Ahmedabad: India’s sixth largest pharmaceutical company in terms of sales, Cadila Healthcare Ltd, acquired Alpharma Inc.’s French subsidiary Alpharma SAS France in 2003. In 2007, it acquired Brazil’s Nikho Pharma Ltd and Japan’s Nippon Universal Pharmaceuticals Ltd. Now, according to people familiar with the development, who did not wish to be identified, the company has set its sights on a Spanish firm. In an exclusive interview with Mint, Cadila Healthcare’s chairman and managing director Pankaj Patel talks about the company’s growth plans. Edited excerpts:
You seem to be on the verge of acquiring a company in Spain.
We have been following a four-pronged strategy for growth since 1995. Between 1995 and 2000, we focused on consolidating in (the) Indian market. From 2000 to 2010, our focus has been to grow our share in the global market. In the third phase, between 2010 and 2015, we will focus on niche segments across the world. After 2015, we will be driven by innovation.
Patel says Cadila Healthcare will focus on lifestyle disorder segments
To have a global presence and becoming a significant player, we have identified key select markets and areas. We would build a decent pipeline of our R&D products by 2010. The group has so far filed 66 abbreviated new drug applications (an application that a firm makes to the US Food and Drug Authority, seeking approval to launch a generic drug in the country) and 55 drug master files (a dossier explaining the process used to produce the bulk drug).
We are also in the process of setting up Gujarat ’s first pharmaceuticals-focused special economic zone.
We are one of the leading investors in research, investing nearly 7% of our turnover on research. We will also focus on high-margin-regulated markets, leveraging (our) strengths in therapy management. We will focus on lifestyle disorder segments such as cardiovasculars, anti-diabetics, and neuropsychiatry, besides other high growth segments such as gastrointestinals and pain management. Our blueprint is ready and our growth would come from these business.
What about buying the Spanish company?
I wouldn’t like to comment on that. I cannot comment on any issue concerning acquisitions.
What is the blueprint for growth at Nikho? How much money do you plan to invest in the company?
As far as Nikho is concerned, we would keep the Brazilian company as a separate subsidiary. We hold 100% equity and would not need to invest much in that subsidiary but it would definitely grow to at least a $100 million (Rs394 crore) company by 2010-11.
What about other foreign acquisitions?
We would continue to look at companies that fit into our portfolio, but we believe that it would be of more value to us to keep our international acquisitions separate.
On the other hand, we would not be too keen on demerging our activities in India and our R&D, manufacturing and consumer product divisions.
How does this strategy fit in with what’s happening in the global pharmaceutical industry?
Globally, the $660 billion pharma industry is growing at 6%. India, however, is growing at a higher rate. Globally, R&D productivity is decreasing and markets are becoming extremely competitive. This has put pressure on the price. I feel this would mean product development and manufacturing would move to countries such as India, while marketing and sales can happen in more developed countries of the US and Europe. Many of them (pharma companies) still carry on research in the US and European countries, but we believe that model would not work for long.
In order to create value for ourselves, we would have our manufacturing and R&D in India, while continue to grow in the US and other developed countries.
Which are the other areas where India has an edge in pharmaceutical business?
Most of the products of many global players are going off-patent and most of them are outsourcing, pruning staff and looking at R&D tie-ups. Contract manufacturing..., contract research and manufacturing services (CRAMS) is one such area where India has a great opportunity. CRAMS consists of two components of outsourcing activities—contract research and contract manufacturing. At present, the global market size (for contract manufacturing) is estimated at more than $20 billion and is expected to grow to $31 billion by 2010. The global opportunity in contract research is pegged at $14 billion. This is expected to grow to $24 billion by 2010.
The contract manufacturing market in India is growing at a rate of 22%. In 2007, the contract manufacturing market in the country is expected to be about $801 million. On the other hand, contract research market is growing at 38% and the market is expected to reach about $197 million this year. Other than CRAMS, clinical trials are another area of outsourcing. Currently in India, the clinical trials market is growing at 25% and by the end of this year, it is expected to reach $200 million. We are looking at these segments seriously and hope to corner decent chunk of business for ourselves.
How stiff is competition in these emerging businesses?
The only competition that people are talking (of) is that of China, but I feel that there are too many issues with that. I feel that Chinese are at least seven to eight years behind compared with India and that they are not yet ready for a regulated market. There are also concerns regarding patents in China. With subsidies going down, it will be increasingly difficult for the Chinese companies to compete against India.
How is your consumer product division doing?
The consumer products division is primarily focused on three product categories—Sugar Free, Nutralite and Everyuth brands. We posted sales of Rs121.9 crore for the year 2006-07, registering a growth of 89%. It could possibly cross Rs150 crore mark this year.
You had run into rough weather on your sucralose-based Sugar Free brand and lost the case in the court...
(Cadila had filed a case against the Gujarat Cooperative Milk Marketing Federatin, which sells under the Amul brand, asking it to stop using the term sugar free—it was using this to advertise its icecreams)
That’s an interim judgement. It says that others cannot use “sugar free” as their brand but this can be used in the text (of product advertisements). This has been interpreted differently. But one thing is sure that after this judgement, till final decision is announced, no one but Cadila Healthcare can use “Sugar Free” as a brand. So, I have successfully defended my brand. I don’t know what would you call this, losing or winning.