Ranked 5th among all pharmaceutical companies in India, Sun Pharma has managed to record better than industry growth rates by operating in niche segments such as neurology, psychiatry and cardiology.
The company reported impressive numbers for the fourth quarter ended March 31, 2003, beating market expectations. While sales increased by almost 30 per cent to Rs 234.11 crore, profits vaulted nearly 84 per cent to Rs 74.17 crore during the period.
Though the growth was helped to a large extent by an advance sale of Rs 35 crore booked in March instead of April, analysts still feel that the company will continue to clock better than industry growth rates in the domestic markets.
The company is also making significant investments in research and development (R&D) and taking international business initiatives.
Dilip Shanghvi, managing director, speaks on the company's plans for the domestic as well as international markets and developments on R&D.
Why is your collection period still high?
Some of the working capital structure is because of the way the business is structured with complete disease baskets across therapy areas, because of which a lost prescription can mean several years of sales lost for a product.
So some of this inventory build-up is by design. Some of it is owing to operational laxity, which we are trying to seriously correct.
What are your R&D investment plans?
This year, the total R&D spend was Rs 65 crore, of which revenue R&D spend was Rs 30 crore. We will be commissioning a research campus in Baroda spread over 16 acres with 200,000 sq. ft lab space later this year.
While we have not shared any details of the areas we are working on, we are focusing on three specific therapy areas in new chemical entity (NCE) work and four technology platforms for novel drug delivery systems (NDDS) work, with 61 patents filed and 16 more granted as we progress with these projects.
We intend to have one NCE and two NDDS projects in phase 1 by 2004-2005.
Currently about 30 per cent of the R&D spend is meant for innovation based projects. Our intent is that this number should increase to 65 per cent of a much larger research outlay.
What is your strategy for the US generics market?
The strategy is to continue to bring slightly complex generics to market. Some of these may be with Sun Pharma's bulk source.
Caraco is expected to file 4-5 ANDAs and a similar number will be filed from an Indian site. Caraco has already estimated sales of $35 million for December 2003.
How have you performed in the new segments that you have entered in the domestic formulations market?
The newest therapy areas -- gynaecology, oncology and respiratory -- account for a little over 12 per cent of our domestic sales.
Overall we expect these and our core therapy areas to register growth rates of 20 per cent plus.
An interesting feature here is the CMARC rank upswing in the new therapy areas-gynaecology at 11 from 18 in the last few quarters, and oncology at 6 from 10- indicative of prescriber preferences and the market shares will now follow.
In these areas we have now begun to offer comprehensive disease management baskets.
What are your plans for international markets other than the US?
Currently, exports account for 17 per cent of turnover. We expect to take it up to 30 per cent of turnover in the next two years.
Export of formulations should grow at 40 per cent this year on a relatively small base; export of bulk actives at 20-22 per cent. We view our export business in three parts.
One, export of brands to 36 non-regulated markets across SE Asia, Russia, China, Middle east-- this part is in the high growth phase after turnaround plans have been executed and a strong team placed on the ground to create a prescription based pull with country specific strategies; in each market we are opting to be identified with a select set of products or a select therapy area, and this strategy is delivering the numbers.
Here, given the set of products we have and specially the products that offer a technology advantage, the potential is very good.
Two, export of speciality bulk actives to end-users in US/ Europe; this is a relatively stable business, and as we file for and receive drug master file (DMF) and certification of suitability (COS) approvals, the quality and margin opportunity of the bulk business is improving.
Lastly, through a presence in the generics market in US/ Europe with filings from Caraco and an Indian base. The current export turnover from Sun Pharma does not include Caraco's numbers.
This part of the business also offers excellent potential, and about 10 filings are likely to be made every year out of India and the US.
Given the aggressive R&D spend you have charted out can we assume that the profitability will be affected in the short-term?
At Sun Pharma, we have factored these R&D and international market costs in our margin estimates. We expect to maintain margins this year, at the same levels as the financial year March 03.
Caraco books an R&D expense depending on the number of products that it files with the USFDA, its scale up costs for approved products and the cost of shares issued to Sun Pharma. Here too, I expect the topline growth should be fairly healthy.
What is your outlook on the domestic market?
In my opinion, the domestic market will continue to grow at single-digit growth numbers, maybe a little better going ahead in the year.
I would also expect price-led competition to continue, and new products would continue to be introduced by a large number of players, and in some areas this will help expand usage/therapy area size because of higher noise levels.
How do you see revenues and profits growing in the next couple of years?
As a policy, we do not share numbers on projections beyond a year, but yes we do believe we have a stable, sustainable business with multiple revenue stream opportunities.
In each of these areas we are present in the high margin area of the business by design and we continue to refurbish our portfolio to remain high margin.
Domestic markets will be the backbone and international markets and research the growth drivers going ahead, in much the same the manner they are for an international research based pharma company.
Your company recorded an advance sale of Rs 35 crore last quarter. Given that the current quarter's revenues will be understated by that amount, will we see a decline in growth on a quarter on-quarter basis?
There could possibly be a slight dip- but one month
