Windlas Biotech
Profile of the company
The company is amongst the top five players in the domestic pharmaceutical formulations contract development and manufacturing organization (CDMO) industry in India in terms of revenue. With over two decades of experience in manufacturing both solid and liquid pharmaceutical dosage forms and significant experience in providing specialized capabilities, including, high potency, controlled substances and low solubility, it provides a comprehensive range of CDMO services ranging from product discovery, product development, licensing and commercial manufacturing of generic products, including complex generics, in compliance with current Good Manufacturing Practices (GMP) with a focus on improved safety, efficacy and cost. In addition to providing services and products in the CDMO market, it also sell its own branded products in the trade generics and OTC markets as well as export generic products to several countries.
The company’s CDMO Services and Products SBV is focused on providing products and services across a diverse range of pharmaceutical and nutraceutical generic products for Indian and multinational pharmaceutical companies who market such products under their own brand names to the end users. The company’s Domestic Trade Generics and OTC Brands SBV consists of (i) trade generic products; and (ii) OTC brands, which include nutraceutical and health supplement products that do not require prescription and are marketed, distributed and promoted in India under its own brand names through online and offline channels and majorly manufactured by it. Trade generic products are generic medicines, i.e. drugs for which the patents have expired, which are sold directly to the distributor and not marketed through medical representatives, and are typically used as a substitute for more expensive branded generic medicines in order to offer affordable medicines to patients by the retailers and pharmacies. The company’s Exports SBV is engaged in identifying high growth markets and opportunities in semi-regulated international markets as well as selected regulated markets, for developing and registering product applications to obtain marketing authorizations for generic medicines and health supplements and subsequently, sell such products to pharmaceutical companies and pharmacies in the respective markets.
Proceed is being used for:
Industry overview
The pharmaceutical CDMO industry is still highly fragmented, one reason for the fragmentation is the fact that many players are privately held or are part of private equity firms’ portfolios. CDMO space is poised for consolidation in the coming few years. Many pharmaceutical companies are seeking advanced supply chain opportunities in order to optimize the development of their molecule. With evolving technology and rising number of partnerships happening between pharmaceutical players and CDMO players, it presents a key challenge to the CDMO players to expand their operations and increase the portfolio of services offered. For CDMO players expanding through inorganic route is beneficial in some way as compared to building their own capacities as it increases the customer base and the projects for the company while also giving an opportunity to cross sell. Going ahead consolidation in the CDMO fragmented space is expected to gain traction because of the need to provide better and wider portfolio of services. Some of the Indian Pharma and CDMO players have consolidated recent times and are looking to strengthen their portfolio by acquiring different businesses or by backward integration. Akums drugs and pharmaceuticals Limited might consider investing in to an API manufacturing business thus further diversifying its revenue profile as well as back integrating for supply chain advantages.
Pharmaceutical industry across the world is highly regulated with many countries having its own regulatory body to authorize the drugs. Indian pharmaceutical industry too has been regulated by the various regulatory authorities for manufacturing practices and distribution of pharmaceutical products. Regulatory changes in the pharmaceutical industry impacts entire pharma value chain. Regulatory norms such as GMP are basic requirements for the pharmaceutical company to manufacture drugs. Many Indian companies are only GMP compliant and any higher compliance standard than GMP may impact the players in the Industry. Smaller and unorganized players who are not equipped with technology and resources may see a greater impact than much organized players. In addition to technology and resources, Organized CDMO players have longer and established contracts with the pharma companies which helps them negotiate better when it comes to regulatory changes and therefore are better placed than the small and unorganized players.
Pros and strengths
CDMO player with focus on the chronic therapeutic category: The company is amongst the top five players in the domestic pharmaceutical formulations CDMOs in terms of revenue. With increasing globalization and focus of large pharmaceutical players on cutting costs and optimizing operations, CDMOs have seen significant acceptance in the pharmaceutical industry internationally over the last few years. Moreover, with the growing demand for generic medicines and biologics, focus on reducing time to market, the capital-intensive nature of the business, and the complex manufacturing requirements, many pharmaceutical companies have identified the potential profitability in contracting with contract manufacturing and outsourcing for formulation manufacturing. The company brings valuable therapeutic options for patients, prescribers and eventual payers (where insurance reimbursement is available to patients), particularly in the chronic therapeutic category linked to lifestyle related disorders market.
Innovative portfolio of complex generic products: Complex generic products are generic products that have technical complexity in (i) manufacturing or handling of the active ingredient; or (ii) formulation; or (iii) route of delivery; or (iv) pairing with a device to make a drugdevice combo. It is focused on developing and launching new complex generic products, particularly those related to the formulation manufacturing process and drug delivery. It manufactures both solid and liquid pharmaceutical dosage forms and provide specialized capabilities that its customers are seeking, including, high potency, controlled substances and low-solubility products. Complex generic products are hybrid drugs whose authorization depends partly on the results of the tests on the reference medicine and partly on new data from clinical trials and are expected to have same clinical effect and safety profile as the branded drugs. Complex generic drugs and ‘value-added generics’ enable the manufacturers and marketeers to provide a differentiated product to the market with improved safety, efficacy and cost.
Efficient and quality compliant manufacturing facilities with significant entry barriers: The company currently own and operate four manufacturing facilities located at Dehradun in Uttarakhand. As of March 31, 2021, its manufacturing facilities had an aggregate installed operating capacity of 7,063.83 million tablets/ capsules, 54.46 million pouch/ sachet and 61.08 million liquid bottles. It continuously aim to improve cost efficiencies and increase productivity in its operations through use of automation in process equipment as well as use of software in capacity and resource planning and minimization of waste. It has a strong fixed asset turnover underscoring its commitment to operationalizing its manufacturing facilities in a timely and cost efficient manner. The high quality, cost-efficiency and complexity requirements from both R&D and manufacturing systems together pose a substantial competitive barrier for the unorganized domestic CDMO players. Further, historically, developing the expertise to comply with stringent regulatory audits and validation requirements has been a challenge for both pharmaceutical companies and CDMOs, and has been seen as a significant barrier to entry for many CDMOs, as facilities can take years to construct and properly validate.
Long-term relationships with Indian pharmaceutical companies: The company has developed relationships with leading Indian pharmaceutical companies, including Pfizer, Sanofi India, Cadila Healthcare / Zydus Healthcare, Emcure Pharmaceuticals, Eris Lifesciences, Intas Pharmaceuticals and Systopic Laboratories. Its operational track record in successful delivery of products, responsiveness, dosage innovation, complex generic product development, quality and technical standards, turnaround times, and productivity has facilitated the strengthening of its customer base and helped it in expanding its product and service offerings as well as geographic reach. Over the years, it has invested in specialized services and equipment and dedicated infrastructure to support its customers’ growing needs. Its ability to make these investments helps strengthen trust and engagement with its customers, which enhances its ability to retain them and extend its engagement.
Risks and concerns
Derive significant portion of revenue from sale of products in certain therapeutic areas: The company generates a significant portion of its revenue from operations from the sale of products in the chronic and sub-chronic segments as well as acute segment. Any adverse developments with respect to such products in the such therapeutic areas, and its failure to successfully introduce new products in other therapeutic areas to compensate for any losses in these therapeutic areas, could have an adverse effect on its business, results of operations and financial condition. In the event of any breakthroughs in the development of alternative drugs or substitutes in these therapeutic areas, its products may become obsolete or be substituted by such alternatives. Its revenues from its products in the chronic segment may decline as a result of increased competition, regulatory action, pricing pressures or fluctuations in the demand for, or supply of, its products.
Manufacturing facilities concentrated in single region: All of the company’s manufacturing facilities are located in Dehradun, Uttarakhand along with its Registered Office. Any materially adverse social, political or economic development, natural calamities, civil disruptions, or changes in the policies of the state government or local governments in this region could adversely affect, amongst others, manufacturing operations and transport operations, and require a modification of its business strategy, or require it to incur significant capital expenditure or suspend its operations. Any such adverse development affecting continuing operations at its manufacturing facilities could result in significant loss due to an inability to meet customer contracts and production schedules, which could materially affect its business reputation within the industry. The occurrence of, or its inability to effectively respond to, any such events or effectively manage the competition in the region, could have an adverse effect on its business, results of operations, financial condition, cash flows and future business prospects.
Depends on success of relationships with CDMO customer: The company’s CDMO Services and Products SBV is focused on providing products and services across a diverse range of pharmaceutical and nutraceutical generic products for Indian and multinational pharmaceutical companies who market such products under their own brand names to the end user. Its business, financial condition and results of operations are dependent on its relationships with such Indian pharmaceutical companies and multinational companies. However, some of its customers may start manufacturing at their own facilities and may discontinue the use of its CDMO services. Further, it typically plans and incur capital expenditure for future periods. Delays in successfully entering into contracts for utilization of upcoming capacity may result in lack of proportionate increase in its revenues and results of operations, vis-à-vis capacity increase. In addition, there can be no assurance that it will be able to maintain historic levels of business with its significant customers.
Operate in highly competitive market: The company competes to provide services to pharmaceutical companies in the CDMO industry. Its competition in the CDMO services and products SBV includes full-service pharmaceutical outsourcing or CDMO companies; contract manufacturers focusing on a limited number of dosage forms; contract manufacturers providing multiple dosage forms; and large pharmaceutical companies offering third-party manufacturing services to fill their excess capacity. The domestic formulations industry is highly fragmented in terms of both, number of manufacturers and products, with 300 to 400 organized players and approximately 15,000 unorganized players. Contract manufacturing is also characterized by high fragmentation and competition, with large number of organized and unorganized players. For company’s Domestic Trade Generics and OTC Brands SBV, it competes with companies in the Indian market based on therapeutic and product categories, and within each category, upon dosage strengths and drug delivery. Many of the pharmaceutical players are adding trade generic products to their portfolio.
Outlook
Incorporated in 2001, Windlas Biotech is one of the leading companies in the pharmaceutical formulations contract development and manufacturing organizations (CDMO) segment in India. The company offers a range of CDMO services from product discovery to product development, licensing, and commercial manufacturing of generic products including complex generics. It further sells its own branded products in the trade generics and OTC markets. Currently, the focus of the company is to launch complex generic products in the chronic therapeutic category related to lifestyle-related disorders. The business operates in 3 verticals; CDMO Products and services, Domestic trade generics and Over-the-counter (OTC) market (nutraceutical and health supplement products), and Export. The company is led by professional and experienced Promoters and a senior management team with significant expertise in the pharmaceutical industry. On the concern side, the company’s business requires significant amount of working capital primarily as a considerable amount of time passes between purchase of raw materials and sale of its finished products. As a result, it is required to maintain sufficient stock at all times in order to meet manufacturing requirements, thus increasing its storage and working capital requirements. It depends on third party qualified contract research organisations conduct clinical trials and studies of its new products and expect to continue to do so. It relies on such parties for successful execution of its clinical trials and studies, however, it does not control many aspects of their activities.
The issue has been offered in a price band of Rs 448-460 per equity share. The aggregate size of the offer is around Rs 395.36 crore to Rs 405.95 crore based on lower and upper price band respectively. On the performance front, total income increased by 29.99% from Rs 3,313.39 million in Fiscal 2020 to Rs 4,306.95 million in Fiscal 2021 primarily due to an increase in revenue from operations. It has recorded a profit for the year of Rs 155.70 million in Fiscal 2021 compared to Rs 162.13 million in Fiscal 2020. The company intends to its organic growth by pursuing selective acquisitions and strategic alliances that provide it access to better infrastructure, high-value technological and operational capabilities, industry knowledge, technology expertise and geographical reach and allow it to expand its product offerings and customer base. It also intends to target regional pharmaceutical companies and e-pharmacies to offer its customized service offerings in order to develop products catering to their specific requirements.
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