'We are not chasing size but a right strategic fit'

SMART TALK: Kamal K Sharma

The Rs 2,700 crore Lupin Ltd, is aggressively expanding its global footprint by acquiring companies, entering into alliances and enhancing its presence in select markets.

On Thursday, the company announced the acquisition of Pharma Dynamics which is ranked sixth in the South African generic pharma market. In August this year, it picked up a minority stake in Generic Health of Australia and entered into an alliance with Forest Labs of the US. While the investment in the Australian marketing company gives it a shot at the $7.9 billion Australian pharmaceuticals market, its tie-up with Forest will help it expand its presence in the asthama segment in the US.

 

With the acquisition of Hormosan in July this year, the company gets a sales and marketing network in Germany with a distribution chain focussing on central nervous system ailments.

In this e-mail response to Ram Prasad Sahu, the company’s managing director, Kamal K Sharma, outlines steps of how the company plans to expand its reach in high growth markets around the world.

Exports growth has been substantial in the last quarter (Q1 FY09) with formulations taking the lead. How do you expect this to play out over the next few quarters given your product base, acquisitions and alliances?

Lupin has successfully moved up the value chain and improved its business mix over the last few years, consequently you see close to 70 per cent of our revenues come from formulations business, this trend will continue as we position ourselves more strongly in the generic formulation space over next few years. Going forward, you will see the company capitalise its strengths and build a formidable formulations business across US, Europe and Japan, while retaining a stronghold in the domestic market. API, too, at the same time is growing at about 10-15 per cent. We firmly believe that we will maintain this momentum.   What steps are you taking to enhance your presence in the US generics/branded space?

The US is our largest market outside India and we have a two-pronged strategy to tap this market. Much as we are developing a healthy pipeline of valued-added generic products, we are also working towards the acquisition of strategic brands across various therapy segments.

We have a product basket of about 17 generic formulations in the market and Lupin Pharmaceutical (American subsidiary) ranks in the Top 3 in 12 of the 17 products we are in. Lupin’s prescription growth and penetration has been faster and deeper than any other large generic player. IMS Health (pharmaceutical research firm) has accredited Lupin as the third fastest growing company by prescriptions.

Our current endeavour is to improve the breadth of our offering while also introducing value added products. We are constantly in pursuit of improving our ability to maintain competitive advantage by focusing on cost, quality, reliability of supply and adding intellectual property (IP) dimensions to our products.

Similarly our foray in the branded segment through Suprax (an anti-biotic) which has become a $40 million brand now, was an outcome of an innovative strategy. The company has extended its brand franchise further through value-added products. We are also pursuing in-licensing (tie-up to market a drug) opportunities to strengthen our branded product portfolio further.

Nearly three quarters of your revenues come from three segments: Cephalosporins (anti-biotics), cardiovasculars and anti-TB medications. Would these be your focus or are you looking at moving into new areas?

The company has a product portfolio encompassing offerings in the anti-asthma, anti-diabetic, neuro/CNS, cardiac, gastro intestinal, anti-infective, cardiovascular and anti-TB segments.

The accent is on leveraging the company’s development, manufacturing and commercialisation capabilities and offer complex products, which provide an edge over competition and probably limited price erosion in each of the markets we operate.

However, we have gained global leadership status for anti-TB and cephalosporins leveraging our sound technology base and focus on quality at an affordable price.   API exports have been static over the last four fiscals. What is stopping growth and your plans to improve it?

Lupin is a fully integrated pharmaceutical company. The success of our API business is reflected in the growth of our formulations business. Majority of the APIs, including new products we manufacture are for captive consumption.

However, we do have a sizable API business outside this domain as well. The company is constantly improving its margins through operational improvement and better product and business mix. Having directed a concerted focus on building statins (controls cholesterol), it is optimistic about establishing a leadership position for these products in the years to come.   How do you tackle rising input costs especially in Pen-G, which contributes to 10 per cent of sales?

We continuously monitor all our input costs including Pen G. We are one of the largest consumers of Pen G in the world. Volatility in Pen G prices is a recurring phenomenon and the company has over the years gained expertise in dealing with such volatility. Also as the business mix of the company is changing, the revenue composition of products derived from Pen G is declining.

What role will acquisitions play in improving your penetration into new markets as well in diversifying your product portfolio? How are you managing integration challenges?

We have been successful in making inroads in some of the developed markets through inorganic route. Having made acquisitions in Japan and Germany and a strategic equity partnership in Australia, we continue to explore options for meaningful acquisitions in these as well as other markets.

We are not chasing size, but a right strategic fit that provides us a foothold in some of these markets and thus helps us in extending our existing foot print. We are aiming at building a sizeable business in the top five pharmaceutical markets of the world.

Integration is a challenging task in all acquisitions. As a company, we and we do not believe in disrupting the basic structure of our acquiree companies.

Our philosophy is not to completely disrupt the current policies, practices and systems of our subsidiaries but to play a supporting role. We focus on adding value by translating the India advantage into existing operations and bring in better operational efficiencies and strengthen the product pipeline. Lupin’s research prowess enables it to master cutting edge and technology and leverage its strong vertical integration to build a sizeable global pharmaceutical business.

Rationale for entering into the asthma, biosimilar and steroids segments.

By entering into value added and technology-oriented segments, Lupin will be able to capitalise on its strengths of R&D and IP. Steroids, asthma and biotech are segments which require application of high-end technology and quality manufacturing along with the application of IP.

Lupin has a proven track record in these areas and hence is targeting at leveraging these strengths to tap the opportunity in each of these segments, which will result in sustainable growth and profits.

More particularly in the area of Biotech which is fast emerging as the future growth driver, as the new chemical entity pipeline is drying up worldwide. It is estimated that over 40 per cent of new entities will originate through the biotech route.

Lupin also believes that this area is a future growth driver and therefore has made significant investments. We are targeting bio-similars and new biological entities (NBEs), in order to develop cost effective products, free from side effects and in compliance with the regulatory guidelines existing today.

A dedicated team of scientists specialising in biotech research has been working constantly to develop a basket of proteins.

In order to sharpen the focus in this area a new independent biotech facility is also in the process of being set up in Pune, Lupin is also exploring collaborative arrangements to expedite its business in this segment.