The die for 2015 is already cast, Nilesh Gupta, 37, group president and executive director, Lupin, told FE in an exclusive interview. Revenues of $3 billion (around R15,000 crore) by that time is an aspiration, and we are quite on line with the execution.
Lupins revenues which more than doubled in past five years, from R2,194.9 crore in fiscal 2007 to R5,742.2 crore in 2011, was driven by a shift towards drugs that are niche and more effective, and through generic or me-too drug launches in the US. The companys US sales touched R2,008 crore in fiscal 2011, 70% of which came from generics.
Every year, we will launch a new therapy area unique products that will limit competition, said Gupta, the youngest of Lupin founder and chairman Desh Bandhu Guptas five children. It, therefore, started with oral contraceptives and has filed 25 products so far in the segment in the US alone. Then it moved into ophthalmics or drugs for eye diseases, and is planning launches in dermatology or skin disease and asthma. This will be followed by generic versions of drugs produced from living organisms.
The mantra is to do things right, Gupta said. This means developing the right products, filing them, getting them approved at the right time, manufacturing, and selling.
This organic growth should be complemented with selective acquisitions of companies, say bankers. After reaching up to a billion dollars in revenue, growth in such proportions through the organic route alone will be tough, said Navroz Mahudawala, MD of Candle Partners, a boutique investment banking firm. They need to do meaningful acquisitions.
Generic companies are eyeing the $50-60 billion market as patent expires in the US over the next three years. The patent cliff is important, but our strategy is to launch products where we dont exist, taking off market share from existing generic players as well. The company will step up product launches in the US from 10-12 a year now to 20-25.
However, analysts say it is important to de-risk business by tapping opportunities, especially in the emerging markets. The US market remains the largest market for generics and in the short to medium-term will remain a growth driver for a number of Indian pharma companies, Fitch Ratings said in a January report. However, over the long-term, growth and profitability would be driven by newer markets such as Japan and emerging markets, including Russia, Brazil, China and Mexico, as well as countries including South Africa, Turkey and Indonesia. The rapid growth in these markets will be driven by generic spends, the report said.
Essentially, the value in regulated markets like the US come from patented products. Once the products go off-patent, the value shrinks. Rest of the World markets have better profitability, Mahudawala said.
In fact, pricing pressures in US generics has already started pinching Lupins overall growth. For instance, competition is eroding margins from hypertension drug Lotrel, which Lupin launched after reaching an out-of-court settlement with Swiss pharma major Novartis on a patent challenge.
The price decline in Lotrel has been a drag on the overall growth rate, Nomura Equity Research said in a report on January 3. For instance, in the second quarter of FY12, the management indicated that US generic business growth was at 14%, but excluding the impact of price decline in Lotrel growth would have been at 30%.
When I look at whats next, I look at a longer horizon 2018 or 2020. Complexity of products, good quality execution, and remaining compliant at all points will be the broad measures that matter, Gupta said.
Lupin has an advantage in the US market in terms of product pipeline and scale, said Sarabit Kaur Nangra, vice-president research at Angel Broking.
Gupta says the companys diversified model will help it de-risk its business. He cited the company's Japan foray in 2007 with the acquisition of Kyowa Pharmaceutical Industry, and its latest Irom Pharmaceuticals acquisition. In the Japanese market, you need to be there for the long haul, said Gupta. With the governments thrust on generic medicines, the business has grown 15-20% per year. Our revenues there is just shy of the $250 million mark, he added.
This calendar year, Lupins products sold in Japan will use ingredients made at its Indian plants, while next year, many finished products will go from India to Japan, highlighting the quality compliance measures the company has taken.
By 2020, the complexion of Lupins business will not change altogether. For that, you need a longer window, or a transformational acquisition, said Gupta. For now, the target is to be among the top 10 generic companies in the US, from the 14th position now.
You have to build a unique set of capabilities for both generic and branded business, have a hybrid model to be a meaningful company, Gupta added.