Hyderabad-based Aurobindo Pharma Ltd has targeted a revenue of $2 billion by 2013 as against $900 million last year. The company, which has forged strategic alliances with global pharma majors Pfizer and AstraZeneca, expects 40 per cent of this business to come from multinational companies. Chairman P V Ramprasad Reddy tells Prashant Chintala it is better to go with MNCs in emerging markets. Edited excerpts:
What is your business plan?
We are in specific markets where we will go on our own. In the emerging markets, we feel it is better to go with MNCs. They can do a better job. Mainly, we want to restrict ourselves to the generic side other than our normal API (active pharmaceutical ingredients) business.
Do you want to exit from the emerging markets?
We have our presence in 25 countries and we will continue to do business in these. We will do this even though Pfizer is launching our products in 110 countries and we would be competing with each other in some of these. However, we may not market the same products.
What will be the contribution of MNCs to Aurobindo’s total revenues in future?
In 2013, we are expecting a revenue of $1.5 billion from formulations and $500 million from APIs. About 40 per cent of this business will come from MNCs.
Following the agreement for licensing and supply of generic drugs, what is the contribution of Pfizer to revenues?
Last year, it was $40-50 million. This year, we expect our total formulations business will not be less than $600 million. Of this, Pfizer will account for $150 million.
Will Pfizer’s contribution go up?
In the next two to three years, it will be up to anywhere between $350 million and $500 million.
Do you expect the same kind of revenues from AstraZeneca?
That deal is different. It is very small compared with that of Pfizer. But this will lead to bigger deals in the coming months.
What are the financial terms of the AstraZeneca agreement?
The same. It is an upfront payment of licensing amount and a supply agreement for five years, particularly in the rest of the world and emerging markets. The difference between the Pfizer and Astra deals is that the former has signed it for the US, Europe and other regulatory countries, while the latter has preferred for some emerging markets.
How much did AstraZeneca pay as upfront money?
It has given some $1-2 million as license fee. (Pfizer paid $110 million).
What kind of revenues do you expect from the AstraZeneca deal?
It is in a very initial stage. We can expect $100-200 million in the next two to three years. I am giving a wide range in revenues because we don’t know how many products Astra will further select and how much time it will take for registration of the selected products.
Do you have any more deals of this kind in the offing?
We will sign one more.
When?
Very difficult to give a time frame. Some discussions are on. It is also a middle-level deal.
Apart from revenue, what other benefits will Aurobindo derive from such deals?
We are getting a lot of experience on how systems work either on the plant side or the regulatory side. We had some idea about these systems earlier but we have gained a lot of knowledge from these companies on environmental, health and safety aspects. All this will be helpful in launching our own products in future.
You recently got 23 of your products registered in South Africa. What are the plans?
We have successfully launched branded generics in that country. At present, our own sales are $36-40 million. We are expecting the revenues to reach $200 million in the next two years.
In 2009-10, you reported a net profit of Rs 563 crore, a five-fold increase compared with the profit of Rs 100.3 crore in 2008-09. How did you achieve that?
This is the beginning. Now on, our profit margins will increase. Once we reach a turnover of $2 billion, our Ebitda (earnings before interest, taxes, depreciation and amortisation) will go up from the current level of 18-19 per cent to 26-27 per cent. This is due to a decline in capex and increase in turnover, particularly revenues from the formulation business, which has better margins. Besides, our overheads are not increasing in proportion to the increase in turnover. There is also less working capital and sales expenditure due to the business with MNCs, which pay their dues in 30 days.
Despite repeated denials from you, the talk about Aurobindo selling its stake to Pfizer continues.
I am 100 per cent sure we have no such intentions at present. There is no question of roping in a strategic investor or selling a stake. At the most, what we are thinking is separating our API and formulations business. In the next two-three weeks, we will appoint a new chief executive for our API and contract research and manufacturing services division.
