A bitter pill from Nuvama Institutional Equities. The brokerage house retained its ‘Reduce’ call on Zydus Lifesciences, with a target price of Rs 840. This implies a downside of 10% from the current market price. The company is entering into the CDMO segment of US biologics through acquisitions, which the brokerage house does not expect to have any immediate P&L impact.
Nuvama on Zydus Lifesciences: CDMO acquisitions
Zydus is acquiring two biologics manufacturing facilities from the US-based Agenus for $75 million upfront. Under the deal, Zydus will become the exclusive contract manufacturer for Agenus’s biologics, Botensilimab and Balstilimab.
Before moving ahead, biologics are drugs, vaccines, or other therapies produced from living organisms or their components, such as proteins, cells, or genetic material.
The attractive aspect of the deal was that Zydus will also gain first negotiation rights for future Agenus pipeline products (clinical or commercial batches), said Nuvma. A $50 million contingent payment by Zydus will also be triggered by production orders for these drugs. Furthermore, Zydus receives an exclusive license to manufacture and commercialise BOT/BAL in India and Sri Lanka, in return for a 5% royalty on net sales in these markets.
Nuvama on Zydus Lifesciences: Other players foraying into biologics
With this acquisition, Zydus will enter the high-growth biologics CDMO space. This comes amid rising demand for biologics manufacturing in the US, as more innovators seek local partners.
Recently, Syngene acquired 30,000 litres of biologics capacity from Emergent for $50 million ($1,667/L). In comparison, Zydus is paying $6,696/L— 4x higher. “The premium likely reflects assured future orders for Zydus and past compliance issues at the Syngene-acquired site,” said Nuvama. Also, Zydus’ US subsidiary, Zynext Ventures US, is acquiring a 5.9% stake in Agenus at a purchase price of $7.50/share (total $16 million).
Zydus Lifesciences’ stock performance
The share price of Zydus Lifesciences has risen 0.13% in the past five trading sessions. The stock has given a return of 4.5% in the previous one month. However, the stock has declined by 4.7% in the previous six months. Zydus Lifesciences’ share price has fallen by 11% in the previous one year.