Suven Life - This Biopharma Stock Is Better Than The Others

Summary

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• One of the few players in the world in the CNS segment research
• The increasing need for reliable R&D partners should drive Suven’s business prospects 
• A promising NCE pipeline, industry relationships, execution capabilities, and strong research orientation are its biggest competitive strengths

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Suven Life Sciences Ltd. (NSE:SUVEN) is a biopharmaceutical company specializing in NCE-based CRAMS (contract research and manufacturing services) for global life science companies and drug discovery and development activities in Central Nervous System (CNS) disorders. Its services include custom synthesis, process R&D, scale-up and contract manufacturing of intermediates, APIs and formulations. Suven Life ranks amongst the top 2-3 suppliers for the intermediaries to clients in the US and EU regions. The company has a wide geographic presence with 87% of revenues coming from exports. The company possesses one of the largest pipelines of innovative assets in the CNS space comprising of 13 molecules in all. Suven has compounded its sales and profit growth at a double-digit pace annually, over the last ten years.

Suven’s business segments are Contract Research And Manufacturing Services(CRAMS), Drug Discovery & Development Support Services (DDDSS), Drug Discovery Research and Formulation Development Center.

Suven Life Positives

1) Extensive Facilities - Suven Life Sciences invests heavily towards the discovery of new CNS therapies and treatments for patients suffering from mental health problems. It has an extensive R&D team that works in the research-intensive areas of analytical development, drug discovery, and formulations development. Suven spent nearly 9% of its revenues on R&D activities last year. The company is also planning a new formulations manufacturing facility to come online by mid-2020. The formulation development and supply opportunity will create another revenue vertical for the CRAMS business. 

2) Business transformation - The company underwent a demerger of its business vertical into two independent companies in the last year. Its NCE business remains a part of Suven Life Sciences, whereas the CRAMS business is now a part of Suven Pharmaceuticals. This demerger will attract focused global investors whose risk-return appetite aligns with the risk-return profile of the respective businesses.

It also bought a 25% stake in Rising Holdings, a US-based company which further stabilizes revenues over the next two to three years. Over the last three decades of its existence, Suven has developed deep relations with 30 pharma companies globally which helps it to bag repeated business from them.

3) First Mover Advantage in the CNS space - Suven Life is in a good position to benefit from an early mover advantage in the field of the central nervous system. Unlike other ailments like diabetes, cardiac, etc. there is no certain quantitative measure for brain-related ailment. Suven completed the Clinical Trial (Phase II) of its lead molecule SUVN-502, Masupirdine and is on track to start the clinical trial (Phase II) of SUVN-G3031. The company ended last year with a strong pipeline of innovative assets. Over the years, Suven has successfully launched a pipeline of discovery asset that addresses the high-growth CNS therapies. 

4) Future opportunities are exciting - Suven expects to see positive traction in the commercial CRAMS and the specialty segments which should benefit from repeat volumes for existing molecules and additional volumes from the new agrochemical intermediates. Suven’s flagship molecule SUVN502, Masupirdine’s success would translate into an additional monetizing opportunity for the company. The company has budgeted a capital outlay of INR 200 crore in the next 12-18 months for new formulation development and manufacturing.

Challenges

Global growth is projected to decline to 3.3% in 2019. The Indian economy is also facing signs of slower growth with weakness in its auto and industrial sectors. This could hamper Suven’s revenue growth prospects in the near future. In addition, the company suffers from falling volumes in the commercial CRAMS segment which is a high-margin business. An increase in raw material costs owing to the shortage in supply of raw materials also adds to Suven’s challenges. However, Suven is looking at backward integration by securing raw materials in advance which enhances supply chain security. Other challenges include a potential increase in competition from other domestic as well as global players and lumpiness in revenues and profits.

Stock Valuation

Suven’s market capitalization value stands at Rs. 3281 crores. Shares of Suven Life Sciences are currently trading near Rs. 260 level, just 24% below its 52-week high. The stock performance has been flat for the last six months, as is seen below. 

Source: Money Control

This is in sharp contrast to the bloodshed seen across most of India’s mid-cap stocks. Nifty Pharma index has been falling since last year and has touched its five-year low. The pharma sector, in particular, has seen a sharp fall in earnings growth over the past few years. Suven Life Sciences, however, has remained strong. The stock has returned 150% since inception.  The company has been paying dividends since 1995 supported by a healthy balance sheet, prudent utilization of cash flows and low debt levels.

Bottom Line

Suven Life Sciences is one of the few players in the world having a presence in the CNS segment research which is the second-largest and fastest-growing segment globally. The company addresses the niche areas associated with neurodegenerative disorders like Alzheimer’s, ADHD, Parkinson’s, Schizophrenia, etc. 2019-20 is expected to be an important year for Suven Life Sciences. The ramp-up in volumes for the new molecule should add healthy quantities in the current year. Suven is working on developing intermediates for 2-3 new molecules, which should generate healthy revenue stream post-approval. Growing trends like increasing awareness regarding mental health and social acceptance of mentally ill patient act as strong tailwinds for the company. Suven Life offers a good option to investors who are looking at focusing on niche segments since competition is increasing in the generics space. Investors willing to stay invested for the long-term may consider this stock.

 

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Stock Disclosures:

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.