its manufacturing capacity on products that yield the highest profitability.

• Currently the revenue share within APIs have been dominated by immunosuppressants, which accounted for more than 75% (as of FY23) of the revenue in APIs. The other therapies are growing faster than immunosuppressants, and the share has been reducing as per the mgmt. But the company does not provide revenue bifurcation on therapy/product level.

• Brief about the products and company’s market share:

• Immunosuppressants:

Tacrolimus :

Product market size – $3bn, API of the product market size – $121 mn

Tacrolimus is prescribed for preventing organ transplant rejection and treating moderate to severe atopic dermatitis. As per the company, the Tacrolimus API market is expected to grow at ~7% CAGR, within which the generic API market is expected to grow at a faster pace of ~16% from CY22–26. Concord is a leader in the Tacrolimus API market, with an estimated volume share of 35% in FY23 with two of the top five global API consumers being its clients.

Cyclosporine

Product market size – $3bn, API of the product market size – $36 mn

Cyclosporine helps in preventing organ rejection in kidney, liver, and heart allogeneic transplants. The drug is also prescribed for psoriasis, rheumatoid arthritis, and uveitis. Concord is the only supplier of Cyclosporine API from India to all major regulated markets and had a volume share of 31% in FY23. The company caters to two of the top five formulation companies in North America and Asia and three of the top five in the RoW markets. The molecule is likely to see an increase in the number of generics and we expect Concord’s market share to grow sustainably.

Mycophenolate Sodium :

Product market size – $364 mn, API of the product market size – $26 mn

Mycophenolate Sodium is the sodium salt of mycophenolic acid used as an immunosuppressive prophylactic to prevent rejection during organ transplantation. The API market by volume is expected to witness a CAGR of ~8%. Concord had a market share of ~28% by volume in FY23.

Mycophenolate Mofetil

Product market size – $973mn, API of the product market size – $116 mn

It is an immune-suppressing drug. It’s primarily used to prevent organ rejection in transplant patients and to treat various autoimmune diseases. The medication works by slowing down the growth of certain immune cells, helping to reduce excessive immune responses in the body. Concord accounted for ~15% global volume share while serving at one out of the top five API consumers in FY23.

Anti-infective APIs (~13% of FY23 API sales)

Mupirocin and Mupirocin calcium

Product market size – $291mn, API of the product market size – $46 mn

It is an anti-bacterial use to treat superficial skin infections such as impetigo caused due to bacteria. There were eight companies with active US DMFs, five with valid CEPs, and one with an active Japan DMF as of FY23. Concord has 21% volume market share within this product.

Teicoplanin

Product market size – $712mn, API of the product market size – $20 mn

It is an antibiotic used to treat severe bacteremia, complicated skin and soft tissue infections, bone and joint infections, endocarditis, peritonitis, pneumonia, and UTIs. Due to its efficacy and low cytotoxicity, Teicoplanin has also been used for patients with complications. There are 5 companies globally which manufacture the API for these products. Concord has 10% volume market share within this.

Oncology :

Everolimus

Product market size – $1bn, API of the product market size – $25 mn

Everolimus is prescribed for the treatment of breast cancer and tuberous sclerosis complex and for prophylaxis of organ rejection in adult patients receiving organ transplants. Concord has 10% volume market share in this product.

Mitomcin and Midostaurin:

The company has a volume market share of ~17% and 15% within Mitomcin and Midostaurin respectively. These products have API size of $8mn and $3mn. Very niche products having highly specialised uses.

Formulations (20% of FY24 revenue):

• Concord began its formulation journey in 2016 by forward integrating into products in which it has strong API manufacturing skills.
• The company has a basket of 98 approved formulation products contributing ~20% to overall revenue.
• In formulations, products are offered under its own brands in India, and sold in emerging countries in Asia, Africa and Latin America and the US, primarily through arrangements with distributors.
• In addition, the company offers nephrology drugs and anti-infectives for critical care, which h the company in-licenses in India under its own brands.
• Being backwardly integrated with the manufacturing of key starting materials also provides a distinct competitive advantage. This vertical integration can contribute to cost efficiencies, quality control, and a more streamlined production process. It also enhances the ability to manage supply chain effectively, ensuring a steady and reliable source of key essential materials.
• The company has been getting more approvals across markets lead by the efforts of the marketing team. This segment is expected to grow at very healthy rates as they have been able to recently get the products up and running. Although the verticle was started in 2016, they got the approvals in ANDAs in 2019 and then covid hit because of which there were very less approvals till FY22. Hence the pickup in the segment was hampered again and again, and then in FY23 there was a drop because of issues at the distributor end.
• India formulations:
• The India business contributed nearly 70% to Concord’s total formulations revenue in FY23, having a presence in immunosuppressants and Anti-Infective therapies in India.
• The company sells its products via the tender route to hospitals, it also markets over 27 brands of immunosuppressants, nephrology, and anti-Infective drugs for critical care through a network of 150 MRs.
• Besides, Concord also works as a CMO partner by supplying immunosuppressant to its clients in India.
• The company has three products under NLEM, namely Mofecon 500 mg, Tacrocord 1.0 mg, and Gammacord 100 ml, which constitutes 36% of its India formulations revenue in FY23.
• Export formulations:
• Export formulations accounted for ~30% of the segmental revenue in FY23 with key export markets being the US, Europe, Japan, and RoW. Within exports, North America is a key contributor followed by the RoW markets. As of FY24, the company had filed 128 API DMFs and 77 approved products for formulations with various regulatory agencies across the world.
• The company registered a revenue decline of ~33% in FY23 largely on account of a ~65% decline in its export business. This decline was on account of the termination of a supply agreement with a large distributor for the US market. Concord competes with its clients by selling a similar set of products for which it supplies APIs.