Aurobindo has announced long term plans to steer away from its generics making business in a bid to focus on long term API manufacturing partnerships.
Following its Q2 results, the Indian drugmaker said it believes the patent expiry boom has hit its peak, and consequently expects profits for its US generics business to start declining next year.
As such, the firm is now lending more backing its custom research and manufacturing (CRAMS) business Aurosource, which it launched in 2010 .
And though the area is still quite new for Aurobindo – so far showing no profit in the quarterlies – the firm aims to win strategic partnerships with Big Pharmas over the next five years to develop and produce their APIs (active pharmaceutical ingredients).
The firm is also keen to up its drug discovery support activities, and says it is currently working on two Phase II molecules in the hopes of securing the manufacturing deals afterwards.
High manufacturing costs widens losses
Aurobindo took a 4.97 per cent increase in consolidated net loss this quarter – totalling RS 1.28bn ($23m) – thanks, largely, to higher manufacturing costs.
In its results, the firm said: “The operating profit year-on-year has been impacted mainly due to rise in materials cost by 3.3 per cent on account of change in sales mix, increase in staff costs by $4.6m on account of new hires and other expenditure increase by $5.8m mainly because of rising cost of power, fuel, stores and spares and repairs and maintenance.”
Chairman Ramprasad Reddy said lower formulation sales, the impact of the FDA (US Food and Drugs Administration) alert over its Unit VI Cephalosporin manufacturing facility , and a loss on foreign currency borrowings was also to blame.
However the firm hopes manufacturing high value APIs for advanced markets will pull it out of its money pit in the short term.
Managing director N Govindarajan told Daily News Analysis that the US market in particular would be a target, as a 96 per cent of its $594.5m debt is in dollars.
“In the first quarter of this year, for instance, there was good growth in API business, but, the growth had come from the domestic market and that does not help us much financially,” he said. “We have the debt in dollar and we have to grow in dollar terms.”
Nevertheless Reddy remained positive for the future in the results, adding: “We are confident to deliver on better operational performance in the coming quarters with profitable sales mix.”