Eris Lifesciences Ltd. – Foray into fast-growing parenteral segment to enhance growth

Sector Outlook – Positive

Eris Lifesciences Ltd. saw its revenue grow by 14.9% to Rs. 4,863 million, slightly above market expectations. This growth was driven by the integration of Oaknet, Biocon Insulin business, and strong performance of existing brands. 

EBITDA increased by 27.9% to Rs. 1,755 million, with operating profit margin expanding to 36.1% due to higher gross margins. However, net income only rose by 1.2% to Rs. 1,015 million due to higher taxes. 

The company has also decided to buy a 70% stake in a Swiss company that makes sterile injectables for Rs. 63.8 billion, which will allow Eris to enter the fast-growing injectables market and expand internationally. 

This acquisition is expected to initially lower earnings per share but become profitable by FY26. Eris is expected to continue outperforming the industry, especially in the cardiac and antidiabetic segments, and is working on improving profitability and launching new products.

Concall Highlights

Base business outlook

In the third quarter of the fiscal year 2024, the company’s 20 leading brands made up 66% of its total revenue. Out of these, 14 brands are among the top five in their respective categories. We anticipate that this group of brands will keep growing in the upcoming years, resulting in high profit margins and substantial cash flow for further investments.

Acquisition of Swiss Parenteral Ltd

Eris is planning to buy a 70% stake in a business that specialises in generic and specialty injectable medicines, mainly for markets outside of India. The company they’re acquiring, Swiss, makes a wide range of small volume parenterals (SVPs) in two manufacturing units in Gujarat, India. 

These units have been approved by over 50 regulatory agencies worldwide, including the EU, Brazil, Mexico, and Australia. This acquisition will give Eris access to Swiss’s extensive portfolio of sterile products, and Eris can use this to build a business in India that focuses on branded SVP formulations.

Biocon business

By acquiring the Biocon business, the company has expanded into the kidney care market and strengthened its presence in the skin care field.

New product launches

Eris is developing unique product combinations and has reintroduced two products at risk in FY24. The company aims to release Glargine and Liraglutide from MJ’s pipeline in Q4FY24. Additionally, Eris has increased its R&D pipeline to 26 candidates, featuring several first-in-market fixed-dose combinations (FDCs) for the Indian market.

Focus on therapy diversification

The company is keen on diversifying its therapies, with four emerging areas (CNS, Nephro, and Women’s Health) contributing 30% of its revenue from Branded Formulations in Q3FY24. Eris plans to keep investing in these areas to drive higher revenue growth.

Physician coverage

Eris continues to make good progress in expanding the coverage of specialists and consulting physicians, which aligns with the company’s expectations.

Financial Performance

In FY17, Eris was ranked 29th in the Indian Pharmaceutical Market (IPM) with a covered market of Rs 340 billion. Now, the company is ranked 21st in IPM with a covered market of Rs 900 billion. 

Eris is among the top 10 fastest-growing pharmaceutical companies in IPM in Q3FY24. The company’s growth outpaced the overall IPM growth by 600 basis points, reaching 12.8% year-over-year as per data up to December 2023.

Valuation and Outlook

Eris Lifesciences Ltd. saw strong revenue growth in Q3FY24, driven by integrating Oaknet operations and the Biocon Insulin business, along with growth in existing brands. Their Branded Formulations segment grew, especially in Chronic and Insulin businesses. 

The Swiss deal will expand Eris’ sterile portfolio and help establish a strong presence in the SVP branded Formulation market in India for Rest of the World (RoW) markets. Eris entered the Nephrology segment and strengthened its position in Medical Dermatology (Psoriasis) through acquisitions, aligning with its focus on Chronic and Sub-chronic therapies. 

Eris plans to focus on new product launches, particularly in Dermatology, Insulin, and Parenteral segments, and continue gaining market share in key products. With its strong financials and strategic acquisitions, Eris is poised for growth, especially in cardio-metabolic, nephrology, and dermatology markets, benefiting from patent expiration opportunities.