Indegene

Comprehensive digital solutions to life sciences companies

To expand the scale and scope of operations

Indegene provides digital-led commercialization services for the life sciences industry, including biopharmaceutical, emerging biotech, and medical devices companies. The company assists in drug development, clinical trials, regulatory submissions, pharmacovigilance, complaints management, and sales and marketing.

The company provides a portfolio of solutions covering all aspects of commercial, medical, regulatory, and R&D operations of life sciences companies. It enables life sciences companies to develop products, launch them in the market, and drive sales through their life cycle in a more effective, efficient, and modern manner.

The company’s services can be divided into: (1) Enterprise Commercial Solutions, (2) Omnichannel Activation, (3) Enterprise Medical Solutions and (4) Enterprise Clinical Solutions and Consultancy Services.

Enterprise Commercial Solutions assists life sciences companies with their digital marketing operations. Sales and marketing were the largest segment of life sciences operations expenditure of life sciences companies in 2022. The company helps life sciences companies drive scale efficiency as well as technology and analytics-enabled personalization of their engagement strategies for HCPs, patients, and operations.

Omnichannel Activation Solutions helps life sciences companies leverage a `digital first’ approach for optimizing the last-mile promotion of biopharmaceutical products and medical devices to HCPs across multiple channels.

Enterprise Medical Solutions helps companies to establish centers of excellence (CoEs) to consolidate large-scale regulatory and medical operations for clients. Through these CoEs, the company assist with: (i) writing medical content, regulatory submissions, product labels, and other medical information; (ii) reviewing medical communications to ensure compliance with regulatory guidelines and ethical practices; (iii) pharmacovigilance services, and (iv) conducting real-world evidence (RWE)-based medical research to support market access and pricing strategies.

Enterprise Clinical Solutions helps to obtain efficiencies in the drug discovery and clinical trial operations of life sciences companies. These solutions include digitally enabled patient recruitment for clinical trials, clinical data management, and assistance with regulatory submissions.

The Enterprise Commercial Solutions segment contributed 59.27% to total revenue, Omnichannel Activation 12.06%, Enterprise Medical Solutions 22.98%, and Enterprise Clinical Solutions and Consultancy Services 5.69% in 9M FY2024.

The company primarily executes work orders under two revenue models: (i) resource utilization model. Clients are charged based on the number of employees assigned per engagement or by the number of hours spent on the engagement; and (ii) fixed price contract model. Clients are charged a fixed fee for a particular project. Additionally, the company may also charge clients under an outcome-based model, where fees are linked to factors such as the HCP engagement impact of sales and marketing efforts for the clients’ products.

The company had 65 active clients at the end of December 2023. These clients included biopharmaceutical companies, medical devices companies and emerging biotech companies. It had strong client relationships with 20 largest biopharmaceutical companies in the world by revenue in FY2023.

Biopharmaceutical companies contributed 93.29% to total revenue, medical devices companies 3.27%, emerging biotech companies 2.73%, and others 0.7% in 9M FY 2024.

The company caters to the needs of clients from six operation hubs and 17 offices located across North America, Europe, and Asia.

As a part of its strategy, the company continues to strengthen its `go to market’ engine involving: (i) tapping into cross-sell, up-sell and geographic expansion opportunities; (ii) deepening relationship with existing clients and expanding customer base to biopharmaceutical companies; (iii) making inroads into new market segments; (iv) focus on high value opportunities; and (v) scaling nascent business verticals.

The company intends to expand the scale and scope of its operations by continuing to invest in technology. The company has been integrating Gen AI in its solutions to improve the efficiency of tools and platforms. It is working on new Gen AI-enabled solutions to improve clinical, pharmacovigilance and regulatory offerings and increase its market share in these areas.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 760 crore and an offer for sale of 2,39,32,732 equity shares aggregating up to Rs 1081.76 crore by the shareholders: Manish Gupta, Dr Rajesh Bhaskaran Nair, Anita Nair, Vida Trustees, BPC Genesis Fund I SPV, BPC Genesis Fund I-A SPV, and CA Dawn Investments.

The price band of the IPO is Rs 430 to Rs 452 per equity share of face value Rs 2 each.

The objectives of the fresh issue include Rs 391 crore for repayment/prepayment of debt, Rs 103 crore to fund working capital requirement, and the remaining amount to be used for general corporate purposes and inorganic growth.

Indegene is a professionally managed company and does not have an identifiable promoter in terms of the SEBI ICDR Regulations and the Companies Act. Consequently, there are no members forming part of the ‘promoter group’. Nadathur Fareast Pte is the biggest shareholder in the company with a 23.64% stake. CA Dawn Investments has a 20.42% stake and Brighton Park Capital owns a 12% stake in the company.

The issue, through the book-building process, will open on 6 May 2024 and close on 8 May 2024.

Strengths

The company is well positioned to benefit from the expected growth in life sciences operations expenditure, estimated at Rs 12 trillion (US$ 156 billion) in 2022 and expected to grow at a CAGR of 6.5% to reach Rs 15.5 trillion (US$ 201 billion) in 2026.

The company has over two decades of healthcare domain expertise, enabling it to efficiently modernize and digitize the key functions involved in the life sciences commercialization process.

Life sciences companies are adopting digital innovation and enterprise-wide transformation initiatives to improve operational efficiencies impacted by certain cost pressures like wide talent gaps and margin pressures from drug pricing caps. Indegene is well prepared to benefit from this trend.

The company had long-standing relationships with marquee biopharmaceutical companies including each of the 20 largest biopharmaceutical companies in the world by revenue in FY 2023. Moreover, the company has high retention rates (i.e., revenue from existing customers as a percentage of revenue from such customers earned in the previous year). The retention rate was 122.83%, 159.89%, and 129.90% in FYs 2023, 2022 and 2021, respectively.

The company has robust digital capabilities and an in-house developed technology portfolio. The company also developed AI-powered solutions across the life sciences commercialization continuum. These tools help improve cost efficiency, speed to market, regulatory compliance, and product quality at scale in a manner that requires less manpower and human intervention.

The company has an experienced management team and motivated talent pool, supported by marquee investors. Many of its key managerial personnel have several years of experience in the healthcare domain and have academic backgrounds in business with qualifications from various medical institutions.

The company has successfully executed several acquisitions and has benefited from the synergies, networks, technologies, and talent pools of the companies acquired. Since its inception, the company has completed 13 acquisitions.

Weaknesses

The Indegene business is focused on the life sciences industry and derives most of its revenue from biopharmaceutical clients. Biopharmaceutical companies contributed 93.29% to total revenue in 9M FY 2024. The company may be adversely impacted by factors affecting the life sciences industry and the biopharmaceutical industry, including the growth of the overall industry, outsourcing, and other trends.

The company generates a significant portion of its revenue from certain large clients located in North America and Europe. The top five customers contributed 47.76% to the total revenue in 9M FY 2024. Any downsizing of the scale of such clients or failure to retain large clients could adversely affect financials.

The audit reports of the company for 9M FY2023 and 9M FY2024 contain certain emphasis of matter paragraphs. Further, the audit reports issued by statutory auditors for FYs 2023, 2022 and 2021 included statements on certain matters indicating delays in the payment of interest amounts and delays in the deposit of provident fund dues.

The adoption of generative artificial intelligence (Gen AI) by the life sciences industry could lead to changes in customers’ operations and, in turn, affect the company’s revenue and profitability. The integration of Gen AI in the company’s tools and platforms also exposes it to additional data security and privacy risks.

The company’s operations involve extending credit to clients for solutions offered, thereby exposing it to counterparty credit risk, including significant delays in receiving payments or non-receipt of payments. Its billed trade receivables amounted to Rs 638.34 crore, representing 33% of 9M FY2024 revenue.

The company generates a substantial portion of its total revenue from international markets, primarily North America and Europe. This exposes the company to exchange rate fluctuations and potential geopolitical tensions.

Some of the company’s shareholders are also substantial shareholders in an entity with an omnichannel SaaS platform business catering to a similar client base as the company’s Omnichannel Activation Solutions segment. This may result in conflicts of the shareholders’ interests.

Valuation

Consolidated sales increased 14.5% to Rs 1916.61 crore in 9M FY 2024 as compared with 9M FY2023. The OPM increased 129 bps to 19.13%, leading to a 22.78% increase in OP to Rs 366.71 crore. Other income increased 18.42% to Rs 53.14 crore, while interest cost rose 88.71% to Rs 37.11 crore and depreciation went up 43.7% to Rs 57.63 crore. PBT jumped 14.57% to Rs 325.11 crore. Tax expenses were Rs 83.21 crore as compared to tax expense of Rs 66.49 crore in 9M FY2023. Net profit grew 11.33% to Rs 241.9 crore.

Consolidated sales increased 38.54% to Rs 2306.13 crore in FY2023 as compared with FY2022. The OPM increased 27 bps to 17.18%, leading to a 40.73% increase in OP to Rs 396.22 crore. Other income spurted 123.91% to Rs 57.97 crore, while interest cost surged 5154.4% to Rs 31.33 crore and depreciation jumped 78.8% to Rs 59.81 crore. PBT soared 60.29% to Rs 363.05 crore. Tax expenses were Rs 96.95 crore as compared with tax expense of Rs 63.68 crore in FY2022. Minority interest was nil as compared with negative 1.94 crore in FY2022. Net profit increased 61.50% to Rs 266.1 crore.

The TTM EPS on post-issue equity works out to Rs 12.15. At the upper price band of Rs 452, P/E works out to 37.2.

Indegene OPM and ROE stood at 17.18% and 25.02%, respectively, in FY 2023. There are no listed companies in India and globally of comparable size from the same industry and with similar business model as that of the company. The company is positioned at the intersection of healthcare and technology and has created a niche place in the verticals it is operating. It caters to the life sciences industry, expected to record a CAGR of approximately 6.5% to reach Rs 15.5 trillion (US$201 billion) by 2026, driven by a rise in aging population, increasing prevalence of chronic diseases, and discovery of new diseases, among other factors.