Lupin’s Desh Bandhu Gupta is reworking priorities to drive growth

Formulating a new change prescription

Anju Ghangurde

This is the age of the designer drug, says the first page of the new look Rs 911 crore Lupin Ltd’s annual report, the first after Lupin Laboratories and Lupin Chemicals were amalgamated in April 2000. While the statement best encapsulates how future drugs will be more individualised, it is also indicative of subtle but significant changes that are creeping into Lupin Ltd as it metamorphoses from being largely a tuberculosis (TB) drugs company to one that’s targeting a variety of niche segments. While part of the change may be a result of more young blood at the helm of the 33 year-old Lupin group, a deeper look confirms that change is now key formula to Lupin’s growth and future strategy.

First glimpses of change
The core Lupin team (excluding chairman and managing director Desh Bandhu Gupta and senior R&D personnel), has an average age of just over 40. It is also becoming increasingly clear that the company will now not postpone some of the tough decisions that it needs to take. Fiscal discipline is one such area. Besides, it no longer views transnationals (TNCs) as patent-brandishing enemies, but could even be key allies in the future. Says Lupin group president (bulks) Mr Satish Khanna,” We are following three to four major strategic approaches and a key area will be strengthening our relationships with multinationals.”

‘‘In our approach to professionalise the working of the company, the criteria would be merit-based.’’ Desh Bandhu Gupta, CMD, Lupin

What would this mean for Lupin Ltd? Elaborates Mr Khanna, “Post 2005 (when India ushers in the product patents regime), we expect most multinationals to start outsourcing a significant portion of their intermediates requirements and that’s where we could step in.” Lupin already has the requisite assets and no further investment is envisaged, he says, adding that there’s still scope to make these assets sweat further. With US Food and Drug Administration (FDA) approval for three plants manufacturing cefaclor, 7 ACCA ( an anti-infective drug) and rifampicin, Lupin is also the only Asian pharmaceutical company to have received a US FDA approval for its sterile cephalosporin facility.

Beyond contract manufacturing
Lupin in the future, however is now not positioning itself as a mere contract manufacturer and expects to forge deeper links with TNCs. Mr Khanna says that besides using the company’s research and development (R&D) centre as a model for its own R&D activities, Lupin would also examine the option of doing certain elements of R&D on its own and thereon offer it to TNCs to take this further.

‘‘Lupin is not in favour of direct marketing, given the wave of consolidation in the US and Europe.’’ Kavita Gupta, Director, Lupin

Towards this, the company is setting up a state-of-the-art research centre, Research Park, at Pune, which will be inaugurated on October 26. The centre, spread over 19 acres of land, will house 150 young scientists to start with and this is expected to go up to 250 over a year. “One of the objectives is to emerge as a preferred outsourcing partner for innovators,” adds Khanna. Lupin says its will develop novel drug delivery systems based on a rate-dependent and not dose-dependent strategy. Put simply, this would mean that instead of several pills with huge peaks in efficacy and its accompanying side-effects, Lupin will target oral controlled systems which will meet this objective with a single pill.

Lupin also expects to capitalise on its deep marketing reach in the country, by offering these services to potential TNC allies. However, Lupin is not putting all its eggs into one basket and like most Indian companies, generics is another major plank of its growth strategy.

Cashing in on the generics wave
Generic drugs accounted for close to nine per cent of the $ 121 billion US prescription market in 1999 and Merrill Lynch expects generic sales (or sales of off-patent drugs) to touch $12.7 billion in 2001. Interestingly, by 2002, the US generics market is expected to outgrow the branded market for new prescriptions. Besides, experts expect generics to grow by at least 15 per cent in dollar terms in the short-term, making this business extremely attractive.

‘‘One key strategy will be to strengthen our relationship with multi-national companies.’’ Satish khanna, President (bulks), Lupin

Says Mr Khanna, “ We are working on broad-basing our therapeutic segments and markets in the generics business. Both the Abbreviated New Drug Applications (ANDAs) and Drug Master Files (DMF-a regulatory filing requirement for exports) routes are being pursued as part of this strategy.” While the group’s generics strategy appears to be currently focused on cephalosporins (Lupin was the first Asian drug firm to enter UK and France with cefotaxime, an injectable cephalosporin), an entry into the segments of diabetes, asthma and central nervous system (CNS) segments is also planned.
In 2002, Lupin expects to enter the finished dosage forms segment with cefixime and cefdinir formulations, while cefuroxime axetil is targeted for 2003. During the same period, Lupin also hopes to file DMFs for benazopril and fosinopril in the cardiac-care segment.

A key component of this generics strategy is marketing tie-ups with international generics companies. Lupin director (business development) Kavita Gupta, who is also the daughter of chairman and managing director Desh Bandu Gupta, is categorical that Lupin is not in favour of direct marketing, given the wave of consolidation sweeping across both the US and Europe. Lupin has marketing tie-ups with Merck Generics for injectable cephalosporins in Europe and APP, a leading player in the US hospitals segment, for an entry into the American injectable cephalosporins market. But amidst all this, the Mumbai-based company is focused about not neglecting the domestic market, which still continues to be its bread-and-butter.

Traditional focus
Traditionally, Lupin has been viewed as a TB drugs company and with TB staging a deadly comeback with AIDS onslaught, this may still be a tag that might continue. Lupin accounts for approximately 80 per cent of the global ethambutol market (and volume growth continues) and has a market share of 40.9 per cent in the domestic anti-TB drugs market. Mr Gupta, in his address at the annual general meeting last month, had stressed that Lupin will follow a customised brand approach —push high value brands in the urban areas and affordable ones in the rural area. This will help the company effectively allocate valuable MR (medical representative) time, provide a rural focus with the national marketing plan and create a value-addition roadmap over the forseeable future, he said. Adds Mr Khanna, “ Even in a declining TB market, Lupin’s share is increasing. But we are adding therapy segments that are related to lifestyle. We have already moved into “prils” and “statins” in the cardiovascular region and we will look at newer platforms to add value to these areas. Analysts say that with new US guidelines advocating a thrust on treatment of blood cholesterol levels, the potential of statins in checking coronary heart disease is huge but cautions that statins are an extremely competitive segment. “Internationally, AstraZeneca is already readying with the launch of its superstatin, Crestor, and companies like Lupin will have to move fast to make an impact,” they add. But the pace of scientific developments is not the only risk factor that Lupin expects to overcome. Fiscal discipline is an area of concern and Ms Gupta is candid and admits that the group could do with “tighter controls”.

Fiscal discipline
Interestingly, Lupin is now evaluating the option of setting up a three or four member management committee as part of an effort to exercise stronger control on the group’s operations.

Ms Gupta says that the proposed committee would ensure better financial discipline, take a concerted look into all strategic and tactical decisions and ensure complete integration in operations of the group’s strategic business units (SBUs). Lupin has revamped its marketing structure into three marketing SBUs—Lupin (for anti-TB drugs), Pinnacle (for super specialty products) and Endeavour (for general healthcare products).

While a final decision on whether or not to go ahead with this proposal has yet to be made, indications are that the proposed committee would also facilitate better focus in terms of capital allocation. It will also ensure that high standards of corporate governance are maintained, adds Ms Gupta.

The Lupin group, which is in the process of recruiting a chief financial officer (CFO), has recently appointed a financial controller. “ We have also restructured the business finance group. All these measures will ensure that the working capital block-up is lowered. By December, 2001, we expect to achieve a significant reduction in working capital,” an official added.

Lupin says its financial objectives are manifold and aimed at reducing interest costs on the company’s loan portfolio, lowering manufacturing costs, checking raw material procurement costs and enhancing the return on capital employed.

Lupin’s secured loans increased to Rs 506.54 crore as of March 31, 2001 largely due to investments made in plant and machinery at the company’s Mandideep unit, the research and development (R&D) facility at Pune and an increase in working capital outlay due to longer credit periods. This increase was funded through debentures, term loans and working capital loans. Debentures accounted for Rs 179.42 crore, institutional term loans stood at Rs 146.31 crore and working capital loans were Rs 180.81 crore. While the company did not default in servicing its loans during the year under review, the company’s latest annual report adds that the average rate of interest dropped due to the swap of high cost loans with low cost debt as well as a downward interest revision for existing loans. The debt-equity ratio of the amalgamated company stood at 1.77 as of March 31, 2001 as against 1.97 on March 31, 2000 of Lupin Laboratories. Measures for fiscal discipline in place, Lupin faces yet another possible drawback, albeit intangible: a perception of being a “ family owned, family-run business”.

Changing governance platform
The Lupin top brass is categoric that things are changing. “ The approach is to professionalise the working of the company. Whether it is a family or non-family member heading the company, the criteria would be purely merit-based,” says Mr Gupta. Adds daughter Ms Gupta. “In fact in our SBU structure, two business heads already possibly function as quasi-managing directors in their segments.” There’s little doubt that Lupin is pulling out all stops to grow its business. But how soon these measures translate into tangible gains will certainly be worth watching.