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Middleweight Champs

Multinationals are closing in on Big Pharma, but there are enough mid-size stars as well.

E. Kumar Sharma        Print Edition: August 8, 2010

Downturn or upturn, India's pharmaceuticals market has become the second-fastest growing after China's, even though at $8 billion it is less than half the size by value of China's $20 billion. And it is expected to double in size in five years. From the spate of friendly takeovers (five at last count) by multinationals and strategic tie-ups (over half-a-dozen) in recent years, it is clear that the country has become the go-to place on the global pharmaceuticals map.

But it is not just a story about the big boys of Indian pharma- the likes of Ranbaxy and Dr Reddy's that have turnover upwards of Rs 4,600 crore. As the market matures, the industry has thrown up interesting models and growth stories among the 50-odd mid-size players, those with turnovers from Rs 500 crore to Rs 3,000 crore. Most of them have a strong domestic presence, and sometimes brands as well, and a foot in overseas markets. Two of the six profiled here are among the top 20 players in the domestic formulations market, giving the local subsidiaries of multinationals a run for their money.

Analysts see the trend of mergers and acquisitions in the sector continuing. According to Centrum Equity Research, multinationals want to enter the fast-growing Indian market, gain access to the large capacities and product baskets approved by the United States Food and Drug Administration (US FDA), and use the low cost model here. What is common among these mid-size stars is their readiness to get into new territories and areas just to grow. Aurobindo Pharma, which gets most of its revenues from exports, now aims to expand in the domestic market. Indoco Remedies, which is strong at home, is doing deals with multinationals to grow abroad. Elder Pharma thrives on in-licensing strategy and its own branded portfolio of products.

MANKIND PHARMA
The Kind That Consumers Love

  • FOCUS: Domestic market, with over 150 prescription drugs and around six OTC products
  • REVENUES IN 2009-10: Rs 1,250 crore
  • REVENUES BY 2012-13: Rs 2,400 crore
  • STRENGTHS: Huge field force, low cost structure
  • CHALLENGES: Competition could cut prices
  • PROMOTER FAMILY STAKE: 89 per cent

He has just upgraded from a Toyota Innova to an Audi Q7, a German SUV priced at over Rs 50 lakh. You could call it a coincidence: R.C. Juneja, Chairman and CEO, had set up Mankind Pharma 15 years ago with seed capital of Rs 50 lakh to make medicines available at rock-bottom prices.

As a medical representative before he set up Mankind, Juneja had seen pharma majors selling many antibiotics, antihistamines and cardiovascular drugs at high prices, though their prices had crashed in other countries.

Mankind's first target, in 1996, was ofloxacin, a typhoid medication being sold by one rival at Rs 35 a tablet. Mankind's entry price forced its price down to Rs 8, after which Mankind has lowered its own price to Rs 3.

AUROBINDO PHARMA
Global Aura, Domestic Dreams

  • FOCUS: Almost entirely on exports. Multinational links open regulated markets for it
  • REVENUES IN 2009-10: Rs 3,453 crore
  • REVENUES BY 2012-13: Rs 9,200 crore
  • STRENGTHS: An integrated player with low cost bases
  • CHALLENGES: Will need to streamline systems to manage growth
  • PROMOTER FAMILY STAKE: 56.9 per cent

The largest among this selection by turnover, Aurobindo Pharma also stands out by virtue of its focus on formulations that it exports to big markets and its negligible presence in the domestic market. Last year, it did a dossier licensing and supply deal with Pfizer, in which the multinational gets the rights to sell over 100 Aurobindo products in 110 countries from the United States to Europe, Australia, Canada and New Zealand.

To get into contract research and manufacturing services or CRAMS, it set up a separate division in Febr uary. And it is no longer going to leave its home turf unattended. "We are planning to acquire a small form ulations company with established brands," says Chairman P.V. Ramaprasad Reddy.

A relatively late entrant into the regulated market for generics, Aurobindo's boost came in 2005 when the US FDA cleared two of its formulations. Since then, the FDA has cleared 113 of its 170 new drug applications. Aurobindo makes the active pharmaceutical ingredient or bulk drug for almost all these products.


INDOCO REMEDIES
Strong at Home, Expanding Abroad

  • FOCUS: Domestic formulations account for 67 per cent of its turnover; exports 30 per cent
  • REVENUES IN 2009-10: Rs 402 crore
  • REVENUES BY 2012-13: Rs 1,000 crore
  • STRENGTHS: Has 13 brands that fetch 60 per cent of domestic sales
  • CHALLENGES: Changes in the business environment in Europe and the United States
  • PROMOTER FAMILY STAKE: 61 per cent

Mumbai-based Indoco is picking up speed, having grown at 20 per cent quarter on quarter for the past two quarters. It has seven strong brands that fetch revenues of over Rs 10 crore each; its top 13 brands account for 60 per cent of its domestic sales. Its main are as are anti-infective, respiratory and anti-allergic, dental and gastrointestinal medications. Anti- infectives are one of the fastest-growing segments in India and fetch Indoco 30 per cent of its domestic sales.

"In the Indian market, for the last two quarters, we have shown growth in excess of 20 per cent, way above the industry rate," says Aditi Kare Panandikar, Director (Business Development), and daughter of founder Suresh G. Kare, Indoco's Chairman and Managing Director. Panandikar says Indoco's business model is "de-risked" and robust because of its focus on branded generics in India and contract research and manufacture internationally. Apart from eight manufacturing sites, it has a research and development centre and a vast field force. This year, Indoco launched a division called Eterna to push therapies for chronic diseases and another, Xtend, for rural markets, which are growing faster than the industry.

Indoco recently entered into a long-term agreement with multinational Watson Pharmaceuticals to manufacture generic sterile products for the American market, and with Aspen Pharmacare of South Africa for supply of ophthalmic products to emerging markets. One figure sums up its growth ambition: Its outlay for capital exp enditure on new plants and expansion this year is Rs 100 crore.


IPCA LABS
After Malaria, the Growth Fever

  • FOCUS: Sales split equally between domestic and foreign markets
  • REVENUES IN 2009-10: Rs 1,550 crore
  • REVENUES BY 2012-13: Rs 2,800 crore
  • STRENGTHS: Has diversified into lifestyle disease drugs in a big way
  • CHALLENGES: Retaining people and making it big in CRAMS business
  • PROMOTER FAMILY STAKE: 37 per cent

Till just five years ago, one antimalaria drug accounted for 25 per cent of Ipca Laboratories' domestic formulations business. Today, sales of Ipca's Lariago are more or less the same (Rs 45 crore, against Rs 50 crore then), but it accounts for less than eight per cent of domestic formulations sales of Rs 600 crore.

Ipca's secret: While it also had antibiotics and gastrointestinal drugs, it began making painkillers and bra nded drugs for rheumatoid arthritis, cardiovascular diseases and diabetes. It has entered new segments like the central nervous system and dermatology, and expanded in coughs and colds. Next: Urology and nephrology.

"The growth has been around 20 per cent a year over the last five years, against the industry's 12-15 per cent," says A.K. Jain, ED. Now, Ipca wants to become a supplier for multinationals by building a strong contract research and manufacturing services (CRAMS) business. For Premchand Godha, MD, the key challenge is to retain good people. So far, Ipca has been able to keep attrition low.


UNICHEM LABS
Growth Pangs-Even at 66

  • FOCUS: Domestic formulations make up 72 per cent of business
  • REVENUES IN 2009-10: Rs 750 crore
  • REVENUES BY 2012-13: Rs 1,140 crore
  • STRENGTHS: Its top seven brands fetch half its domestic formulation revenues
  • CHALLENGES: Pricing pressure in the emerging markets
  • PROMOTER FAMILY STAKE: 48.43 per cent

Unichem Laboratories, the oldest in the lot, has five brands that feature among India's top 300, and one, Losar, is the No. 1 in anti-hypertensive brands. Over the past five years, it has invested Rs 270 crore in new manufacturing facilities - some of which will feed a clutch of overseas subsidiaries that it is setting up.

"Our top seven brands account for half our domestic formulation revenues," says Prakash Amrut Mody, Chairman and Managing Director. Domestic formulations acc ount for 72 per cent of its total revenues, bulk drugs three per cent and exports the rest. The domestic market is very important for this 66-year-old company.

Unichem's focus has been on therapies for chronic diseases, which fetch over half its domestic formulation revenues. Mody, a doctorate in Organic Medicinal Chemistry from Bombay University and a graduate alumnus of Harvard Business School, says Unichem is now expanding its reach among the doctors with its growing field force (now 1,800-strong). Unichem has relationships with several multinationals and it plans to deepen them over the next few years. Says Mody: "We have subsidiaries in dev eloped markets and product registrations in emerging and developing markets, which enable our products to be available in more than 50 countries."

Unichem works with global generic companies and innovator companies in co-promotion, manufacturing and research. "These relationships have been strengthened with dosage-form product development of NCEs," says Mody, referring to new chemical entities. Over the next three years, it will invest Rs 150 crore in new manufacturing plants even as it "sweats" the existing ones.


ELDER PHARMA
From Oyster Shells to Licensed Profits

  • FOCUS: Domestic formulations fetch almost 95 per cent of revenues and exports the rest
  • REVENUES IN 2009-10: Rs 702 crore
  • REVENUES BY 2012-13: Rs 1,200 crore
  • STRENGTHS: Calcium supplement Shelcal, which fetches over Rs 100 crore in revenues
  • CHALLENGES: Building new brands
  • PROMOTER FAMILY STAKE: 38.76 per cent

Elder Pharmaceuticals has become almost synonymous with women's health care ever since it decided to make a calcium supplement from a natural source, oyster shells. The result was Shelcal, which fetches it over Rs 100 crore in annual revenues.

Elder also has a strong presence in pain management, nutraceuticals and anti-infectives and is trying to increase the dominant market share of products like Shelcal, Chymoral and Eldervit with extensions. In 2010-11, it plans to launch 14 products, mainly in women's health care, anti- infectives and cardiovascular segments. It has about 36 products in the pipeline, which will feed its five key business divisions.

Jagdish Saxena, Chairman, says Elder has adopted the in-licensing model, which minimises risks and costs of research and development. Elder has over 30 in-licensing agreements, banking on innovator companies for molecules.

Elder has also made some acquisitions outside India, picking up stakes in Bulgarian and British companies to help it enter the European market.

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