Is "IPCA Laboratories Limited" a long term investment?

Ipca is among India's top 20 pharmaceutical companies and is in the business of producing & marketing of  (a) Active pharmaceutical ingredients (API) (b) Drug Intermediates (c) Formulations

The company produces more than 150 formulations that include oral liquids, tablets, dry powders, and capsules and its business in India focuses mainly on therapeutic segments like Cardiovascular, Anti-diabetic, Pain management, Anti-malarial, Anti-bacterial, Anthelmintics, Central nervous system product, Gastrointestinal products, Cough preparations etc. 

What is the difference between terms like API, Bulk drugs, Intermediates, Finished Dosage, and Formulations that are common jargons in the Pharmaceutical Industry?

API – Active Pharmaceutical Ingredient – is the basic drug itself with the desired medicinal (pharmaceutical) properties. Also referred to as Bulk Drugs.

Intermediates – Most chemical reactions are stepwise, that is they take more than one elementary step to complete. An API is a result of a complex chain of chemical reactions in several steps. Intermediates are stable forms a few steps away from the final API e.g. API -3, or API-5.

Finished Dosage or Formulation – is the form in which the drug is consumed by us. A dosage form of a drug is usually composed of two things: The API, which is the drug itself; and an excipient, which is the substance of the tablet, or the liquid the API is suspended in, with other masking, stabilizing and binding agents/material that is pharmaceutically inert.

APIs are supplied by Pharmaceutical manufacturers to Formulations players or for own consumption for in-house Formulations. Intermediates are supplied to API manufacturers for reducing time-to-market.

Key growth drivers for the pharmaceutical business in India

  • Global increase in the population and ageing at the same time.
  •  The increasing urbanization and growing middle income population
  • As population ages due to increasing life expectancy, people require pharmaceuticals to treat their chronic illness
  • The emergence of new viruses, the latest being SARS-CoV-2 and drug resistant infections, biological agents, immune therapies, etc.
  • Increasing use of pharmaceutical generics in developed markets to reduce healthcare cost

Key challenges for the pharmaceutical business in India

  • Exposure to intense competition and public demand for lower cost treatment
  • Subject to increased regulatory scrutiny
  • Companies are required to comply with regulations issues by authorities of various countries

Is this stock for long term investment?

  1. As far as diseases exist and being cured by "Allopathic" medicine, there will always be need of API, Intermediates, Formulation etc.  The chemicals composition used in these medicines are of wide variety, which can't be served by only 1 or 2 companies and will need ecosystem of multiple pharma companies.  Though merger / demerger can't be ruled out.
  2. The company is almost debt free, cash flow is positive for the last 10 years and is among India's top 20 pharmaceutical companies

NSE:IPCALAB

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