Laurus Labs drops 4% as arm gets 5 observations after USFDA inspection

Shares of Laurus Labs fell 4 percent to Rs 373.15 on the BSE in intraday trade on Wednesday after the US Food & Drug Administration (USFDA) issued Form 483 with five comments to the company's arm, Laurus Synthesis Private Limited (LSPL) for its manufacturing plant at Parawada, Anakapalli, near Visakhapatnam. In an exchange filing, the company said LSPL, a wholly owned subsidiary of Laurus Labs, underwent USFDA inspection for its manufacturing facility at Parawada, Anakapalli, near Visakhapatnam, Andhra Pradesh. The inspection took place from December 4, 2023 to December 12, 2023.

The company has received a Form 483 with five observations and the company plans to address the observations within the specified timeframes, 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 percent of sales), oncology APIs (10.0 percent of sales) and other APIs (11 percent of sales), Finished Dosage Formulations (FDFs) , 27 percent of sales, largely consisting of ARV FDFs) and Clinical Development and Manufacturing Organization (CDMO) services, consisting of custom synthesis (18 percent of sales) and the biological segment (3 percent of sales), from September 2023 (Q2FY24).

According to analysts at KRChoksey Shares and Securities, Laurus Labs is in the transformation phase where it plans to significantly reduce the share of ARV companies (FDF and API) and the share of other FDFs and APIs and CDMO synthesis and Biologics companies to increase.

In the meantime, it has made over Rs 2,600 crore (average 16 percent of revenue) in capital investments over the past three years to build the capacity of generic APIs (non-ARVs), FDF (non-ARV), CDMO synthesis and biobusinesses to increase. . The company expects remaining FDF sales to continue to grow at a strong pace thanks to new Dossiers and ANDA approvals in the US, Europe and ROW, and increasing contract manufacturing (CMO) deals.

Similarly, the company expects the growth of the Bio business to be driven by the growth of the CDMO synthesis business and the expansion of its customer base. However, the CDMO synthesis business, which is the key driver of higher operating profitability, is likely to remain stable as the company is currently working on R&D projects with partners whose commercial level sales may not be likely within the next twelve to eighteen months ; Therefore, we do not expect robust expansion in operating profitability over FY23-FY26E, the brokerage said in its initial coverage with 'accumulate' rating for the stock in the December 1 report.