Aurobindo Pharma has signed a Master Service Agreement (MSA) with Merck Sharp & Dohme (MSD) to produce biological products. This collaboration aims to explore contract manufacturing opportunities for biological products, targeting both domestic and international markets.
In an interview with CNBC-TV18, Satakarni Makkapati, CEO of Biologics, Vaccines and Peptides Businesses and Santhanam Subramanian, CFO of Aurobindo Pharma spoke at length about the tie-up.
This is the verbatim transcript of the interview:
Q: Give us more details about the agreement.
Makkapati: We signed an MSA with MSD on May 31st this year, which essentially means that we are going to manufacture a mammalian cell culture-based product for MSD as part of the deal. To this effect, we are establishing a large mammalian cell culture drug substance manufacturing facility with 15KL bioreactors, which is also complete with fill and finish capabilities, thereby providing a one-stop solution for both drugceptions and drug product manufacturing. We will be investing up to ₹1,000 crore in establishing these end-to-end services in drugceptions and drug product manufacturing and we will also be supplying the mammalian cell culture product in finished form, that is, in vials to MSD when the facility is fully commissioned. At this point, owing to confidentiality reasons, I will not be able to disclose the nature of the product, etc. I can't speak on behalf of MSD. I can only speak on what is our intent in getting into contract manufacturing.
Q: So, it’s only one product that you will be manufacturing or one biologic that you will be manufacturing for MSD at this point?
Makkapati: At this point, yes.
Q: And you are not willing to disclose whether it's an innovator product by MSD or whether it's already a biologic, probably already in the market?
Makkapati: It is a biologic product.
Q: Give us a sense of the kind of capex that you have envisaged for this particular product. We understand it's Rs 1,000 crore. Can you give us the stage-wise break-up we also missed the fact when do you expect this to start kicking into the financials.
Subramanian: In terms of the capex, we are anticipating around up to Rs 1,000 crore capex which will be spent in the next three years. So probably we will be spending 1/3rd in the calendar year 2024, 1/3rd in the calendar year 2025 and probably 1/3rd the spillover and other things which will be in the calendar year 2023 – that is what we are anticipating at this stage. In terms of the kicking off, Makkapati has already said very clearly in the earnings call, if this starts kicking off from the fiscal year, maybe in the later part of the FY27.
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Q: What is the potential of a possible scale-up of this deal then? Because right now it's one product that you have tied up for. What is the possibility of scaling up beyond that?
Makkapati: It will be speculation at this stage, but the way I look at it, to give you the context is the market for originator biologics right now is about $300-350 billion. With more biological approvals and their success in treating life-threatening and debilitating diseases, I see there is a huge need for reliable manufacturing, also improving lead time efficiencies and reducing the supply chain limits. So, the potential of TheraNym (wholly-owned subsidiary) in contract manufacturing is going to be immense, because the contract biologics manufacturing industry is growing at 9% year on year (YoY) and is poised to grow from about $19 billion this year to around $30-40 billion by 2030. So, for us, it is more about getting into this space because we see a huge opportunity right now where contract manufacturers in the biologics arena are essentially from the West like the Lonza, Boehringer Ingelheim, the Patheon, and in Asia companies like the WuXi Biologics, LG Life Sciences and Samsung. Something of this scale and magnitude did not happen in India in biologics contract manufacturing where you are setting up a huge facility. So, I am looking at more the opportunity that this can provide us rather than the specifics of what I can do with MSD, which is beyond my control.
Q: Two-part question then, just to take that point forward that you see this as a stepping stone to probably contract manufacturing for more biologics. Are there any other companies that Aurobindo would be talking to when it comes to contract manufacturing of biologics at this point besides MSD that you can guide to the market?
Makkapati: So, at this point, I would like to keep it very simple. TheraNym, once it's built, we will start manufacturing this product for MSD. However the affiliate of TheraNym, which is CuraTeQ Biologics, which is already into biosimilar development. From CuraTeQ Biologics, we are discussing options about talking to multinationals and startup companies where we can bring in contract development sort of work, which in the future will pan out into contract manufacturing. But TheraNym at this point would be restricted to supplying products for MSD. I would like to keep it simple and work around with the anchor industry.
Q: Domestic and international markets, what is this tie-up limited to or which markets does it include? Does it include the US as well as Europe?
Makkapati: I don't know at this point. There are international markets which are still under discussion. So, I will not be able to reveal any of those commercial or market details on behalf of MSD.
Also Read: Sun Pharma, Dr Reddy's recall drugs in US market: USFDA
Q: We understand that this particular deal with MSD has been long in the making. We understand that it almost started 18 months ago. Give us a sense of how was the competitive intensity. Did you face any competition from Chinese players? Did that impact the deal's financials in any way? And the second question is, you did say the other subsidy, which is CuraTeQ, could see some more tie-ups coming forward. Could you give us a sense of what kind of entities or what kind of molecules you are currently targeting?
Makkapati: To answer your first question, I have focused on what could be done in India within the scope of Aurobindo. So, I don't know if there was any competition. So, my focus was this industry is growing at 9% YoY. We will be at a $30-$40 billion industry by 2030. India needs to enter into commercial manufacturing with an anchor industry from big pharma. So, I focused on what I could achieve. To your second question about CuraTeQ, which can start talking to other MNCs, yes, it is a thinking, and it is a work in progress. Contract development is one area which I would also like to backwards integrate based on what I have done at TheraNym right now, which is contract manufacturing. So, I can guide you that we will be talking to a few MNCs and early-stage companies going forward in trying to see if we can also enter contract development services through CuraTeQ.
For more details, watch the accompanying video
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In an interview with CNBC-TV18, Satakarni Makkapati, CEO of Biologics, Vaccines and Peptides Businesses and Santhanam Subramanian, CFO of Aurobindo Pharma spoke at length about the tie-up.
This is the verbatim transcript of the interview:
Q: Give us more details about the agreement.
Makkapati: We signed an MSA with MSD on May 31st this year, which essentially means that we are going to manufacture a mammalian cell culture-based product for MSD as part of the deal. To this effect, we are establishing a large mammalian cell culture drug substance manufacturing facility with 15KL bioreactors, which is also complete with fill and finish capabilities, thereby providing a one-stop solution for both drugceptions and drug product manufacturing. We will be investing up to ₹1,000 crore in establishing these end-to-end services in drugceptions and drug product manufacturing and we will also be supplying the mammalian cell culture product in finished form, that is, in vials to MSD when the facility is fully commissioned. At this point, owing to confidentiality reasons, I will not be able to disclose the nature of the product, etc. I can't speak on behalf of MSD. I can only speak on what is our intent in getting into contract manufacturing.
Q: So, it’s only one product that you will be manufacturing or one biologic that you will be manufacturing for MSD at this point?
Makkapati: At this point, yes.
Q: And you are not willing to disclose whether it's an innovator product by MSD or whether it's already a biologic, probably already in the market?
Makkapati: It is a biologic product.
Q: Give us a sense of the kind of capex that you have envisaged for this particular product. We understand it's Rs 1,000 crore. Can you give us the stage-wise break-up we also missed the fact when do you expect this to start kicking into the financials.
Subramanian: In terms of the capex, we are anticipating around up to Rs 1,000 crore capex which will be spent in the next three years. So probably we will be spending 1/3rd in the calendar year 2024, 1/3rd in the calendar year 2025 and probably 1/3rd the spillover and other things which will be in the calendar year 2023 – that is what we are anticipating at this stage. In terms of the kicking off, Makkapati has already said very clearly in the earnings call, if this starts kicking off from the fiscal year, maybe in the later part of the FY27.
Also Read:
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Q: What is the potential of a possible scale-up of this deal then? Because right now it's one product that you have tied up for. What is the possibility of scaling up beyond that?
Makkapati: It will be speculation at this stage, but the way I look at it, to give you the context is the market for originator biologics right now is about $300-350 billion. With more biological approvals and their success in treating life-threatening and debilitating diseases, I see there is a huge need for reliable manufacturing, also improving lead time efficiencies and reducing the supply chain limits. So, the potential of TheraNym (wholly-owned subsidiary) in contract manufacturing is going to be immense, because the contract biologics manufacturing industry is growing at 9% year on year (YoY) and is poised to grow from about $19 billion this year to around $30-40 billion by 2030. So, for us, it is more about getting into this space because we see a huge opportunity right now where contract manufacturers in the biologics arena are essentially from the West like the Lonza, Boehringer Ingelheim, the Patheon, and in Asia companies like the WuXi Biologics, LG Life Sciences and Samsung. Something of this scale and magnitude did not happen in India in biologics contract manufacturing where you are setting up a huge facility. So, I am looking at more the opportunity that this can provide us rather than the specifics of what I can do with MSD, which is beyond my control.
Q: Two-part question then, just to take that point forward that you see this as a stepping stone to probably contract manufacturing for more biologics. Are there any other companies that Aurobindo would be talking to when it comes to contract manufacturing of biologics at this point besides MSD that you can guide to the market?
Makkapati: So, at this point, I would like to keep it very simple. TheraNym, once it's built, we will start manufacturing this product for MSD. However the affiliate of TheraNym, which is CuraTeQ Biologics, which is already into biosimilar development. From CuraTeQ Biologics, we are discussing options about talking to multinationals and startup companies where we can bring in contract development sort of work, which in the future will pan out into contract manufacturing. But TheraNym at this point would be restricted to supplying products for MSD. I would like to keep it simple and work around with the anchor industry.
Q: Domestic and international markets, what is this tie-up limited to or which markets does it include? Does it include the US as well as Europe?
Makkapati: I don't know at this point. There are international markets which are still under discussion. So, I will not be able to reveal any of those commercial or market details on behalf of MSD.
Also Read: Sun Pharma, Dr Reddy's recall drugs in US market: USFDA
Q: We understand that this particular deal with MSD has been long in the making. We understand that it almost started 18 months ago. Give us a sense of how was the competitive intensity. Did you face any competition from Chinese players? Did that impact the deal's financials in any way? And the second question is, you did say the other subsidy, which is CuraTeQ, could see some more tie-ups coming forward. Could you give us a sense of what kind of entities or what kind of molecules you are currently targeting?
Makkapati: To answer your first question, I have focused on what could be done in India within the scope of Aurobindo. So, I don't know if there was any competition. So, my focus was this industry is growing at 9% YoY. We will be at a $30-$40 billion industry by 2030. India needs to enter into commercial manufacturing with an anchor industry from big pharma. So, I focused on what I could achieve. To your second question about CuraTeQ, which can start talking to other MNCs, yes, it is a thinking, and it is a work in progress. Contract development is one area which I would also like to backwards integrate based on what I have done at TheraNym right now, which is contract manufacturing. So, I can guide you that we will be talking to a few MNCs and early-stage companies going forward in trying to see if we can also enter contract development services through CuraTeQ.
For more details, watch the accompanying video
Catch all the latest updates from the stock market here
(Edited by : Shweta Mungre)
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