Laurus Labs slips 4% as arm gets 5 observations post USFDA inspection

Shares of Laurus Labs slipped 4 per cent to Rs 373.15 on the BSE in Wednesday’s intra-day trade after the US Food & Drug Administration (USFDA) issued Form 483 with five observations to the company’s arm Laurus Synthesis Private Limited (LSPL) for its manufacturing facility in Parawada, Anakapalli, near Visakhapatnam.

In an exchange filing, the company said LSPL, a wholly-owned subsidiary of Laurus Labs underwent USFDA inspection for the manufacturing facility in Parawada, Anakapalli, near Visakhapatnam, Andhra Pradesh. The inspection was conducted from 4th December, 2023 to 12th December, 2023. It has been issued a Form 483 with five observations and the company plans to address the observations within stipulated timelines, Laurus Labs said.

Laurus Synthesis business segments include, key starting materials (KSM), intermediates and APIs for New Chemical Entities (NCEs). Laurus Labs offers ARV (antiretroviral)-API (active pharmaceutical ingredients) (30 per cent of revenue), oncology APIs (10.0 per cent of revenue), and other APIs (11 per cent of revenue), Finished Dosage Formulations (FDFs, 27 per cent of revenue, largely comprising of ARV FDFs), and Clinical Development and Manufacturing Organization (CDMO) services, comprising of custom synthesis (18 per cent of revenue) and Biologic segment (3 per cent of revenue), as of September 2023 (Q2FY24). According to analysts at KRChoksey Shares and Securities, Laurus Labs is in the transformation phase by which it intends to reduce the share of ARV (FDF and API) businesses significantly and increase the share of other FDFs and APIs and CDMO synthesis and Biologics businesses.

In the meantime, it has incurred over Rs 2,600 crore (average 16 per cent of revenue) of capital investments over the last 3 years to augment capacity across generic APIs (non ARVs), FDF (non ARV), CDMO synthesis, and Bio businesses. The company expects other FDF sales to continue to rise at a strong pace on the back of new Dossiers and ANDA approvals in the US, Europe and ROW, and rising contract manufacturing (CMO) deals. Similarly, it expects the Bio business’ growth to be driven by traction in CDMO synthesis business and expansion in customer base for the same. However, CDMO synthesis business, which is the major driver of higher operating profitability, is likely to be stable, as the company is currently working on R&D projects with partners whose commercial level sales may not be likely before the next 12-18 months; hence, we do not expect robust operating profitability expansion over FY23-FY26E, the brokerage firm said in its initiate coverage with ‘accumulate’ rating on the stock in report dated December 1.