Ashok Shinkar, Director-Corporate Finance, Wanbury talks to Nandini Patwardhan on why expansion is important to the company.
What are Wanbury’s plans for expansion?
We had the Patalganga plant and we have another plant at Tarapore. Additionally, we have also acquired the Doctors Organic Chemical’s plant, a company which is now merging with Wanbury. We are getting a second plant at Patalganga, in addition to the earlier one. This is coming through the merger with a company called Pharmaceutical Products of India (PPI).
Why did you acquire the sick PPI?
We get a tax shelter through acquisitions like this. This is because PPI is a sick company. It has unabsorbed losses. So my acquisition cost of the assets relatively reduces. Then there are the obvious synergies. There is a scope for continued expansion in terms of new products that we are adding. This is a very large plant compared to what we have. In our existing facility, there has been a limitation in expanding. This new one offers that expansion. Another factor is that I do not replicate all my human resources. The key management personnel managing this plant earlier can continue to manage it today. So my manpower movement and the corresponding costs are also controlled. Similarly, costs can be controlled for other functions like raw material sourcing, etc.
The rationale behind the acquisition was the fact that this plant is strategically a very well located plant. It is about four-and-a-half kilometres from where we are situated in Patalganga currently. Thus in terms of our growth and expansion plans in APIs, PPI seemed to be a good option to explore and this was one of the driving points for acquiring PPI.
Why is Wanbury focussing on brand launches and acquisitions for the domestic formulations business?
Our initial strategy was to expand our formulations business. So that could be either by brand acquisitions or new brand launches. As a part of the strategy, we decided on four new brand launches. I am happy to state that we have been successful on that front. We launched two new products, one being CPink, which is doing very well today. It is almost Rs 12 crore product and targets the gynaecology segment. It is indicated for prevention of iron deficiency in pregnant women. The other is RabiPlus, which is also doing very well. It is Rs12 crore and plus product on an annualised basis. So some of these brand launches seem to be better in terms of driving sales than brand acquisitions. Brands were very expensive to acquire and we did not want to pay exorbitant prices at the moment. However, I want to make it clear that we are not averse to acquisitions even though we are focussing on brand launches right now.
What is the agenda for the research centres?
We have set up research centres for the API division. It is in Turbhe. That is process research, where we do most of our API R&D. We also have our regulatory team there for our DMFs. In addition to the centre for APIs, we also have one for the formulations, where we do research for the domestic formulations on product development. This division also serves as the quality assurance control department for our outsourcing. As far as therapeutic areas are concerned, so far depending on our sales, we are focussing on paediatrics, oncology and orthopedics. Though we are not doing too much NDDS, that is still a part of the agenda.
How is Wanbury’s research strategy in-sync with its overall corporate mission to be a Rs 1000 crore plus market cap company?
At the base, we were talking about developing our processes and formulations skill sets. Then going on to scaling it up to NDDS and setting up a full circle in-house R&D centre, which included doing bio-equivalence studies, and completing the set of development at our own end. Ultimately, we have to get into NCE research over a long period. But for a Rs 1000 crore market cap objective, I think getting the process research in place and our formulations in place is very essential and which is already there, indicating that we are fairly on steam.
Why have you focussed on CRAMS?
It is a good alternative source of business. We have all the necessary skill sets for developing APIs and we are fairly economical and innovative in that. So if a large MNC wants to reduce their cost and give us orders on a dedicated basis then that serves as a good alternative means of income. It balances out the sales on the DMFs or sales in the open market to more of dedicated sales to a customer. Margins are good, so overall it serves the purpose. As far as CRAMS is concerned, our current facilities are adequate to handle the additional business that might come our way. So we are not looking for any major acquisition unless it is accredited to our EPS. Also, CRAMS is not a short-term strategy for Wanbury. It is a long term sustained business for us and we will focus on the business even after we become bigger and better.
Are you looking at getting into the lifestyle segment?
We are exploring that. Of course now we launched OsteoLife. Typically, that is also an extended lifestyle situation. We are definitely focussing on more products and therapeutic areas. Diabetes is a focus area for APIs. We are the largest producers of metformin, which is an anti-diabetic product. As far as formulations is concerned, that strategy is different. It will work on need-basis for the domestic market. We will definitely be looking at adding more divisions. How much of it will be lifestyle related or not, we will have to explore that, but we are definitely queued in on lifestyle segment.
What is unique about your division OsteoLife?
We have already launched the new division—OsteoLife in the middle of last year and it is already more than six months now. This division focuses on the orthopaedic segment. It is a pure sales and marketing division for niche products in the ortho segment. We have a basket of products there like Osteonuron and Adtrol Plus. These are niche products concentrating on niche requirements. For instance, this one particularly improves your nerve damage and strengthens and reduces pain at the same time. Typically, most of the ortho products concentrate on anti-inflammation and pain. This one works on nerve damage too. The second one Adtrol Plus is like added calcium combination. In that sense, we do have differentiated offerings in the space.
How will Cantabria acquisition help the company?
It is a part of the overall growth strategy of the company. We manufacture our global generics there. We want to expand our formulations and we are looking at either brand acquisitions or expanding inorganically in formulations. As far as formulations are concerned, we wanted to add business. An option was looking at domestic business opportunities. But we also thought that we need to diversify the market. That is how we kind of looked at other opportunities and zeroed in on Cantabria in Spain.
Have you filed an FIR against Novartis?
We launched an FIR. The matter is subjudice and has to be decided by the court. FIR has been lodged by the police and they have taken it on record and they will do the investigations. So it will take its normal course.
How will Wanbury capitalise on opportunities offered in the pharma industry today?
Well, we will look forward to further expand our formulations business. There are huge marketing opportunities coming up. There are integration opportunities, which basically work towards the manufacturing side, catering to the front end marketing. These are the areas we are focussing on. We are also looking at expanding our horizons in terms of newer markets that we will start selling to. We are in Spain and we would like to expand to the rest of Europe, which is a huge market. Backward integration into manufacturing for formulations and forward integration for APIs again is on cards. Then the new product launches of course. So these are the areas that offer enormous scope.
What are the critical success factors that will affect pharma players few years down the line?
I would assume that formulations and APIs will converge in the sense that it will be a combined kind of business-rather an integrated business will be what will work. It cannot work product to product. There will also cross company synergies. The industry, growth wise will see a lot of consolidation happening. And with that increased size we will see a lot of synergies coming into play.
What do you think about the Indian pharma story?
Well one thing is very clear and written on the walls that the pharma industry in India is definitely here to stay. There are no two opinions on that because the whole world is converging now on India and China, in terms of pharmaceuticals and chemicals. As a result, margin pressures will be there. This is because there are more Indian players entering the space. Now why is there an increase in the number of players? Well, this is because more people are getting up in terms of regulatory understanding, tackling various markets and because the world is really becoming a smaller place. So it is basically competition, which is coming from within and which is really driving down the margins, which the Indian pharmaceutical industry has always been exposed to. Though this is not something new, this is happening.
But that should not put a dampener on any of the players as the market is fairly large, and I think there is a huge increase in terms of what the Indian pharmaceutical industry can expand or offer.