Pharma Sector Investor FAQ

DRAFT Work in progress document. To be revised. Needs approval before wider circulation (Donald)

Pharma Sector FAQ

1. Overview of the Indian Pharmaceutical Industry

The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330 in the organised sector). The top ten companies make up for more than a third of the market. The Indian pharma industry accounts for about 1.4% of the world’s pharma industry in value terms and 10% in volume terms.

Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from exports. While some are focusing on the generics market in the US, Europe and semi-regulated markets, others are focusing on custom manufacturing for innovator companies.

2. Indian Domestic market – Acute and Chronic Therapies – breakups.

India is primarily a retail-based branded generic market with 80% dispensed through pharmaceutical outlets. As in most emerging economies, acute therapies dominate and account for close to 70% of the market. Acute Therapies – target short duration diseases – cough & cold, fever, pain – such as anti-infectives, analgesics, pain-killers.

Chronic therapies – target lifestyle diseases and/or recurring in nature – such as diabetes, cardiovasculars, ophthalmology, and products used to treat central nervous system ailments, are growing faster than acute therapy.

3. There is a lot of policy overhang recently on the Sector. The Indian Drug Price Control Order (DPCO) and the US GDUFA being two instances. Kindly Comment?

The drug price control order (DPCO) continues to be a menace for the industry. There are three tiers of regulations – on bulk drugs, on formulations and on overall profitability. This has made the profitability of the sector susceptible to the whims and fancies of the pricing authority. In connotation, with pricing policy of 354 drugs, NLEM (National list of essential medicines) was released, which covered the list of the drugs which the authority intends to put under price control. The policy has been stiffly opposed by the pharmaceutical industry.

How would you qualify the impact on Indian pharma companies?

a) Companies having lower proportion of domestic sales vis-a-vis exports are obviously less affected
b) Companies that derive significantly higher proportion of Sales from Chronic therapies (Specialty segment) are unlikely to be affected much

International Generics Pharma business is pursued successfully by many Indian companies. Kindly demystify jargons like ANDA filings, Para IV, Para IV FTF, NDA and 505 (b) 2 filings.

Para I,II, II, and IV pertain to what is called ANDA filings – Abbreviated New Drug Applications

Para III – Actually Para I, II and III filings all pertain to patent-expired drugs. Non-Litigation category

Para IV = These are allowed to be filed – post 5 years of a NCE patent grant by USFDA for a generic version of the Innovator drug

Para IV FTF = 180 day exclusivity = Para IV First to File is another category where even before the first five years are over a company can challenge. If approved that company gets an 180 days exclusive approval to market its generic version of the Innovator drug. This can prove very lucrative for the challenger if granted. On the other hand there are Litigation Risks where the Innovator tries to prove that the challenger has infringed on its patent/process while developing the generic version.

Then there are what are called NDA filings – under which 505 (b) (2) falls.

505(b)(2) = larger period exclusivity = These are meant for a bio-similar, but completely new product. It’s made from a different salt and/or a totally different process. The FDA in its discretion (depending on the benefits/costs of development) awards a higher exclusivity period. For example for our NDA Desvenlafaxine Base Extended Release (bioequivalent version of the innovator drug Pristiq by Pfizer) was approved with a 21-month exclusivity.

How are Indian Generic companies affected by GDUFA?

Introduction of GDUFA (Generic drug user fee Act passed into Law July 2012) in US. As per this act, the generic companies are required to pay user fees to USFDA, for application of drugs and manufacturing facilities. This fee will be utilized by USFDA to engage additional resources in order to reduce current and pending applications and speed up the approval process.

This will probably lead to some escalation in ANDA filing fees. Time will tell how significant an impact this will have and whether this will affect the pace of filing of Abbreviated New Drug Application (ANDA).

4. What is the difference between terms like API, Bulk drugs, Intermediates, Finished Dosage, and Formulations that are common jargons in the Pharmaceutical Industry?

API – Active Pharmaceutical Ingredient – is the basic drug itself with the desired medicinal (pharmaceutical) properties. Also referred to as Bulk Drugs.

Intermediates – Most chemical reactions are stepwise, that is they take more than one elementary step to complete. An API is a result of a complex chain of chemical reactions in several steps. Intermediates are stable forms a few steps away from the final API e.g. API -3, or API-5.

Finished Dosage or Formulation – is the form in which the drug is consumed by us. A dosage form of a drug is usually composed of two things: The API, which is the drug itself; and an excipient, which is the substance of the tablet, or the liquid the API is suspended in, with other masking, stabilising and binding agents/material that is pharmaceutically inert.

APIs are supplied by Pharmaceutical manufacturers to Formulations players or for own consumption for in-house Formulations. Intermediates are supplied to API manufacturers for reducing time-to-market.

5. What kind of regulations govern the marketing of APIs, Formulations and Intermediates?

Pharmaceuticals are a heavily regulated sector. API manufacturers need to file a document known as Drug master File (DMF) with regulatory bodies. DMFs are filed with USFDA, MHRA UK, Japan and other country specific bodies for receiving a marketing authorization grant. A DMF provides the regulatory authority with confidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of one or more drugs.

Typically, a DMF is filed when two or more firms work in partnership on developing or manufacturing a drug product. The DMF filing allows a firm to protect its intellectual property from a potential partner while complying with regulatory requirements for disclosure of processing details.

A Formulations player can only use APIs from sources with approved DMFs. Formulation players have to submit samples and documentation for product registration such as ANDA (Abbreviated New Drug Application) using an API source with approved DMFs. It’s difficult to change API partners as it involves a lot of paperwork and re-submissions.

Use of Intermediates by API suppliers are not regulated.

6. We have heard Oncology APIs command higher margins than other APIs. Is that true, why?

There are broadly 3 streams – Oncology, Hormones & Steroids that command higher margins.

This is basically because it costs a lot to put up manufacturing facilities for these streams, usually 5-6x than normal, as these drugs require specialized handling. These facilities require stringent entry procedures and isolation chambers/procedures to reduce risks of product contamination, cross-contamination and also protecting people from hazards and toxicity. These are as mandated by the regulatory Authorities. Scaling up proves very costly and barriers to entry are strong.

Consequently, there is less competition and hence more margins.

7. With Many drugs going off-patent in 2013-2015 timeframes, API Players with listed US DMFs stand to gain. Is there a way to guage the potential business a listed DMF API player can access?

You can get a rough estimate of the market size for a drug API. Potential market sizes of popular brands going off-patent are common knowledge. Any small investor can get that info with a little bit of searching. For e.g. you will easily find Gemcetabine had a US$1350 annual market size before patent expiry. Prices crash roughly 70% post patent expiry. So US$405 Mn is the total market size for a Gemcitabine Formulations player. Usually the player who gets the 180 days exclusivity corners 60% of this market as his brand gets established, and Distributors play a very strong role to ensure that others don’t get in subsequently. Other formulation players have to ply their Generic brands at much lower levels.

The API market size for that drug would be ~10%, or $41 Mn. The ANDA registered Formulations players will have tied up with respective API players with approved DMFs. It depends on the existing tie-ups, how much business the API player can target. So the only way you can know how much business is forthcoming is if the API player chooses to disclose that!

DMF Approvals come with a Submit date. Gemcitabine had approved DMFs starting 2005, with some registrations coming in as late as April 2011. Can we take it that those listed earlier in general have a greater chance at securing more tie-ups?

Well in general that may be true. But there are other scenarios. There are Dossier players who file ANDAs and sell them to someone interested in manufacturing. They are not interested in taking it beyond R&D to manufacturing.

Then there are CRAMS players contracted by Innovator drug companies for Formulations. These CRAMS players are usually at liberty to choose API players of their choice. Sometimes the CRAMS player itself is also the API manufacturer.

The new manufacturer or CRAMS player may choose to go with their own API suppliers.

Will this not entail substantial time and costs in re-submission of ANDA documents with the new API sources?

??

8. Please demystify some other jargons like CCS, Custom Synthesis and CRAMS and their importance in the Pharma outsourcing space.

There are three broad outsourcing opportunities available to India – Custom Chemical Synthesis or CCS, clinical trials and contract manufacturing or CRAMS. The most scalable business opportunity for Indian players would be contract manufacturing or CRAMS. This is because:

  • CCS would typically involve supply of material at gram or kilogram level, while CRAMS involves supplies in tons.
  • CCS supplies are linked to the success of the partner’s R&D pipeline and are, hence, volatile. CRAMS supplies, on the other hand, are linked to the success of a product post commercialization and can provide relatively stable revenues (since probability of success post commercialization is higher than that at the R&D level).

However, custom synthesis or CCS skills are important from the following perspective:

  • CCS assignments give Indian players an opportunity to lock-in into MNC relationships very early in the product lifecycle. This augurs well for the partnership approach that lays the foundation of the outsourcing business.
  • CCS projects demonstrate a company’s ability in process innovation. CCS skills can help a company to graduate from only a ‘supplier’ to a ‘preferred strategic partner’.
  • CCS projects are characterized by high margins but low scale, but CRAMS projects offer scale plus reasonable margins. Hence, a proper mix of CCS and CRAMS projects is a prerequisite for success in the outsourcing space.

Given the above discussion it would appear that a CRAMS player who is also a substantial API player can enjoy very good profitability

Yes, absolutely. Look at Divi’s Labs – their secret of such high margins is probably this API+CRAMS combination.

9. Can you please elaborate on the key factors that help win Outsourcing Contracts?

Time and quality: Time and quality are of extreme importance to the innovator companies. In R&D, time is very important to save on the limited patent life, and in manufacturing, it is a matter of reputation for innovator companies to market the drugs during the entire patented period. Also, high quality products are essential to win contracts. Due to the nature of pharmaceuticals, threat of product contamination or excess impurities is enough to scare the potential customer. Also, the drug quality has significant implication on the reputation of the innovator and financial liabilities of the company.

Availability of manufacturing capacity: Just as timeliness of supply is critical, sufficient capacity is key to the new business especially for contract manufacturing. Innovator companies generally request rapid turnaround time. Existing manufacturing capacity is critical for time-sensitive projects. However, where supply relationships already exist, the ability to plan for projected new capital needs can be jointly accomplished.

Reputation and track record: If the CRAMS player was the service provider for the innovator company in the past, and had delivered satisfactory services, the customer will most likely opt for the same CRAMS player for similar or new projects on the basis of the trust that has been built. Also, innovator companies will generally prefer big CROs and CMOs due to available infrastructure and service quality.

Array of services offered: Generally, innovators like to get maximum possible services from same contract research company due to ease in administration and effective communication regarding requirements. For example, if a company has synthesized a chemical, it might be a good choice for other services such as process chemistry too.

Reliability and flexibility: Suppliers should be reliable in terms of dedicated management team, financial stability, strong track record of supply, manufacturing, logistics, etc. Flexibility is also extremely important to innovators, as CMOs often collaborate with them to develop a new drug. In particular, the ability to adjust manufacturing schedules to meet deadlines, adjust manufacturing processes, and meet critical timelines is very important.

Scalability: Pharmaceutical customers prefer suppliers who have the ability to increase their scale of production, as products move from early stages to later stages of drug development. In general, this means suppliers should have ready availability of CGMP capacity as products pass through FDA hurdles, or the means to rapidly build additional capacity in conjunction with the anticipated product launch. In addition, it requires a scalable process used to manufacture the molecule. In other words, the contract manufacturer must develop a process that can effectively and affordably manufacture commercial quantities of the molecule. This ties closely to contract-manufacturing process chemistry skills. We believe that these skills are critical, yet very difficult to assess (other than increased contract wins).

Cost: Our discussions with various CRAMS players suggest that before the advent of Asia as the outsourcing destination, cost was not a major selection criterion, as the western CRAMS players had almost the same cost structure as innovators. Rather, it was the relationship and expertise which mattered. This is still true in the case of contract research work, where timeliness and proximity of the service provider is more important than cost. However, entry of Indian and Chinese companies in the space has changed the rules of the game and has made costing a major consideration for innovator companies, as the Asian CRAMS players can deliver the same quality as European players in a timely manner and at considerably lower cost due to structural advantages. Cost is of significant importance for awarding manufacturing contracts especially for products going off-patent.

10. China is not a threat yet?

China is a manufacturing powerhouse in sectors like Textiles, Metals and Commodities, where it derives significant cost advantage through economies of scale. By its very nature, pharmaceutical manufacturing is a batch-process industry, wherein economies of scale are relatively less important and do not result in significant cost advantage. Though China’s labor costs may be less than India’s, the latter enjoys a lead over China in critical determinants like chemistry skills, compliance to strict international regulatory norms, scientific skills, MNC comfort, etc. For instance, India has the largest number of US-FDA approved facilities outside USA, while China has very few such facilities. India accounts for 25-30% of global DMF filings while Chinese companies contribute a minuscule percentage. Hence, we do not expect China to be a major threat to India in the CRAMS space in the next five years despite having the advantage of lower labor costs.

 

Source(s):

1. Interview with Shri Rajesh Joshi – VP, International Marketing with a leading Pharma company

2. Motilal Oswal CRAMS Sector Report March 2011

3. Equitymaster Pharma Sector Report

Alembic Pharma Management Q&A: Jan 2014

Management Q&A

Alembic Pharma Management Q&A

1.1 INTERNATIONAL GENERICS

AR 2013 – “We climbed the filing value-chain – Para III to Para IV, Para IV FTFs and 505(b)(2) filings in the US”. Kindly demystify the jargons for us.

Para I,II, II, and IV pertain to what is called ANDA filings – Abbreviated New Drug Applications

Para III – Actually Para I, II and III filings all pertain to patent-expired drugs. Non-Litigation category

Para IV = These are allowed to be filed – post 5 years of a NCE patent grant by USFDA for a generic version of the Innovator drug

Para IV FTF = 180 day exclusivity = Para IV First to File is another category where even before the first five years are over a company can challenge. If approved that company gets an 180 days exclusive approval to market its generic version of the Innovator drug. This can prove very lucrative for the challenger if granted. On the other hand there are Litigation Risks where the Innovator tries to prove that the challenger has infringed on its patent/process while developing the generic version.

Then there are what are called NDA filings – under which 505 (b) (2) falls.

505(b)(2) = larger period exclusivity = These are meant for a bio-similar, but completely new product. It’s made from a different salt and/or a totally different process. The FDA in its discretion (depending on the benefits/costs of development) awards a higher exclusivity period. For example for our NDA Desvenlafaxine Base Extended Release (bioequivalent version of the innovator drug Pristiq by Pfizer) was approved with a 21-month exclusivity.

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1.2 INTERNATIONAL GENERICS PIPELINE/UPDATE

FILINGS APPROVALS COMMERCIALISED LITIGATION RISK
CUMULATIVE ANDA 59 25 17-18
CUMULATIVE DMF 62
PARA IV
PARA IV FTF
505 (B) (2) 1 1 1 NIL
PARA III
PARA II

What we understand is that Para IV, Para IV FTF and %05 (b) 2 filings are the most lucrative. They also carry Litigation Risk. Can you give us a sense of the proportion of Para IV and above filings among your cumulative ANDA filings?

Initially there were Para II & III also but increasingly this mix is in favour of more complex Para IV filings.

Any of the Para IV FTF are Solo?

None, at the moment.

Why have you chosen/not able to commercialise some 30% of your approvals?

Most of them due to API issues (not available/changed) or another DMF is now used. In one case product was found to be unviable.

How are you able to comment that future mix of filings is skewed towards Para IV and above ?

Well things like Sample Seeding for the products, preparing batch stability files, etc have to start ~3 years before filing. We are already working on the pipeline for FY 16-17-18-19

NDA Desvenlafaxine Base Extended Release – 21-month exclusivity, approval received in record 10 months. Congratulations for this super-achievement. What is the progress on this launch through Ranbaxy partnership?

What is key here is doctor conversion. Doctors are currently used to prescribing Pfizer’s Prisitiq – they have to be educated about the availability of our generic version. It happens faster when our product starts appearing in the approved product lists of some of the large insurance companies. It will take 4-5 months before an on-the-ground assessment can be made.

What kind of price erosions are expected? is it true that you will see a 40-50% price erosion immediately?

For the Succi Desvenlafaxine product there were 11 FTFs approved. However for Desvenlafaxine Base Extended Release product we are the only one with 21 month exclusivity. We should not see more than a 20% price erosion in 1st year.

And in next year?

May be 30% price erosion.

Can you share the revenue share arrangement with Ranbaxy for Desvenlafaxine?

No comments.

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What’s the update now on Desvenlafaxine {Jan 2014}?

It is ramping up. But not upto expectations.

What are the issues?

Well we found out that patients using the innovator drug Pristiq on a regular basis – which is indicated for the treatment of major depressive disorders – are very reluctant to change the drug (generic version, even if cheaper). Someone (suffering depression before) who is now able to lead a normal life with regular Prisitiq medication isn’t going to risk lapsing back.

So what are the learnings from this whole episode? You had such a blockbuster technical breakthrough, but seems like not too much will come out of it.

We have taken it in our stride. These things happen. We have moved on. 

On the other hand we have seen a 100%+ growth in this segment in 9mFY14 with Sales doubling to ~329 Cr. What is this attributable to?

This is a result of a 2 pronged strategy. Building up on Contracts/Order Book and scaling up on manufacturing. We had a bulging orderbook, but were seriously short on manufacturing. Augmented capacity started becoming available only post July last year. The swift ramp up is on account of that.

1.3 INTERNATIONAL GENERICS – TEAM/MARKETING/STRATEGY

You had decided to set up your own Marketing Network in the US? How difficult is it going about this?

This is now the biggest challenge before the company. We are galvanised behind making this a success. This whole effort will take us the next 2-3 years. The first results are atleast 1 year away. 

This is a major effort. What will be the costs? Will it be around 10-15% of Sales or higher?

What are the costs? Mostly salaries and the sales+distribution costs. You should see it like this. Most of the Profits were being given away to the ANDA guys. Compared to that we will be incurring a fraction of the cost.

Kindly give us a sense of the leadership behind this strategic PUSH into US Market and the success in the International Generics business that we are seeing.

The whole International Buisness initiative is driven by Mr Pranav Amin our Director and President International Business. He is very dynamic and is pushing everyone forward with aggressive plans. He has not hesitated to bring in the right people with high salaries.

We have an US CEO who has been with us for last 5 years and assembled together a top Team in International Generics business. Success has come because of Product Identification ability. Year-wise market-wise plans are drawn up till 2024. We have to create very detailed Product Identification Files or PIFs. 8-9 people get to sign off – IP guys, Marketing guys and Strategy guys. And we believe next 10 years success will also because of this.

What about Litigation? How confident are you in handling the attendant Litigation Risks that come with an aggressive ANDA filing strategy?

We have built a strong IP Culture/Team over last 5 years or so. This Team comes up with identified products. Multiple Legal opinion is taken from 4 specialised Large US Attorney firms. Only if it is considered safe, we proceed.

Despite this caution if Litigation comes up?

There are always other options. If we subsequently find risks are high we need not go for a confrontation route. We can offer our product with royalty/other options.

Alembic has always been known as a pedigree company. But this aggression is new-found? While this culture may now be top-driven, what about the Team? How will the old Teams adapt?

Technical Team is 100% new – All IP/Research Team are new imports form other large organisations with relevant experience. On the strategy/marketing side there are a few top people who are new and a mix of folks like us.

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2.  INTERNATIONAL BRANDED

Kindly take us through the International Branded business. Does it cater to the ROW Markets?

Products are the same as our domestic branded formulations. Yes this segment caters to the ROW Markets like Russia & Africa.

Is there a country specific branding/sales strategy or it’s the same brands across geographies?

It’s the same brands being marketed in every country.

Competition must be intense in these countries as most Pharma companies from India have a significant presence in these markets?

Yes there is lot of competition. But we have formed a new team focusing on this segment.

We have seen a ~48%+ growth in this segment in 9mFY14 with Sales reaching ~46 Cr. Is there any focus to make this segment a significant contributor to topline and bottomline?

This is a 50-60 Cr Annual market. There is more focus. More filings – which also means more investment. Earlier filings cost $5000 , now these cost as much as $25000-30000.

What is a sustainable growth rate for the next 2-3 years?

We should see 25-30% kind of growth or 100 Cr in next 2-3 years.

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3.  API

As we understood from you last, this is a segment that is completely fragmented, intensely competitive, and if weI remember correctly you planned to get out of this segment. However this is the segment showing highest growth by 20% over FY12. And thus increased contribution to Sales from 7 to 8%. Kindly comment

The API segment (Acute therapy) that we were present in is very competitive – it is in turmoil. Chinese products have flooded markets world-over and India is no exception.

We have done 2 things a) Shift Focus on our own products – increase Captive use b) Shift focus to cater to large pharma company ANDA API requirements – become their first or second source. We have seen successes on both these fronts.

So move has also been away from domestic market API requirements to developed Markets?

The focus is 95% geared to servicing our ANDAs (captive use). At the same time we are able to utilise this to service large pharma company requirements for EU and emerging markets also.

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4. INDIA BRANDED /INDIA GENERICS

India Branded formulations 1HFY14 Sales
Contrib
1HFY14 Sales Alembic Market
Share
Alembic Annual
Market
Alembic Growth Therapy Growth Alembic FY16E
Sales
FY16E Contribution
 Anti-Infective  36%  157.2  3.99%  314  3%  2%  334  28%
 Gastrology  18%  78.6  2.50%  157  16%  9%  212  18%
 Cold & Cough  12%  52.4  5.08%  105  11%  11%  129  11%
 Cardiology  11%  48.0  1.43%  96  38%  13%  183  15%
 Gynaecology  9%  39.3  2.08%  79  29%  7%  131  11%
 Orthopaedic  5%  21.8  1.14%  44  8%  7%  51  4%
 Anti Diabetic  5%  21.8  1.32%  44  31%  24%  75  6%
 Opthalmology  2%  8.7  1.67%  17  51%  8%  40  3%
 Nephro / Uro  2%  8.7  1.84%  17  37%  14%  33  3%

It looks like fast growing Specialty segments like Cardiology and Gynaecology are set to overtake the earlier dominant segments in a few years. Kindly comment

Ealier Anti-Infective and Cold & Cough segments used to account for 80% of domestic sales. Now this is down to 50%. Yes Cardiology and Gyneacology are growing fast and will contribute bigger share in coming years and will overtake some segments like Cold & Cough pretty soon. But the Investments needed are high.

What kind of investments? Is it correct to say this is a Marketing driven game and not so much on the technology side?

Absolutely, all investments are in Marketing. We need to ensure Quality and availability/mind share with Doctors. Form a very low base we have started growing the specialty segments. Fortunately Alembic enjoys a very very good brand equity with Doctors.  Brand recall is very high, so we are trying to cater to higher margin lifestyle disease segments. This strategy is paying off, as doctors are ready to accept new drugs quickly due to brand name and trust.

India Generics- some 86 Cr in 9mFY14? Why do we need domestic generic Sales? Is this profitable?

Well this is a ~100 Cr annual market for us. Some of the products here are negative margin to upto 10% kind of margins. Instead of the brand name drug, it is sold in the generic name. There is a big enough market for this in smaller towns. In a way it takes care of some of our fixed costs by generating additional sales. If we don’t sell it, somebody else will and take this.

5.  SOURCES OF PROFITABILITY

Operating Margins have seen a consistent uptick? What are the main sources of profitability?

The uptick in profitability is due to a few things.

1. Improving Product Mix – As mentioned before, we decided to shift focus and get out of Domestic API which was acute therapy focused and volatile. Anything less than 15-18% EBITDA we decided to get out of.

2. Shifting focus on Formulations – Both Domestic branded and International Generics

3. Process/Efficiency improvements

The depreciating Rupee also helps to an extent

How sustainable is this going forward?

This is set to continue for the next few years. Product mix improvements are already significant. We are able to leverage economies of scale with new plant. We are at ~20% EBITDA levels. There will be 1 to 1.5% margin improvements every year for a couple of years. In a few more years we could be in a different orbit.

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6.  RISKS

What in your opinion are the major risks?

Regulatory Compliance. We are taking this very very seriously. When we were small it was easy to manage. But as we scale up we need to ensure systems and processes that take care of ensuring quality.

Kindly give us a sense of how seriously this is taken by Top Management?

The normal practice in the industry is to employ 1:2 Quality:Product personnel. At Alembic we are maintaining a 1:1 Quality: Product personnel ratio. We ensure everything is on the SAP ERP system. We have built a strong Quality Team.

When the Board meets, the first item on the Agenda is USFDA Compliance. And usually it takes 3-5 hours.

USFDA Inspections? Is this like a sword now hanging over Indian Pharma companies having/attempting a presence in US markets?

Not really. Some reactions/rumours spread that this time USFDA folks are coming to shut down 20 plants – that’s all nonsense. US has to rely on Indian manufacturing plants – we have the largest base outside of the US. Yes, they have very objective, very detailed worksheets. If there are some observations that come out, well they are not going to suppress them.

When did you have your last inspection? Were any queries raised?

1.5 years back. No queries were raised.

7. R&D SPEND

Likely to stay around 6-7% of Sales 

8.  WORKING CAPITAL MANAGEMENT

27% sales to 20% of Sales, to 17% of Sales? Debtors 62 to 47 to 56 days?

This is mostly on account of the API shift.

While Inventory levels haven’t changed much – implies that Payables also has improved significantly. What are the reasons?

Driven by Operations team focus. Some KRAs (Key Result Areas) demanded are to increase 30 days payables to 45 days and 45 days to 60 days.

9.  CAPEX/CAPACITY UTILISATION

Till when will current capacity suffice – FY15? When Next? Quantum

Actually we should be able to see through FY16 on current capacity. We are introducing a lot of automation at an initial cost of ~40 Cr.

What kind of Outsourcing do you resort to? What is the quantum?

India branded – Roughly 40% 

10.  FOREX/HEDGING

Simple 3/6 month forward contracts.

11.  TAXATION/TAX RATES

20-21%

12.  DIVIDEND POLICY

30-35% Payout.

13.   MAJOR CHALLENGES

 Next 2-3 years it is the US Marketing Challenge that will consume us.  


Disclosure(s)

Ayush Mittal: Less than 5% of Portfolio in the Company; Holding for more than 6 months;
Vinod MS: No Holdings in the Company; ;
Hitesh Patel: More than 5% of Portfolio in the Company; Holding for more than 6 months;
Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 6 months;