Aurobindo’s positive aura

protrade

Well-Known Member
#1
6 years ago, Aurobindo acquired Natrol for $132M.

https://m.economictimes.com/industr...n-natrol-acquisition/articleshow/45386182.cms

And yesterday, they sold it for $550M.

this transaction was on the books of Aurobindo at cost, as per normal accounting policies - so this $412M is a clear profit. For a company that has a market cap of ₹46,000 crores, this is a material change of circumstances!

Aurobindo is punching disproportionate to its size, in the US - the largest pharma market in the world. And it has been pursuing an excellent inorganic strategy, with selected acquisitions.

The stock simply doesn’t reflect the potential of this story - especially the strong pipeline of generics in the US.

Today’s selling is probably related to the expiry on Thursday - and I think it’s worth picking up the stock gradually if it dips to the current levels.
 

Dr. Jan Itor

Well-Known Member
#2
Last year Auro promised to become debt free within 3 years... but selling off a "consistently profitable" company for that and for "strategic purposes" doesn't make sense... do you have any insights/inputs, protrade sir, why this deal was hastened?
Btw your threads are consistently a food for thought and make me dig deeper (which I will in this case too)... I may or may not agree with your conclusion on LnT but your thread provided an impetus for further scrutiny.
 
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siddhant4u

Well-Unknown Member
#3
Last year Auro promised to become debt free within 3 years... but selling off a "consistently profitable" company for that and for "strategic purposes" doesn't make sense... do you have any insights/inputs, protrade sir, why this deal was hastened?
Btw your threads are consistently a food for thought and make me dig deeper (which I will in this case too)... I may or may not agree with your conclusion on LnT but your thread provided an impetus for further scrutiny.
about to say same, found that L&T's core biz is not much growing but their "side" biz in IT is going through roof !
 

Dr. Jan Itor

Well-Known Member
#5
about to say same, found that L&T's core biz is not much growing but their "side" biz in IT is going through roof !
Right sir... buying the one which is doing well is the "changa si" approach... India mein waise bhi holding ki valuation nahi milti... look at SBI and SBI Cards - everyone shunning the father and buying the son/daughter, so much so that it is half the mcap, even though it owns about 60% in it... :D
Btw coming back to this - any reason you came across why they are selling? Copycat Reliance strategy for ridding debt?
 

protrade

Well-Known Member
#6
We can speculate on the reasons - but of course, we can’t really know for sure till Company itself announces.

But there are a few powerful pointers.

Last year, Aurobindo acquired Profectus Bio Sciences in the US. Profectus is one of the few private companies that has invested lot of time and effort on a vaccine technology called rVSV - Recombinant Vesicular Stomatitis Virus Vaccine.

This is an exceptionally efficient virus vaccine technology - because it uses specifically engineered viruses to attack other viruses in the body. This field has seen some activity in last decade or so - and some significant success in labs, against influenza, Ebola and even AIDS and cancer - however, it has not seen commercial success. Obviously because of the risks of this technology.

About 2 months back, in early August, there was a news article, that Aurobindo is a late entrant to the COVID vaccine race. And in September, BIRAC even officially recognized this effort and funded it - again, this came out in news. And there has been some noise that Aurobindo’s effort is connected to Profectus.

Gradually, we are seeing the problems with Oxford/Astra Zeneca vaccines as well as other vaccine efforts against Corona - because of the extreme mutations in Corona. And this means, the traditional efforts are unlikely to succeed.

rVSV based techniques on the other hand, are guaranteed to work - conceptually it is like releasing another virus in the body, which will find all the Corona viruses, and “marry” them - so that they become harmless. And since there are no beneficial Corona viruses - these rVSV vectors can be designed for broad spectrum Corona viruses - so they can handle all the mutations as well.

But there is a bigger problem. There are no facilities for commercial scale production of any rVSV vaccine! The world has simply ignored this powerful technology, because of the risks. But in current situation, rVSV looks like the only mechanism that can generate broad-spectrum COVID vaccine!

We know Aurobindo is in the race. We know they expect to start clinical trials in late 2020. We know that they have a challenge in commercial scale - because there are no such facilities anywhere on the planet.

My guess is that this is the strategic reason why they needed to sell Natrol hastily. They probably feel this cash is far more valuable to scale up commercial scale rVSV production.

And even if this effort doesn’t help in COVID - it is still a very valuable investment - because they will still have a head start in a very valuable category of medical research for the future.
 

protrade

Well-Known Member
#7
This article is an excellent source. Mentions all the relevant points I have covered above.

https://www.google.co.in/amp/s/www....-vaccine-development/article32610480.ece/amp/

This news has been around for over a month - but market as well as analyst community has ignored it. The analysts who cover Pharma companies are typically MBAs, with excellent knowledge of finance. Because of which they sometimes miss the importance of the small news items that could be revolutionary.

While this article mentions that Aurobindo will setup the first commercial rVSV plant in India, it’s not just India - to my knowledge, there are no commercial scale rVSV plants anywhere.

This is the sort of news that could be serious game changer for any company - but we simply ignore it!!

In the stock market, you don’t really make much money by seeing and doing what everyone else is doing. You have to predict the trends of the future and get in early. And at same time, temper the risk of those things by ensuring that you get in when valuations are cheap.

People are commenting on me becoming bearish on Reliance at 2150, and stock still going up to 2300. I have been bullish on Reliance when everyone else was negative about the stock. What is the use of being bullish at 2200? You will just be the bali ka bakra if you are bullish at 2200!
 

protrade

Well-Known Member
#8
The story is that you have

- a debt free company
- at 15x current earnings
- with strong US generics pipeline
- with upside kicker from rVSV

We have already seen them surprise on the upside in Q1 earnings. And the only negative since then is a warning letter from FDA. Even if the warning letter is significant, clearly it won’t impact Q2 earnings coming out just before Diwali.

Overall, I see this company as far better long term holding than many others.
 

protrade

Well-Known Member
#9
Yesterday’s results were stellar - but the real positive for the company was not about yesterday at all. It is about what will be the next quarter results.

The Natrol sale will get Aurobindo massive one-time gains - I expect it to be over ₹2500 crores! In a market that is so excited with ₹805 crores profit, one can only imagine what that sort of number will do!!

Enjoy the ride in Aurobindo. It is easily the best positioned Pharma company in India. Extremely low valuations - below 15! Zero debt. Fantastic positioning in American market. They have acquired extremely valuable technology dirt cheap with Profectus.

Seriously, what’s not to like about this company?
 

protrade

Well-Known Member
#10
A few days back, Aurobindo announced that it was setting up a unit for manufacturing COVID vaccines - for itself and others. This validates my guess - that the Natrol sale was to raise money for vaccine production.

https://www.google.co.in/amp/s/www....covid-19-vaccines-for-others-6108381.html/amp

The story of how Aurobindo acquired Profectus so cheap, is a very interesting one.

The world has known about rVSV for almost 20 years - but this technique was considered risky - because of the risk of creating genetically engineered viruses. There was major research using rVSV for cancer and HIV - and even very successful trials against breast cancer. But rVSV never got sanction by the authorities.

The first rVSV based technique was used against Ebola in Zaire, in 2016/17. And was declared a massive success. It got the approval for use because of worry that this Ebola outbreak could be out of control.

When the Zebov vaccine succeeded, it gave a shot in the arm to rVSV researchers. But despite this success, the much needed official sanction from the FDA didn’t come! This disillusioned researchers in the field.

In October 2019, the FDA approved Inmazeb - which was a cocktail of three monoclonal antibodies for treating Ebola. This approval was the final nail in the coffin - and everyone thought rVSV was well and truly dead.

https://www.fda.gov/news-events/press-announcements/fda-approves-first-treatment-ebola-virus

Post this announcement by the FDA, Aurobindo managed to acquire Profectus for just $10M in November 2019.

And then the world changed. Stories of a deadly new virus outbreak in Wuhan, China started emerging. And this has been a fear for medical authorities around the world for a long time. And suddenly, the FDA woke up and approved Zebov, which was Merck’s rVSV based vaccine for Ebola, in December 2019.

https://www.fda.gov/news-events/pre...ease-marking-critical-milestone-public-health

Suddenly, this extremely powerful technique was once again in the reckoning. And Aurobindo had been exceptionally fortuitous in acquiring Profectus so cheap, between these two announcements of the FDA!

The importance of this acquisition is something that even Aurobindo management probably doesn’t realize yet. But the power of rVSV is phenomenal, and it can be used for multiple disease treatments.

What exactly is rVSV? Before that, what is VSV? Vesicular Stomatitis Virus is a well known, well understood virus, which is considered relatively harmless. It infects human beings, and triggers a massive immune response which helps the body fight the virus. And it doesn’t cause any major symptoms, making it safe to use in trials.

Scientists have long wondered, if it’s possible to modify the VSV with recombinant DNA, and trigger a different immune response from the body. And this approach genetically modifies only the glycoprotein of the target disease virus, and merges it into the VSV cytoplasm. What happens with this, is that the human body now triggers antibodies to this new glycoprotein - which effectively allows the body to fight the target virus!!

rVSV has the potential to change the world of medicine forever. It is that big of a deal. And Aurobindo is extremely fortunate to have acquired it so cheap. In a few years time, this acquisition will be seen as having transformed Aurobindo into one of the globally relevant players in pharma space.
 

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