Senores Pharmaceuticals coming with IPO to raise upto Rs 608 crore

Senores Pharmaceuticals

• Senores Pharmaceuticals is coming out with a 100% book building; initial public offering (IPO) of 1,55,40,860 shares of Rs 10 each in a price band Rs 372-391 per equity share.
• Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on December 20, 2024 and will close on December 24, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 37.20 times of its face value on the lower side and 39.10 times on the higher side.
• Book running lead managers to the issue are Equirus Capita, Ambit and Nuvama Wealth Management.
• Compliance Officer for the issue is Vinay Kumar Mishra.

Profile of the company

Senores Pharmaceuticals is a global research driven pharmaceutical company engaged in developing and manufacturing a wide range of pharmaceutical products predominantly for the Regulated Markets of US, Canada and United Kingdom across various therapeutic areas and dosage forms, with a presence in Emerging Markets. The company’s strength lies in identifying, developing and manufacturing a diverse range of specialty, underpenetrated and complex pharmaceutical products establishing it as a preferred partner to certain customers. Through data analytics, research, market assessment and experienced management, it strategically identifies commercially underpenetrated molecules to launch products in the Regulated and Emerging Markets. It leverages its R&D capabilities to develop and manufacture a portfolio of differentiated complex pharmaceutical products. Its focus on quality and its ability to identify specialty and complex molecules has resulted in a pipeline of curated complex products spanning diverse dosage forms and therapeutic domains, demonstrated through its partnerships in the Regulated Markets of US, Canada and United Kingdom with foreign and Indian pharmaceutical companies.

The company’s business is primarily focused on the Regulated Markets of US, Canada and the United Kingdom. It has a presence in the Emerging Markets across 43 countries. It also manufactures critical care injectables and APIs. With an emphasis on research and development, it has consistently demonstrated its capability to propel products from initial conception to successful commercialization. Its strength lies in taking a product from conceptualization to market launch, ensuring tangible results and delivering solutions to market successfully.

The company is an R&D driven company with a differentiated product portfolio across dosage forms which has enabled it to reach a range of target markets with a presence in US, Canada and the Emerging Markets. Its capabilities include internal research and development knowledge, established manufacturing capabilities in the US and in India (including the ability to synthesise and manufacture critical APIs in-house), a regulated quality assurance system given its exposure to Regulated Markets of US, Canada and United Kingdom and regulatory experience. Its strength lies in its ability to identify, research, develop and manufacture in-house pharmaceutical products for high-growth therapeutic areas, for which there is limited competition. As of September 30, 2024, it has three dedicated R&D facilities in India and the US. It is in the process of consolidating its R&D facilities into one proposed dedicated facility in Ahmedabad. 

Proceed is being used for:

• Investment in one of its Subsidiaries, Havix Group, Inc. d/b/a Aavis Pharmaceuticals (Havix), to fund capital expenditure requirements for setting up a manufacturing facility for the production of sterile injections in its Atlanta Facility
• Re-payment/pre-payment, in full or in part, of certain borrowings availed by the company
• Investment in its Subsidiary, namely, Havix, for re- payment/pre-payment in full or in part, of certain borrowings availed by such Subsidiary
• Funding the working capital requirements of the company
• Investment in its Subsidiaries, namely, Senores Pharmaceuticals Inc. (SPI) and Ratnatris Pharmaceutical Private Limited (Ratnatris) to fund their working capital requirements
• Funding inorganic growth through acquisition and other strategic initiatives and general corporate purposes

Industry Overview

The global pharmaceutical sector is undergoing a profound transformation across its entire value chain, driven by a strong emphasis on product innovation, healthcare equity (healthcare for all), operational efficiency, and enhanced engagement with healthcare providers and patients. Despite facing inherent challenges within this transformative landscape, the pharmaceutical industry has demonstrated remarkable agility and delivered groundbreaking innovations, particularly highlighted during the COVID-19 pandemic, enjoying resilient growth. The global pharmaceutical market was valued at $1,635.0 billion in 2023 and is projected to reach $2,251.0 billion by 2028, growing at a CAGR of 6.6% from 2023 to 2028. The pharmaceutical industry is known worldwide for its strict regulations, with governments implementing rigorous rules to protect public health. While regulatory frameworks may differ across countries, developed nations are characterized by meticulous government oversight (enforced by agencies such as the US Food & Drug Administration (FDA), Australia’s Therapeutic Goods Administration (TGA), Japan’s Pharmaceuticals and Medical Devices Agency (PMDA), UK’s Medicines and Healthcare products Regulatory Agency (MHRA), and European Medicines Agency (EMA) of drug origin, manufacturing processes, marketing avenues, and sales channels to ensure the highest quality, safety, and efficacy of drugs consumed. 

The enviable growth of the Indian pharmaceutical market (IPM) is attributable to the government's prioritization of the segment, increasing chronic disease incidence, availability of affordable but innovative generics, and improved nationwide access to healthcare. With a contribution of nearly 1.3% to India's GDP, IPM registered a 4.5% CAGR in the last five years and a forecast of 9.7% for the next five years. The Indian pharmaceutical market is among the fastest-growing in the world, witnessing a value increase from $19.0 billion in 2018 to $23.8 billion in 2023. The pharmaceutical market in India is dominated by generics, which account for around 96.2% of drug consumption in the country in terms of value. However, only about 10% of the drugs in the domestic market are unbranded/generic generics, marketed with just their chemical names as commodity generics.

The growth in the formulations market also translates into corresponding growth in the API market. The Indian API market is expected to grow at 14.2% outpacing the growth of the overall Indian pharma market as it increases API production to support its domestic formulations industry for high-volume generic as well as high-value innovator drugs the demand for pharmaceutical products corresponds directly to API sales, and as this demand grows, so does the need for APIs. As disease patterns shift from acute to chronic and translate into high drug volume consumption, the access to healthcare facilities and affordable medicine increases, along with an increase in the purchasing power of the middle class in the country; the growth of the API industry will follow suit. Moreover, with the increasing adoption of novel drugs, including biologics, coupled with the volume growth of the generics industry, the segment is expected to grow steadily. Notably, there is a rising preference for complex APIs like Highly Potent Active Pharmaceutical Ingredients (HPAPIs) or those derived from fermentation, contributing to improved drug efficacy and increasing production costs.

Pros and strengths

Ability to cater to the Regulated Markets of US, Canada and the United Kingdom: The company manufactures products for the Regulated Markets of US, Canada and United Kingdom through its US FDA approved OSD facility at Atlanta, US. The Atlanta Facility has a regulatory track record of compliance having been audited and approved by the US FDA four times since commencement of its operations, with the latest audit being completed in April 2024. The US FDA approval certifies the quality of its manufacturing facility and processes for its consumption in a stringent Regulated Market such as the US, demonstrating its commitment to maintaining quality standards. This enforces belief in the product, thereby increasing the ability to scale, permits access to customers in certain markets in which the US FDA approval is a precondition, increases corporate goodwill and provides it with a competitive advantage. The Atlanta Facility is also (i) approved by the DEA which makes it eligible for manufacturing formulations having controlled substances in the US market; and (ii) compliant with the Trade Agreements Act and the Buy American Act which is a pre-requisite for catering to government supplies in the US market.

Distinct niche product portfolio built in a short span for Regulated Markets: The company’s approach on product selection strategy for the Regulated Markets of US, Canada and United Kingdom is to target the development and manufacture of specialty, niche and difficult to manufacture complex products which have market potential in the small to mid-market range, where typically global pharmaceutical companies are not present and therefore the competition is lesser. Complex products present multiple advantages for pharmaceutical companies. While the competitive landscape may vary across different drugs, generic prices plummet by 85%. However, this is not the same for complex products. They tend to be less affected by price erosion, ensuring more stable pricing and profitability over time. Complex products that are difficult to manufacture also face lower competition and therefore enjoy lower price erosion and higher market share. It follows a product identification strategy wherein it analyse the data available on various databases, data on government sourcing, as well as insights which it obtains relating to new molecular application trends in India and other markets.

Long-term marketing arrangements with pharmaceutical companies: The company has entered into long-term marketing arrangements for a period ranging between 5-7 years with major generic pharmaceutical and marketing companies which operate in the Regulated Markets including Lannett Company Inc., Prasco LLC, Jubilant Cadista Pharmaceuticals Inc., Sun Pharmaceuticals Industries Limited, Cintex Services LLC and Dr. Reddy’s Laboratories Inc. Upon completion of product identification and when the product development reaches an advanced stage, it approaches the identified marketing or distribution partners in the Regulated Markets for in-licensing. Once the arrangement is confirmed, the products are filed and then launched by the distribution and marketing companies, while the manufacturing of products takes place at its Atlanta Facility. In addition to an agreed proportion of the net proceeds received from the sale of these products, it receives a transfer price from the distribution and marketing company and an in-licensing fee to cover the cost of product development and for filing and receiving the ANDA approval.

Presence in the Emerging Markets with a product portfolio, including specialty or complex products: The company has a presence in the Emerging Markets and are currently marketing its products in 43 countries with specific focus on Latin America, Africa, Commonwealth of Independent States, South-East Asia and Middle East regions. It caters to the Emerging Markets through its Chhatral Facility. The company focuses on value added and niche products which are identified on the basis of research and analysis of market trends and demand trends in the regions to which it caters. It has adopted a product identification and launch approach by registering and launching complex products which are widely sold in Regulated Markets of US, Canada and United Kingdom, but which it has chosen to launch in the Emerging Markets instead of launching the products in the Regulated Markets to receive benefits of relatively less competition for these products in the Emerging Markets. All of these products are under patent protection in the US markets and are not available in some countries within the Emerging Markets.

Risks and concerns

Business is dependent on the sale of its products and continued growth of the Regulated Markets: Its business is and may continue to be dependent on the continued growth of the Regulated Markets in United States Canada and United Kingdom as well as its Emerging Markets. The company has garnered 67.66% and 58.69% of its total revenue from regulated markets business in FY24 and FY23 respectively. If market growth for its products decreases in these regions, market acceptance for its competitors’ products in these regions increase and results in substitution of its products, or it fails to respond to changes in market conditions or customer preferences in these regions, its business, results of operations, financial condition and cash flows could be adversely affected.

Dependent on the sale of its products through third party marketing partners and distributor: The company typically enters into long term marketing agreements for a period ranging between 5-7 years with its marketing partners or distributors in the Regulated Markets of US, Canada and United Kingdom which results in predictable and stable cash flows. There is no assurance that its business from arrangements with marketing partners or distributors will not decline in the future as a result of increased competition, pricing pressures or fluctuation in the demand or supply of its products. Similarly, in the event of any breakthroughs in the development or invention of alternative products, it may be exposed to the risk of its products being substituted to a greater or lesser extent by these alternatives, and it may fail to introduce new products that would cater to the demand by its marketing partners or distributors.

Maximum revenue comes from limited customers: The company has garnered 59.97%, 82.45% and 99.28% of its revenue from top 5 customers in FY24, FY23 and FY22 respectively. While the company has developed relationships with certain of its customers, there can be no assurance that its customers in the past will continue to place orders or maintain the current level of business with it in the future. In order to retain some of its existing customers, it may also be required to offer terms to such customers which may place restraints on its resources. Reliance on a limited number of customers for its business may generally involve several risks. For instance, the loss of one or more of its major customers or a decrease in business from any such key customer, whether due to circumstances specific to such customer or adverse market conditions affecting the pharmaceutical industry or the economic environment generally, may materially and adversely affect its business, results of operations and financial condition.

Limited operating history: The company was incorporated in 2017 and it acquired its subsidiaries Havix and RPPL on May 3, 2023 and December 14, 2023, respectively. Further, effective January 1, 2024, RLPL has merged with the company. Certain of its competitors may have a longer operating history and more experience to it in the businesses in which it operates. The company may be unable to understand the nuances of the industry given its short operating history, particularly demand and supply trends and customer trends. In the event it fails to understand the market operations and risks in connection with such operations, it may have an adverse impact on its business, prospects, financial condition and results of operations. Further, due to its limited operating history, investors may not be able to evaluate its business, future prospects and viability.

Outlook

Senores Pharmaceuticals develops and manufactures a range of pharmaceutical products primarily for the regulated markets of the US, Canada, and the UK, while also serving emerging markets. The company serves the US, Canada, and the UK regulated markets with its US FDA-approved manufacturing facility. The company has Robust R&D capabilities driving its differentiated portfolio of products. On the concern side, the company derives a part of its revenue from few customers. If one or more of such customers choose not to source their requirements from it or to terminate its contracts or purchase orders, its business, cash flows, financial condition and results of operations may be adversely affected. Also, the company’s business is dependent on the sale of its products and continued growth of the Regulated Markets. Decrease in market growth for its product or failure to respond to change in market conditions could adversely affect its business, results of operations, financial conditions and cash flows.

The company is coming out with a maiden IPO of 1,55,40,860 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 372-391 per equity share. The aggregate size of the offer is around Rs 578.12 crore to Rs 607.65 crore based on lower and upper price band respectively. On performance front, total income increased by 456.99% from Rs 390.21 million in Fiscal 2023 to Rs 2,173.42 million in Fiscal 2024 primarily due to an increase in revenue from operations of the company and operations of its subsidiary companies. Moreover, the company’s profit for the period increased by 287.84% from Rs 84.33 million in Fiscal 2023 to Rs 327.08 million in Fiscal 2024.

Going forward, the company plans to enter into the NDA products segment in the US Markets i.e., generic products which have potential to be approved as New Drug Applications. While these products would have been launched in other markets, it intends to be the first company to launch them in the US. Full new drug applications under NDA can receive 5 years of exclusivity for a new chemical drug product, providing growth potential for the company. It currently has one combination product in the pipeline. It will continue to work on development of such molecules and file applications for them to be approved as NDAs.