We expect our business, overall, to register a growth of 20 per cent. Our growth drivers will remain brand building and research
Aggressive product launches and a focus on niche areas have helped Sun Pharmaceutical Industries become one among a handful of companies to report high growth rates in the drugs industry over the past year.
According to the latest data published by market research firm ORG Marg, while the entire industry witnessed a year-on-year growth of 15.87 per cent during the September-November 2001 period, Sun Pharma clocked a growth rate of 25.6 per cent.
However, concerns lingered over its loss-making US subsidiary Caraco Pharma, in which Sun Pharma holds a 48 per cent stake. But with Caraco getting US Food and Drug Administration (USFDA) approval for five products and other approvals waiting in line, it seems like the worst is over for Caraco. Dilip Shanghvi, chairman and managing director, Sun Pharmaceutical Industries, spoke to Kripa Mahalingam on the company's growth plans.
How many product approvals do you expect this year for your US subsidiary Caraco? When do you expect it to break-even?
To date, Caraco has received approvals for five products including an approvable letter for metformin, and has five more products awaiting approval from the USFDA.
The company expects to get these approvals in calendar 2002. Caraco will file for one product approval in every quarter this year. The loss in calendar 2001 is estimated at about $6 mn and we expect Caraco to break-even by December 2002, with a turnover of about $16-18 mn.
Would you consider increasing your investment in Caraco?
We expect Sun Pharma's stake in Caraco to cross 51 per cent only by March 2003. Apart from the initial $7.5 mn (approximately Rs 32.25 crore) invested in the form of equity and $5.3 mn (aproximately Rs 22.79 crore) in the form of loans, which increased Sun Pharma's stake to about 48 per cent, further issue of shares to Sun Pharma will be on transfer of technology for products.
The company's focus till date has been on niche areas like psychiatry, neurology and cardiology, which are high-margin but not volume-driven. What is your strategy to maintain profitability if margins decline due to competitive pressures?
There are two points to consider when answering this question: increasing competition which shifts prescriptions from older therapies to newer therapies; and more people talking about a product/therapy which helps increase market size.
At Sun Pharma, we have always believed in translating this first-mover advantage in chronic therapy areas into sustained customer relationships. This will continue to drive our business.
We intend to remain a speciality-focused company and expect growth to result from increased market share in core therapy areas as well as from strategies that we've put in place in the new speciality therapy areas that we entered post-acquisition.
We rank among the top companies with consultants in our therapy areas like psychiatry, neurology, gastroenterology, cardiology, diabetes, orthopedics, ophthalmology. These are high growth areas and we intend to increase market share in these areas.
In new therapy areas like respiratory and gynaecology, we need to reach a similar market rank.
The company has been aggressive on new product launches and has a product portfolio of over 250 products. Do you think there is a need to rationalise this portfolio now?
We are organised into nine marketing focused speciality divisions that address specific customer segments. Each division, hence, focuses on a limited number of products which are under active promotion. We launch one new product per division every quarter.
The business strategy is built around complete disease management baskets and hence, demands an array of products that can be used by a specific segment. From time to time, we also discontinue brands that lose relevance from a therapy perspective or are too small to manage.
You have indicated that international markets would be a thrust area. What have been the developments on this front?
While our international speciality bulk actives business, which caters to the needs of end users and large companies in Europe and Latin America has received a fairly good response, the dosage form business has been an area of concern.
We did realise that a product portfolio that was tailor-made to suit the requirements of a country made better marketing sense than a diffused basket of products. However, pruning the product basket and registering new products have taken longer than intended.
The supporting marketing strategy on the ground -- in terms of doctor selection, call coverage and call frequency for each of the markets we operate -- also needs to be fine tuned. As such, there is no real alternative to organising a field force on the ground and building strong brands in different markets.
Can you elaborate on the company's research initiatives? What new chemical entities (NCEs) is the company working on?
We have been investing about four per cent of our turnover into research and development (R&D) since 1993, with the focus on reverse engineering projects. The new product and bulk introductions are, entirely, a result of this research spend.
Since 1999, we have begun to invest in drug discovery projects and currently, about 30 per cent of our budget is invested in NCE research and novel drug delivery systems (NDDS). Over the next two years, we intend to commit about 60 per cent of our research budget to innovation-based projects in NCE and NDDS research.
In NDDS, we are working on several technology platforms, and in NCE, we are working on three specific therapy areas (I can't specify the names for intellectual property- related reasons).
Two of your subsidiaries, Pradeep Drug Company and MJ Pharmaceuticals, have been referred to the Board of Industrial and Financial Reconstruction(BIFR). What are your plans for these companies?
Pradeep Drugs will be converted to a non-macrolide site for speciality bulk actives. Once the production at Panoli and Ahmednagar is earmarked for international markets, Pradeep Drugs will be earmarked for speciality bulk actives for India and the neighbouring markets.
MJ Pharmaceuticals is currently used as a third party sourcing site for dosage forms for large companies like Knoll and Eli Lilly. In the long-term, we expect the plant to be used for producing generic drugs for the European markets.
What growth rates are you targeting in the medium term? What will be your future growth drivers?
We expect our business, overall, to register a growth of 20 per cent. The drivers of growth will remain brand building -- first in the domestic market and then in the international market -- and research.
