The Rs 1,660 crore Indian subsidiary of pharma giant GlaxoSmithkline Pharamaceuticals is banking on new product launches (such as the anti-cancer drug Tykerb launched last year) and penetration into smaller towns to boost revenue growth.
While its growth in 2009 is expected to marginally trail those of the broader pharma market, over the next two years the company expects to outpace the industry by aggressively promoting its new product basket. In an interview to Ram Prasad Sahu, the company’s managing director Hasit Joshipura, talks about the steps the company plans to take to improve revenues and expand its reach.
What is the potential of the anti-cancer drugs in India and what are the revenues that you expect to generate?
Oncology is not a big segment in India, but it grows quite well. The rough estimate for the market size would be in the range of Rs 400-Rs 450 crore. While Tykerb marked our first foray into oncology, we did better than expected. On a conservative basis, we should touch about Rs 15 crore over the next five years from this drug.
Which therapeutic categories would you focus on?
For a company of GSK’s size, I don’t think we should focus on any one area. We have to be develop multiple capabilities. Traditionally, we have been good in the mass market, but that is not good enough because while that end of the market will grow, we must also be good at more focussed, more specialty products.
While for the scale and size of GSK it (the revenues from oncology) is not that relevant, but it is a demonstration of our ability to do something different from what we have done in the past. It helps us in areas where we want to develop our capabilities.
What are the plans for expanding into Tier-2 cities?
Our portfolio is such that we have to be strong in Tier-2 cities. We have about 1,800 medical representatives and we are looking at going deeper into smaller towns which will be our growth engines.
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Tier-2 to rural (all put together) accounts for about 40 per cent of the pharmaceutical market, but has over 60 per cent of the population. As had happened in the consumer business, in the early 1980s, rural areas which was 65 per cent of the population accounted 40 per cent of the total market and the rural market grew much faster and now proportion is somewhat similar.
That is what I suspect will happen in pharma as well. We must start putting in place our model to be able to benefit from it. In the FMCG market, growth was driven by media penetration. What will drive rural spends on drugs is the development of healthcare infrastructure. The strategy therefore, is to go down further to increase reach, coverage and add headcount.
What are the product launches being planned over the next two years?
In the first quarter of 2009, we launched Cervarix, a cervical cancer drug, in the third quarter we will launch Micafungin, an anti-fungal, which we licensed from Astellas last year, and if we are lucky we will do Promacta, platelet aggregator in the fourth quarter this year or in the first quarter next year. In the first half of 2009, we will launch Sinforix, which is a strep pneumonia vaccine.
In addition to launching drugs from our pipeline, we supplement the product range by in-licensing; we did two of them last year (Olmesartan for hypertension and Micafungin). The third step now is also to look at branded generics in line with GSK’s policies for emerging markets. These are the three blocks within which we will launch our products. From the new products, we should have revenues of about Rs 250 crore over the next five years.
What is the Indian R&D contribution to the parent company and does a part of Glaxo’s global manufacturing needs get outsourced to India? Any plans on this?
We contribute to the global effort by way of conducting clinical trials for the parent’s molecule and India is an important centre for clinical trials within GSK. As far as the global manufacturing needs are concerned, these are not outsourced to India except Betamethasone which we make at our Thane site and export.
What do you intend doing with the Rs 900 crore of cash on the books?
It is a useful thing to have in times like this. We keep giving back to shareholders, this year the payout is 69 per cent. In addition, we are open to buying brands. We already have enough manufacturing capacities, so there is no need to expand. The brands we buy must fit into our portfolio and should be in line with what we think are our growth drivers. While we don’t have too many loopholes in our product basket, the pharma sector being dynamic we would like to upgrade our portfolio.
Say, for example, if gastrointestinals is a growth area, we may have a Zantac which defined the market for antacids (H2 blockers), but then came the proton pump inhibitors (PPIs). We didn’t have a PPI, so went out and licensed the best PPI available in the market which was rabeprazole. We can use all the cash available and more if it is required (to be leveraged) for this (buyout) activity.
Staff costs increased y-o-y in 2008. Any plans to cut costs on this front?
The increase in staff costs has been a one-time expense due to actuarial provision for retirees. We have done pretty well in managing costs and if we can hold our costs at this level we would have done a pretty good job of it. We had frozen our headcount for many areas but now we have started adding people.
Even the marketing expense was fairly modest but that part will now go up with the launch of new products. Some costs will be difficult to manage beyond this level now because we want to grow our topline faster. So, it will require some investment.
What kind of revenue growth and operating margins do you expect to achieve?
If you look at our growth between 2002-07, the pharma segment has grown by about 7.8 per cent and in 2008 about 10 per cent which is in line with the market growth. Traditionally, innovator companies have trailed the market. We have done as per plan in most segments including anti-infectives.
We want to grow at similar rates to the pharma market now (Glaxo has projected for a 10 per cent topline growth in 2009, pharma market is expected to grow between 12-15 per cent), but over the next two years, outpace it on the back of new product launches. Given the inflationary pressures we have had on raw material side if we can hold on to 35 per cent OPMs, we would have done well.
What is the biggest risk for GSK Pharma in India and will the lower GDP forecasts impact the pharma sector?
We have a huge base on which we have to keep growing at double digits. That itself is a formidable task and a challenge, not a risk. What can impact is the lack of growth in the health infratstructure itself. It is not a GSK risk, but a healthcare sector risk. If that does not keep pace, then the market might not grow the way we are projecting it to grow.
The government’s expenditure on healthcare is 0.9 per cent of the GDP, the Common Minimum Plan had said that they would take it up to 2 per cent, if that does not happen then there will be some impact. On the lower GDP forecasts, even during the time (1990s) when GDP growth was sub-6 per cent, the pharma market has been growing at double digits.
While the broader economy has an impact on pharma growth, it would have to be a sustained low growth to start impacting this segment. But, if you have a couple of years of low growth that probably might not impact as much.