 "Sun Pharma’s CFO C S Muralidharan (Left) and Group CEO of US business, Abhay Gandhi")
India’s largest drugmaker by market share, Sun Pharmaceutical Industries, has seen its specialty products pay off, with the portfolio growing 11 per cent YoY in the second quarter, to $201 million. Speaking to Sohini Das, Sun Pharma’s CEO of US business, Abhay Gandhi, and Group CFO C S Muralidharan, talk about their plans to scale this business further. Edited excerpts:
Are patient footfalls in clinics back to pre-Covid-19 levels in the US?
Abhay Gandhi: The footfalls in clinics are not back to normal, but medical representatives visiting doctors physically is back to pre-Covid-19 levels now. It would take you 2-3 months to get an appointment for a visit to your family physician’s office. Some of these Covid-19 habits – social distancing, only a limited number of patients at the clinics – continue in the US. Will it come back to the way it used to be before Covid-19? Right now I don't see that happening soon. It’s like the ‘new normal’ in the US.
During an emergency, one can walk into an ER, but for regular treatments (for ailments that are not life-threatening), virtual meetings are preferred. Chronic (disease) business has not been affected due to these long timelines to meet doctors. As a patient, I can go to the portal of my public healthcare centre; I can get an electronic refill of my prescription of, say, diabetes or hypertension drugs. To that extent, digitisation of healthcare has happened.
Elective surgeries are affected. The comeback after Covid-19 is not as much for elective surgeries as of now. I'm considering this as the new normal, and strategising accordingly.
How are you planning your US pipeline to beat the price erosion?
Abhay Gandhi: A lot of our R&D is focused on generics. Around 22 per cent of the overall R&D budget is for specialty. We are always looking into options for products that would have limited competition, exclusivity periods after launch etc. Mostly we are focusing on complex generics. Some products we have dropped recently so that we can focus on the bigger opportunities, and so that the pipeline has a certain value. We rationalise our pipeline every year. We revisit our portfolio every three months, but a formal decision on the launch of a pipeline as long-range planning we do once a year. We drop 6-8 products roughly on an annual basis.
Now it’s very difficult to find a generic product for which we are the only product in the market. If I am able to launch something with limited competition of maybe two or three players, we are happy now.
Is pricing pressure in the US easing?
Abhay Gandhi: For the total generics basket of all companies put together, the price erosion is in the range of 6-10 per cent every year. Typically, we're looking at 8 per cent price erosion in the generics industry. For individual companies, this range would be slightly different, varying on a product-to-product basis. For some products we can take a slight price increase, while for some I may have to face a price erosion of 20-30 per cent also.
Are prescriptions moderating for some of your legacy specialty products now?
Abhay Gandhi: Prescriptions are not really moderating in our specialty products portfolio. We have been growing quarter on quarter in Ilumya for the last five quarters now. For Cequa, despite the presence of generic restasis, we have been able to grow market share. We are now at a 4.8 per cent market share compared to a 3.9 per cent share earlier. Winlevi is a relatively recent launch and we are not looking too much at any softening of prescriptions for just one quarter.
Within the therapies, I am with Ilumya now--we will be able to continue on a growth trajectory. Yes, some of the newer indications of the drug are delayed slightly.
Your R&D expenses are set to rise. How does this impact margins?
C S Muralidharan: When you look at Ebitda margins, you should look at 6-8 quarters. In some quarters we may have had additional expenses; we also disclose our foreign exchange movements separately. Our declared ebitda margins are after foreign exchange loss or gain, and we have seen more losses than gains for the macro-economic sentiments. We expect the spend on R&D to gain momentum in third and fourth quarters, as and when our clinical trials progress. It should have an impact on our Ebitda margins. But, we continue to maintain our cost base and efficiencies. India is now contributing one-third of our global consolidated turnover. Around 15 per cent of consolidated revenues are coming from specialty, which was around 12.5 per cent around 12 months ago. With operating leverage coming into play, our endeavour is to maintain the margin momentum.
As an organisation we would not shy away from investing in R&D only to protect our margins. We are cognizant that our R&D spends can rise to 6 percent (of revenues) levels.
What is the next leg of specialty R&D?
Abhay Gandhi: We have taken the bet on investing in R&D for our specialty products basket. But lifecycle management of these products becomes increasingly important now as it gives us a higher runway to monetise the assets. We are trying to take all these products to global markets apart from the US.
Initially, we were trying to launch these products in the US and then take them to other global markets. But, now for the four new products we have in our R&D pipeline, we are trying to take them global from Day-1, instead of doing it in a phased manner. For some products we can do it ourselves, for some we can give it to a partner for commercializing in that geography.
In the foreseeable future, this would be a growth driver for the company. I can say that specialty business would continue to grow faster than the other verticals of the company.
C S Muralidharan: We did this with Winlevi. Within four months of launching in the US, we could take it to other geographies. Wherever additional trials are required we would do that, if relevant population needs to be made a part of the clinical trial protocol, we would do that for these products.
Are you working with academic institutions to gain access to new tech?
Abhay Gandhi: We are working on several industry-academia collaborations. Our confidence as an organisation is slightly higher now, so we are open to taking risks. We are looking at in-licensing options, also open to acquisitions if needed. We are travelling and meeting people in the institutions etc.
Why has Sun Pharma largely stayed away from biologics? Any change of strategy now?
Abhay Gandhi: As far as our specialty business is concerned, we are now focused on derma-oncology products. Quite a few products in the derma-oncology area are drug-device combinations.
C S Muralidharan: As far as biosimilars are concerned, we let go of the first wave (of patent expiries) because our focus is on specialty. We invested a billion dollars in the specialty business, and it is paying off dividends now. Even for the next wave we want to be cautious from the perspective of investing in biosimilars. We are more open to it now. How far we will commit in terms of investment depends on our capital allocation plan; parallelly keeping the specialty pipeline growing. It also depends on bandwidth, not just cash or balance sheet strength.
How soon do you expect Halol plant resolution from USFDA?
C S Muralidharan: We are expecting a re-inspection from the FDA for the Halol plant. We have an Official Action Indicated (OAI) status there. We have taken remedial actions. But it takes time for the FDA to come and visit. The observations made by the FDA are different from the previous observations. We are continuously learning. We are also cross-learning from other inspections happening globally.
No acquisitions made in India in sometime. What are the plans now?
C S Muralidharan: India is also a good growth story. We have improved our market share to 8.6 percent. The double-digit growth is happening across therapies. Just before Covid19 we added 1000 field force, and now recently we added a similar amount of people. Our product portfolio is so diverse here that if we acquire anything, it would get into anti-competitive issues, and we would have to divest something somewhere. So, inorganic acquisitions in India do not make sense that way. But, organically, we have added 2500 people in the last 3-4 years on such a high base. We have around 9000 medical representatives and including field managers etc, it would be around 12,000 field staff.
