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Laurus Labs’ Pivot: From HIV to CDMO 💉

1 million - that is how many people die of HIV a year, with 0.5% of the world’s population currently suffering from it and it being the leading cause of death in certain countries

The medical fraternity has been trying its best to fight against this sneaky and incurable disease, with Antiretroviral or ARV drugs (HIV medication) trying their best to manage the symptoms.

One of the most widely used ARV Active Pharmaceutical Ingredients (core chemical composition of a drug) is one called Efavirenz - and half of the world’s supply of this is manufactured right here in India by a company known as Laurus Labs!

laurus labs

Yet, something isn’t adding up - while the share price of the company has gone up by 5x in the last 5 years, the ARV segment as a % of total revenue went from 75% in FY18 to 40% in FY23.

So what happened to the ARV segment, and what got investors excited anyway?

The Fall of the ARV Segment

Laurus Labs established its dominance in the HIV space back in FY13 by bringing the manufacturing cost of Efavirenz down by 60%, making them world leaders


This fuelled the company’s revenues, which grew by 3x in the next 5 years up to FY18.

But - the thing with APIs is that once someone figures out a way to cut costs, everyone eventually follows suit, making it an excessively competitive space for higher margins to sustain.

This is what happened with the ARV APIs, making it a not-so-viable business to rely on.

Furthermore, the number of people contracting HIV has seen minimal to no growth over the last 5 years, making this a slow-growth space (a disgusting way to look at it).

This resulted in the ARV segment seeing a slowdown in growth (FY13-18 revenue CAGR was around 12% and FY18-23 was 7%).

Despite this, the company’s revenues between FY18-23 have also gone up by 3x - what new business opportunity made up for the dent made by the ARV segment?

CDMO - The New High-Margin Business

Contract Development and Manufacturing Organisation (outsource end-to-end production of drugs to these firms) came in as a redeemer in 2018 for the company, making up for 40% of total revenues as of FY23.

cdmo pharma

The exciting part? This segment recorded a 5Y Revenue CAGR of 71%!

Laurus Labs’ entry into the CDMO space seemed like the natural course of action and a timely decision in the phase of the slowdown in the ARV segment, but why should investors be excited about this?

  • Having already established the ability to create and scale with the ARV drugs it sold, the company had the prowess to manufacture just about any drug, making Laurus Labs the prime choice in this industry

  • With 200+ patents in its name, Laurus Labs could also take over API creation from scratch, widening the company’s ambit into an end-to-end pharma powerhouse

  • The CDMO industry awards a 30% EBITDA margin potential on average, significantly higher than the maxed-out 20% EBITDA margins that the ARV segment gives

While all this sounds great in theory, what material effect did this business transformation have on the numbers?

The Numbers

While the company itself has been harping on about the CDMO segment and the amount of capex that has expanded this segment’s scope and capacity, how has it performed?

laurus labs financials

Clearly, there is merit to the decision that the company has made, with the CDMO business having more than made up for the lack of growth in the ARV space over the last 5 years.

In fact, before starting this CDMO business, the company’s stock was flat from its listing in 2016 till the start of COVID.

It was the orders to the CDMO business for Paxlovid (COVID medication) and other drugs that led to investors finally seeing value in Laurus Labs, resulting in the 5x returns since!

Furthermore, with India increasingly becoming a CDMO hub due to our brilliant minds and low-cost manufacturing capabilities, this industry will become an increasingly popular and high-growth space to be in.

With the massive capacity expansion and entry into niche fields like crop sciences and animal health, Laurus Labs’ high growth journey still has a long way to go, with the markets excited to see what the company does next. You’d much rather be an investor with this company than a customer!

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