At Caplin Point we are a small company with large dreams. Over the lastdecade we transformed our smallness into an advantage: we worked on our evident handicapsand explored alternative strategies.
And that has made the critical difference in growing a small company with one of theconsistently fastest growth rates in India's pharmaceutical sector.
The big message that I wish to communicate is that Caplin Point is at anotherinflection point in its existence: even as our Latin American and Caribbean pharmaceuticalmarketing business was consistently generating predictable revenues and was likely to havedone so across the foreseeable future the company selected to disrupt the operatingmodel.
The result is that the company now stands at an attractive juncture that could havelong-term implications for its pride positioning and profitability.
Overview: There is a growing recognition that the largest most profitable and mostsustainable pharmaceutical companies in India are inevitably those that market a largevolume of products in the regulated markets. These products usually address relativelyunder-penetrated and under-crowded spaces that provide superior realisations and respect.
Our understanding: At Caplin Point we recognized that even as we marketed products inLatin America and Africa the vision of the company was to expand into the niche segment(injectables) of the regulated markets. The company deployed healthy accruals generatedfrom the marketing-driven business segment in building assets to increasingly manufactureproducts within to address existing markets and widen our value chain while concurrentlyinvesting in practices that would prepare the company for entry into the US market.
Our response: The company has emerged as the only company of its size to be engaged inthe manufacture of liquid injectables addressing the US regulated market. The plantreceived confidence-enhancing regulatory clearances from some of the most demanding globalagencies like USFDA ANVISA and EU-GMP. The company is presently engaged in filingdossiers strengthening its pipeline. The company intends to address niches with a healthymix of complex and simple injectable ANDAs that could generate volumes on the one hand andattractive margins on the other an effective volume-value play. The company possesses theresources to sustain the annual cost of staying in this business (estimated at around H60crore per annum) before exports can commence to the US market.
THE COMPANY IS ENGAGED IN TWO PRINCIPAL INITIATIVES ITS PROGRESSIVERETAILISATION IN LATIN AMERICA CARIBBEAN AND THE FILING OF ANDAS FOR THE US MARKET.
Two clinic and pharmacy automation
Overview: At Caplin Point we believe that the last mile to the customer represents thelast frontier. Over the last few decades a disproportionate amount of industry attentionhas been invested in manufacturing products that companies feel would be required byconsumers. As long as markets were large and disease profiles not finely defined thisapproach worked; however with the profiling of disease profiles now being more clearlydefined and medical practitioners relying on diagnostics to prescribe more precisely theone reality is that the number of SKUs has increased significantly in the last few years.
The growth in disease profiles prescriptions and SKUs has created a challenge for thepharmaceutical industry. There is a greater premium on the need to comprehend what isprecisely selling in the market as an indicator of the direction of disease profiles andprescription trends. Should this information be easily accessible it could guidemanufacturing companies to modify their product mix; similarly this precious informationcould guide marketing companies to enrich their product basket and correspondinglyencourage pharmacists to alter their stocking.
Our understanding: At Caplin Point we believe that this data represents the new oil;companies with access to extensive and immediate market data are more likely to altertheir strategies with speed and carve away a disproportionate share of consumer recall andmarket share.
Our response: The company is partnering a unique software development provider todesign an unprecedented business automation service for the benefit of pharmacists mostof whom are not computerized and rely only on manual accounting to run their businesses.By providing a service completely free to more than 3000 pharmacists across the LatinAmerican markets of our presence we believe that most of these last mile partners wouldbe able to strengthen their accounting MIS and business understanding.
Interestingly this service will achieve something far-reaching for Caplin Point. Whenyou have data belonging to one pharmacist it would be of value to the pharmacist and tothe company for a better understanding of its relationship with the former. But when youaggregate the data across a few thousand pharmacists what you can potentially derive issomething more profound: an understanding of lifestyle disease trends an understanding ofwhich districts suffer an incidence of what disease a knowledge of evolving diseaseprofiles and an insight into the prescription writing patterns of medical practitioners.
As an extension the company intends to partner software companies who can automateclinics as well which could provide a deep insight into prescription trends that could besubsequently analysed for early-sign readings into disease outbreaks inspiring proactivemerchandising and marketing.
This forward-looking investment in data analytics will fundamentally shift our customerunderstanding: from someone engaged with us in a transaction into one around whom arelationship can be potentially forged. Besides this could also enhance a betterunderstanding of the marketplace: the insight will make it possible to read trendsquicker provide products faster and empower our pharmacist partners to stock productsbeing increasingly prescribed.
For long our last mile trade partners were the only providers of information of marketofftake to; we provided what they advised and sought. The time has come for us to reversethe paradigm; through the use of analytics drawn from our collective understanding of lastmile realities across a large number of pharmacists we are optimistic of advisingpharmacists of how they may need to evolve their stocking. The result is that we expect toevolve from marketing products to enhancing value for the entire eco-system.
Besides we are partnering with a company to create a health care portal that willautomate and simplify practice management empowering doctors to focus on their corecompetence of treating and caring for patients. The portal will help doctors generatedigital health records for patients a convenient way for doctors to manage patient files(clinic notes medical imaging files prescriptions and invoices). This superior clinicmanagement with a unified interface will make it possible to manage appointments bookingsbilling and inventory.
This portal will make it convenient for our customers to order through the portal; theportal in turn will provide attractive schemes and incentives that enhance its use. Webelieve that our ability to aggregate volumes from existing and intending users will inturn make it possible for us to provide a larger volume at lower prices or better termsof trade. Through use of the cutting-edge technology we are optimistic that we will beable to capitalize on ineffciencies from within the system enhance product a_ordabilityand help widen market share.
Three enhancing retail value
Overview: At Caplin Point we believe that a quiet revolution is transpiring in themarketplace. As people earn more they are aspiring to a better life quality. One of thepillars of this enhanced life quality is enhanced access to a wider and better range ofmedicines.
Our understanding: This access to wider and better medicines is drawing attention tothe health of pharmacies across the markets of our presence. Most of these pharmacies aresmall managed by families manually structured largely unorganized and without access tomodern tools or technologies. For decades it was assumed that no major improvement couldtranspire at the retail end. There is a growing recognition that local pharmacies serve asmore than a gateway for the sale of medicines; they enjoy enduring relationships with aloyal customer base; this loyalty can translate into the offtake of a wider number ofproducts beyond medicines only if the pharmacists stocked them.
Our response: At Caplin Point we possess a long-standing presence across countries inLatin America we possess deep consumer insights we enjoy enduring relationships withtrade partners and we possess engagements with complementary product manufacturers anddistributors (wellness for instance) that could be used to widen our product basket.Besides we possess a debt-free Balance Sheet that could be leveraged to stock widermerchandise. We believe that the extension from core medicines to complementary productsrepresents the next big opportunity as incomes and aspirations rise in Latin America. Thisevolving priority is likely to help us create shop in shops' among the pharmacistswe work with strengthening our income profile: the proportion of revenues generated fromdistributors is expected to decline from 70 per cent of our overall turnover to 60 percent even as the promotion of direct sales to pharmacies is likely to increase from 20per cent to 30 per cent across the foreseeable future. In a future-facing initiative theCompany created a Hong Kong subsidiary to outsource wellness and pharmacy-related productsfrom China.
As an extension of this model the company could seek to grow inorganically through theacquisition of brand marketing companies that enjoy access to a large number of customersand markets making it possible to acquire' quality relationships that makes itpossible to understand market realities deeper and scale the business faster.
Four strengthen cash flows
Overview: There is a growing conviction that the value of retail businesses will nolonger be measured only by market reach consumer loyalty and merchandising bandwidth; itwill need to be unambiguously measured by Return on Capital Employed quicker inventoryturns and growing profits for last-mile pharmacists; in turn there is a growing premiumon the need for principal companies to be large liquid and profitable.
Our understanding: Over the last number of years we strengthened our cash flowsthrough strategic clarity: rather than invest only in captive manufacturing assets to growour presence in the generics segment that would address sales in Latin America weselected also to outsource the highest quality of generic products from one of the largestand most respected pharmaceutical companies in China. The company negotiated attractiveterms of trade credit period from the seller and advance from the tradeintermediary in Latin America that resulted in a rare instance of negative workingcapital if fixed investments are segregated from the Balance Sheet. The creation of anattractive surplus was prudently invested in the CP4 unit for the manufacture ofinjectables for the regulated US market. We wish to communicate that such an investment istime- and cash-consuming; the company invested H110 cr in this facility (including assets)off Chennai completely through accruals; besides it maintained this unit prior to the USmarket entry in 2019 through an operating expenditure of about H60 cr per annum.
Our response: Going ahead the company is engaged in two principal initiatives its progressive retailisation in Latin America and the filing of ANDAs for the US market.The company believes that it possesses adequate resources from its existing cash flows toinvest in growing its retailer-focused business on the one hand coupled with thepossibility of generating attractive revenues margins and surpluses in a sustainable way.The availability of this surplus will be used to fund the gestation period before thecompany is able to launch products in the US market which could prove to be agame-changer in its perception and profitability.