Distinctive drugmaker, Divi’s Laboratories Ltd, has got a shot in the arm by strong test results for mollupiravir announced by US drugmaker Merck. Molnupiravir is an oral antiviral drug to treat COVID patients and is said to reduce the risk of hospitalization or death for mild to moderate COVID patients.
Divi’s is an authorized manufacturer of molnupiravir API (active pharmaceutical ingredients) for Merck, also known as MSD outside the US and Canada. Analysts say Divi’s continues to be a custom synthesis partner for Merck and has been supplying the drug in required quantities during clinical trials. A strong test result for Merck increases the likelihood of approval and the expansion will boost Divi’s earnings. According to analysts, Merck has started stockpiling the drug in anticipation of approval as the firm has a supply contract with the US government.
“We believe Divi’s has already increased the supply of APIs and we include molnupiravir in our estimates,” said analysts at HSBC Securities and Capital Markets (India) Pvt Ltd. In their original case, they believe that Divi’s will supply the API for 10 lakhs. Courses in FY22 and 0.7 million in FY23, resulting in revenues of $53 million and $44 million, respectively.
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The firm has a strong presence in API and contract research and manufacturing. Having built its Custom Synthesis (CRAMS) business based on its long-standing relationships with large pharma firms, Divi’s is poised to show steady improvement in growth. Analysts said the global CRAMS industry is expected to witness a 9% Compound Annual Growth Rate (CAGR) in CY19-23. “Given its technological leadership and massive facilities, we expect a 29% CAGR in custom synthesis in FY 2011-23,” said analysts at Motilal Oswal Financial Services Ltd.
Growth in older products and new introductions in the generic API business is expected to further accelerate growth. In addition, the company produces uniquely generic ingredients and benefits for it through backward integration. It has also undertaken brownfield expansions and some greenfield expansions such as in Kakinada are underway.
Analysts at Philips Capital India Research said capacity expansion and backward integration will drive growth for Q2. Despite the higher base, they expect the company to post 8% revenue growth during Q2 with a 42% margin led by integrated manufacturing.
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