On June 6, Orchid Pharma made a significant announcement in the stock exchanges that went largely unnoticed in the post-election din. The company’s statement said that it had received approval from the Drugs Controller General of India to make and sell Enmetozobactum. Normally, a pharma company getting an approval to produce a drug should not occasion any excitement, but this was different.

Enmetozobactum is not only among the few drugs discovered in India by an Indian company — there are less than 20 of them — but it is the first India-discovered drug to get US FDA approval. And there is more. Disease-causing bacteria are getting cleverer by the day, developing resistance to many antibiotics that you find on doctors’ prescriptions. Anti-microbial resistance (AMR) is estimated to kill about five million people every year (the same as the population of Norway or Denmark). Any drug that overpowers these superbugs is a godsend. Enmetazobactum is an AMR drug. It will be given to patients together with Cefepime, a medicine that falls under the Cephalosporin category of antibiotics.

This development, along with a few others — such as the company’s backward integration moves and getting into a new drug under a licence — underscores the growth phase of Orchid Pharma that has only recently stabilised after a financial wobble.

Orchid’s Origins

Orchid Pharma was formed in 1992 by Kailasam Raghavendra Rao, an IIM-A alumnus, with the money he had earned working in West Asia, to manufacture the Cephalosporins class of drugs, as and when they came out of their patent-protected period. For some years it was successful but fell into financial distress, due largely to overseas acquisitions. Its EBIDTA fell from ₹320 crore in the 18-month year 2013-15 (margin 18 per cent) to ₹14 crore (2 per cent) in 2017-18, as stressed working capital caused delays in order execution leading to cancellations.

In 2019, Lakshmi Vilas Bank, a financial creditor, hauled Orchid to the National Company Law Tribunal. In March 2020, Dhanuka Laboratories stepped in with an offer of ₹1,116 crore, against the ₹3,200 crore debt the company had and the liquidation value of ₹1,300 crore. Orchid Pharma came to Dhanuka after the Supreme Court ruled that the offer did not have to be equal to or more than the liquidation value.

Things have stabilised under the Dhanuka management. For 2023-24, Orchid achieved a turnover of ₹819 crore and made a net profit of ₹94 crore. Its share price has had a remarkable journey — rising from ₹18 in November 2020 to around ₹2,500 in April 2021.On June 14, it was quoting at around ₹1,050.

Enmetazobactum was discovered by Orchid in 2008, but financial difficulties forced the company to license the molecule to Allecra of Germany, which would have the right to manufacture and sell the drug anywhere in the world except India, paying (6-9 per cent) royalty to Orchid. Indeed, it is Allecra’s application that has been approved by the US FDA.

“Enmetazobactum would be another weapon in a clinician’s arsenal,” says Mridul Dhanuka, Director, Orchid Pharma. In a conversation with businessline, Dhanuka said that in clinical trials, the drug had recorded an efficacy of 79 per cent, compared with 59 per cent of a comparable drug, Piperacillin Tazobactum. The latter commands a market revenue of about ₹1,000 crore, but Dhanuka stressed that Enmetazobactum cannot just replace Piperacillin/Tazobactum in the market, as considerations such as costs and doctors’ cautious approach to new drugs come into play. The company recently told investors that Enmetazobactum could be worth ₹75-100 crore a year, but Dhanuka said that that level would be reached after about 2-3 years.

Backward integration

Even as Orchid Pharma is making plans for manufacturing the drug at its Chennai plant and launching it in a couple of months, it is busy buying land in Jammu. Its wholly-owned subsidiary, Orchid Bio Pharma, is on to a ₹750-crore project to manufacture 7ACA, a drug intermediate not produced in India, with PLI assistance from the Government of India. When completed, the project is expected to be beneficial to Orchid, as 7ACA “is the raw material for 75 per cent of Orchid’s products.”

Dhanuka explained that there are about 45 different drugs under ‘Cephalosporin’ class of antibiotics. Penicillin-G is the basic raw material for a fourth of them; 7ACA, is for the other three-fourths. Today, one of Orchid’s weaknesses is its dependence on three drugs — Cefixime, Cefuroxime and Ceftriaxone, which account for 70 per cent of sales. In-house availability of 7ACA is expected to help Orchid quickly move to other Cephalosporins.

While the production of 7ACA is a backward integration for Orchid Pharma, it also means entry into ‘fermentation’. China is the ‘big daddy’ in fermentation, but Dhanuka expects that due to certain recent regulations in the US, Chinese companies could shift base to India. Orchid wants to get into fermentation.

And then, the company is preparing for the manufacture of Cefiderocol, another Cephalosporin discovered by Shionogi of Japan. The licencee Global Antibiotic Research and Development Partnership (GARDP) has sub-licenced the drug to Orchid under a ‘fixed margin, no royalty’ deal, meant to make low-cost drugs available to everyone. Cefiderocol is a “reserve category” drug that will be used if the first two lines of treatment fail. Enmetazobactum, in contrast, is in the first line of defence.

Financially, Orchid appears to have put itself on an even keel. Thanks to a ₹400-crore QIP last year, its debt has come down to ₹120 crore, while its current liabilities are easy against its current assets — ₹260 crore versus ₹790 crore. The promoter, the ₹500-crore Dhanuka Laboratories, is to be merged with Orchid, which should make the balance sheet look prettier. The merger is pending NCLT approval. “From our side, everything done,” says a gung-ho Dhanuka.

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