MOSL: LAURUS LABS (Buy)-Compliance consistency evident-gets first approval for US

Laurus Labs: Compliance consistency evident; gets first approval for US

(LAURUS IN, Mkt Cap USD0.9b, CMP INR528, TP INR613, 16% Upside, Buy)

• Two key recent positive developments fortify our positive stance on Laurus Labs (LAURUS): (1) Zero 483s at Unit II (formulation) USFDA inspection and (2) first product approval (g-Viread) from Unit II.
• Based on our analysis of the competitive and pricing environment, we expect annual sales of USD2-3m from g-Viread. On an overall basis, we believe LAURUS should be able to increase its US sales to INR1.3b by FY20 from INR20m in FY17.

 Minimal regulatory hurdles due to compliance consistency: The USFDA has concluded inspection (was conducted from 26th February 2018 to 1st March 2018) at the company’s Unit II (formulation) with zero observations. Notably, LAURUS also has the Establishment Inspection Report (EIR) in place for the previous inspection that was conducted 15 months earlier. The company has cleared nine inspections successfully at its different facilities, indicating its consistency in regulatory compliance. It should, thus, face minimal regulatory hurdles over the medium term. This is commendable given that peers are facing regulatory hurdles to the extent that either existing business is stopped and/or new approvals have been halted by the USFDA.

 g-Viread approval and subsequent commercialization bodes well for US sales: LAURUS received its first USFDA approval for g-Viread (Tenofovir Disoproxil Fumarate or TDF) tablets. TDF tablets are indicated for the treatment of HIV-1 infection in adults and children. Market size of g-Viread is ~USD1b. LAURUS is the sixth company to receive final approval for this product in the past two months. The company already had a tentative approval in place, and post patent expiry on 25th January 2018, the final approval was awaited as there was neither any ANDA-specific query pending nor any regulatory issue related to manufacturing. However, we note that, with six players competing, prices have started eroding, leading to market size contraction. Based on our analysis of the competitive and pricing environment, we expect LAURUS to garner annual sales of USD2-3m.