Wockhardt looks for greener pastures as US FDA issues linger

Wockhardt chairman Habil Khorakiwala is once again looking for greener pastures. Under pressure from the US Food and Drug Administration (FDA), the pharma company has started exporting to Malaysia, Sri Lanka, Australia, Egypt, New Zealand and other countries which it classifies as rest-of-world (ROW). 

In 2005, Wockhardt started work on expanding its business across continents. Unlike most of its domestic peers, it decided to concentrate on Europe. But Khorakiwala soon realised generics lacked growth opportunities in most other European markets barring the UK and Ireland. Wockhardt then shifted its focus to the US and aggressively funded its expansion drive. Even during the financial crisis, it filed 23 abbreviated new drug applications (ANDAs) with the US FDA - a record among all generic Indian companies in 2008.

Subsequently, the company's revenues soared and its business mix changed. Wockhardt's US business contributed 41 per cent to its revenue with growth of 78 per cent in 2011-12. In the first half of the following financial year, US revenue of Rs 1,081 crore accounted for almost 48 per cent of its global revenue.

Now, the company reported a Rs 196-crore net loss for 2016-17 against a profit of Rs 251 crore in the previous year. The loss is largely on account of expenses incurred on remedial measures after US FDA alerts. India and other emerging markets contributed to over half of its revenue in the fourth quarter of 2016-17 while the US has now shrunk to 18%. The company reported net sales of Rs 3,988 crore in 2016-17, down from Rs 4,461 crore in the previous year.

“We are now focusing on India and the rest-of-world market,” says Manas Datta, chief financial officer, Wockhardt. “ROW contributes about 10 per cent to our revenue and is expected to grow in future,” says Datta.

Wockhardt has been grappling with quality control issues raised by the US FDA for the past four years. Its formulations units at Chikalthana and Waluj in Maharashtra have been under the FDA’s import alert since 2013 for violations of manufacturing standards. A bulk drug plant at Ankleshwar in Gujarat was issued an import alert in August 2016. As the US FDA issues linger Wockhardt is seeking growth from markets in India, Asia-Pacific and Africa. In FY 17 the company launched 24 products in domestic market and plans to further it in the coming months.

“The worst for US FDA-related issues for Wockhardt is now behind,” says Alok Ranjan, head of research at domestic brokerage Way2Wealth Securities. “While in the short term, the  company is looking for growth from India and other new geographies, its biggest growth potential in medium term is from developing antibiotics,” he says.

The drug maker's over two-decade old strategy of developing antibiotics to treat drug resistant pathogens has finally started paying off. Last month, the US FDA agreed to abridged phase-III clinical trials for its new antibiotic molecule, WCK 5222. The antibiotic will be used to treat serious hospital-acquired infections such as pneumonia and is expected to work against some bacteria that have developed resistance to existing drugs.

The FDA agreed to an abridged phase-III trial after evaluating the pre-clinical and phase-I clinical data establishing safety and efficacy of the drug. The company now expects global clinical launch of WCK 5222 in four years. As per McKinsey & Company’s it will have an estimated annual market size of $ 1.5 billion in the US.

The company has four other new antibiotic molecules in phase-II and phase-III clinical trials and all of them have received qualified infectious disease product (QIDP) status from the US FDA. QIDP status provides for fast-track clinical development and a review of the drug application by the US FDA for approval.