Future shines bright for Divis Labs on the possibility of production of first ever oral COVID-19 drug

resr 5paisa Research Team 9th December 2022 - 09:45 pm
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Merck, also widely known as MSD, and its partner Ridgeback Biotherapeutics reported robust results for Molnupiravir Phase 3 trials from the interim analysis. The drug is said to reduce the risk of hospitalization or death by 50% in patients suffering from Mild to Moderate Covid-19. The study gave viral sequencing data which showed its consistent efficacy across viral variants Gamma, Delta and Mu.

The companies plan to get approval from FDA EUA (Emergency Use Authorization) and other global regulatory agencies for the drug. If it succeeds in this, Molnupiravir will the first ever oral COVID-19 drug which can be taken from home without any healthcare facility support.

This would play a vital role in Divi’s Labs’ growth as it is the authorized manufacturer of Molnupiravir API for MSD in India. It has a completely fully integrated manufacturing process, hence could be one of the key suppliers, effectively impacting the company’s revenue growth.

With global players looking to diversify their suppliers and reducing dependency on one sole source for generic APIs, provides a positive outlook for Divi’s Labs. Divi’s has proven itself to address any growth concern positively and has highlights its six growth engines.

Upon EUA approval, MSD wins a supply contract worth of $1.2 Bn with the US government to produce 1.7m course of Molnupiravir at a price of $700 per course. It is believed that both the companies have begun stockpiling of the drug in anticipation. MSD expects to deliver a quantity of 10m courses by 2021 end and Divi’s Lab is expected to produce 1M courses in FY22e and 0.7M in FY23e for the US.

Divi’s Lab would generate a whopping revenue of $53M and $44M in FY22e and FY23e respectively. An ROE of 23%-25% can be expected for FY22-23e, EPS estimated to increase by 0.4-4.4% and adjust the operating costs and items below the EBITDA line. These estimates are in respect to the contract with the US Government alone and would likely to increase if the companies can sign supply agreements from other countries.

With the Voluntary License agreement between Divi’s and MSD, Divi’s labs would supply Molnupiravir in India and other low-middle-income countries (LMICs) while MSD retains its API supply rights in the US, EU and other regulated markets. Divi’s Labs received a custom synthesis project for Molnupiravir API in 2QFY21 with incentives for expedited completion and invested CAPEX of 4bn for three supply streams (two for exports and one for MSD’s VL partners in India). It has started operations of one of the export streams while the other two are assumed to start soon. A strong net cash position of cINR21bn and consistent cash generation allow it to comfortably invest for future drivers.

With such impressive future business expansion plan, some drawbacks may spurt out. Risk such as delay in pick-up of supplies which would impact the revenues, higher input costs and operating expenses, failure of compliance at the plants and weakening demand.

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