Aurobindo Pharma highlights FDA approval for dermatology product

Metro India News | Hyderabad 

Hyderabad-based pharmaceutical giant Aurobindo Pharma Ltd. showcased positive momentum across its operations in a recent discussion on CNBC-TV18, spotlighting its first innovative New Drug Application (NDA) approval in the dermatology space and robust progress in its strategic Penicillin G (Pen-G) manufacturing. The company's step-down subsidiary, Acrotech Biopharma (referred to as Acro Bioarma in the discussion), received U.S. FDA approval for ADQUEY (difamilast 1% ointment, referred to as ATQ), a novel non-steroidal topical PDE4 inhibitor for the treatment of mild-to-moderate atopic dermatitis. 

This marks a significant milestone, as Acrotech has been commercially active in the U.S. for over seven and a half years, but this is its inaugural NDA approval in dermatology. Atopic dermatitis, a chronic condition characterized by itchiness, scaling, and dry skin, affects approximately 24 million people in the U.S., including adults and pediatric patients, with around 6 million treated annually. Current first-line treatments rely heavily on steroids, which are unsuitable for long-term use due to potential side effects.

ADQUEY addresses this gap by offering a non-steroidal alternative that reduces inflammation and symptoms through its PDE4 inhibition mechanism. Executives, including CFO Santanam Subramanyan and Acrotech CEO Ashish Anvikar, expressed strong excitement about the approval, noting its potential to enhance the company's footprint in innovative therapies. While specific peak revenue estimates or detailed competitive landscape were not quantified in depth, they highlighted the substantial market opportunity for non-steroidal topicals in this chronic indication.

Shifting to core operations, the company addressed regulatory observations received from the U.S. FDA for Unit 7 and another facility (UGR 3). Management described these as procedural in nature and confirmed they would respond within the stipulated timeframe (around 15-20 days), expressing confidence that they do not pose significant risk, as previously communicated to stock exchanges.A key growth driver discussed was the Pen-G plant, supported under India's Production-Linked Incentive (PLI) scheme. The facility has a total capacity of 15,000 tonnes annually, with PLI incentives tied to achieving around 10,000 tonnes. 

Management reported strong progress, with January production reaching 800 tonnes—annualizing to approximately 9,600 tonnes, or 96% of the PLI target. Domestic demand for Pen-G equivalents stands at about 9,000 tonnes, which the company has already surpassed, with excess production earmarked for exports.At full relevant scale (10,000 tonnes), revenue potential could reach around $250 million (based on Minimum Import Price or MIP levels of approximately $25 per unit), with PLI benefits estimated at roughly Rs 240 crore. 

Yields continue to improve, and the plant achieved a slight profit in January even without incentives. Global Pen-G prices have fluctuated, with some pressure from Chinese producers earlier, but management sees no major margin risk and noted recent upward trends. Looking ahead, the company guided for sustained EBITDA margins of 20-21% in the current fiscal year, with several levers expected to drive further improvement in FY27. 

These include full maturation of the Pen-G business, completion of ongoing accreditations, commercialization of the Dayton plant, and a shift to positive double-digit EBITDA from its Chinese operations (currently low negative). Overall revenue growth is targeted at high single-digit to low double-digit levels, with Europe aiming for low double-digit expansion and the U.S. injectables business showing steady scalability.

On capital allocation, executives emphasized a shift away from large greenfield capex projects, which have historically extended gestation periods and pressured return ratios (ROE/ROC remaining in low double digits despite a 4x asset base increase over the past 8-10 years). Focus will now be on optimizing existing capacities, small-ticket acquisitions if accretive, and driving better performance to enhance returns. Specific FY27 margin or return ratio targets will be detailed in the May earnings call.

The discussion comes amid Aurobindo Pharma's stock trading around Rs 1,155, viewed by some as attractively valued on forward earnings (around 15x), with expectations that operational improvements and reduced heavy capex will support better shareholder returns going forward.