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Laurus ventures into new disruptive therapy

* Laurus Labs (LAURUS) has agreed to acquire a 26.6% stake in ImmunoACT for a consideration of INR460m, implying enterprise value of INR1.7b. ImmunoACT currently has four CAR-T cell molecules, with one of them undergoing clinical trials.

* CAR-T cell is a new therapy for Leukemia/Lymphoma, with USD1.5b in worldwide sales of five commercialized products.

* Given that ImmunoACT products are under development, the commercialization would be subject to a successful clinical outcome. However, this represents LAURUS’ entry for a potential CDMO opportunity into a new therapy space over the next 4–5 years.

* We remain positive on LAURUS on the back of a scale-up in CDMO (Synthesis/Biologics), market share gains in the Non-ARV segment, and growth potential in the Non-ARV business. We continue to value LAURUS at 24x 12M forward earnings to arrive at Target Price of INR690. Maintain BUY.

ImmunoACT agreement background

* Laurus Labs has signed an investment agreement with Immunoadoptive Cell Therapy Private Limited (ImmunoACT), an advanced cell and gene therapy company, for a 26.6% stake in the company (on a fully diluted basis) for a cash consideration of approximately INR460m, implying enterprise value of INR1.7b.

* The senior management would also invest INR98m in ImmunoACT for a 5.64% stake at the same price and terms.

* This investment would provide LAURUS access to CAR-T therapy, a promising treatment option with great success in the western world.

* CAR-T therapy is not available in India. This collaboration would help Laurus provide this novel technology to Indians at very affordable pricing.

* The current promoters of ImmunoACT would continue to lead the management and operations after the completion of the acquisition of the minority stake by Laurus.

CAR-T cell therapy – upcoming therapy with immense potential

* CAR-T cell therapy is a new forthcoming therapy for Leukemia and Lymphoma.

* It has the distinct advantage of having a shorter treatment time, better durability, and better safety over chemotherapy / stem cell transplants.

* There are five USFDA-approved CAR-T cell therapies: 1) Kymirah (Novartis), 2) Yescarta (Gilead), 3) Tecartus (Gilead), 4) Breyanzi (BMS), and 5) Abecma (BMS). The cumulative global sales of these products stood at USD1.5b for 12M ended Sep’21.

* Numerous clinical trials are underway for CAR-T Cell therapy, with Celgene (BMS), Gilead, Jansenn, Amgen, Takeda, and Novartis being some of the notable companies pursuing clinical trials for CAR-T therapy.

ImmunoACT – product pipeline, with one undergoing clinical trials

* ImmunoACT was founded in 2018 under the aegis of the IIT Bombay incubator, Society for Innovation and Entrepreneurship (SINE) by Dr Rahul Purwar.

* ImmunoACT has strong global partnerships, including Dr Carl June, pioneer of CAR-T therapy, as a member of the scientific advisory board.

* ImmunoACT has a portfolio of four CAR-T therapy assets under various development stages for the treatment of multiple autoimmune diseases and oncology indications. Particularly, HCAR-19 is under clinical trials for Acute Lymphoblastic Leukemia (ALL) for adult/pediatric as well as Diffuse Large B-cell Lymphoma (DBCL).

* ImmunoACT reported nil revenues in FY20, FY21, and 1HFY22.

Valuation and view

* We expect a 21% earnings CAGR over FY21–23E, led by a 42%/30%/3% sales CAGR in the Synthesis/FDF/API segment and ~80bp margin expansion. We value LAURUS at 24x 12M forward earnings to arrive at our TP of INR690.

* We remain positive on LAURUS on the back of a) robust outlook for the Synthesis CDMO segment, with a strong client base, b) potential in the Biologics CDMO segment with capacity additions, c) product development / capacity additions in the Non-ARV segment, d) the healthy order book of the Non-ARV API business, and e) the potential opportunity from Molnupiravir sales in LMIC countries. We maintain our Buy rating.

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