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Cover Story

“Vertical integration has helped us a great deal”
Dr. Kamal K. Sharma, MD, Lupin Ltd. speaks to Ashish Kumar of B&E
Issue Date - 02/02/2012
B&E: The last three years have been quite volatile for business, particularly with the increased M&As in the pharma sector. What is your strategy for sustained profitability in this scenario?
Kamal K. Sharma (KKS): The whole effort in Lupin, not just in the last 3 years but in last several years, is to create a model, which has a differentiation in the market. Once we have this common understanding about what it takes to have such a differentiation, we go behind very clinically to achieve that. You can see that in terms of the products that we execute, in terms of the branded portfolio that we have in the US, in terms of our presence in Japan ahead of the rest, in terms of our growth rates in other parts of the globe like South Africa and also importantly in India itself; where 6-7 years, back we decided that it is going to be a very promising market and has a huge potential to grow. Despite of all the progress that we have made in last 10 years, we still have about $15 per annum consumption of pharma products and therefore there remains a very promising scope for business in India, where we have been growing at about 20% yoy.

B&E: In times when the overall sentiment in global financial markets is so negative, how do you manage the sentiments of your investors?
KKS: At the macro level, investor sentiment makes a lot of difference with respect to fund availability, liquidity etc. But pharma stocks are always considered to be defensive stocks. The good thing about the pharma sector is that while it does get affected at the peripheral level by economic downturn or upturn; people in general would always like to feel better if they are not well and therefore to that extent, the sector continues to do well. Certainly there will be issues when there is pressure on people’s pockets and they may decide not to consume some of the supportive therapies or palliative therapies, but they would not to compromise on something that is ailing them. So I would say that when there is an economic downturn, there would be a macro level shift in the mindset of the investors and they would certainly like to take their funds to a destination, which gives them comparatively better returns or they may reduce their exposure in a particular area. But pharma is going to remain an attractive space to invest in and given the way Lupin has been performing, I see no reason why we can’t maintain investor interest.

B&E: Indian pharma companies manufacturing generic drugs face significant and diverse challenges overseas right from competitive pressures to regulatory approvals to legal battles. How does Lupin meet these challenges?
KKS: All of us face challenges of approvals and price pressures, but there are certain strategies that we deploy that have kept us in a good state so far. One of the clearly understood strategies for Lupin is vertical integration for a large part of our portfolio, wherein we ensure that we have a very good control on our costs over the entire value chain. This also has an additional benefit of being able to build an extremely good supply chain matrix which means that fill rates at the pharmacy level are by far the best. Thirdly, whatever litigation challenges we undertake, we have had a very good run rate on most of them because we do not chase every litigation challenge. We have a very hard look at it because we know that litigation is a big cost in advanced markets and we know that chasing every litigation challenge and spending money after it is not going to do well for our business. Even for the challenges that we undertake, we strictly cap our litigation expenses as a part of our strategy. These things have really helped us to deal with the overseas challenges.

B&E: You have taken up a number of acquisitions in the past and in the recent times as well. Would you continue on the acquisitive path in the coming years?
KKS: I would like to be on the contrary. In the last 4-5 years, inorganic stroke for us has been more of a strategic growth where we think that doing something in house is going to be time consuming or less efficient or we do not have the capability to do it and therefore there is no point in starting from scratch. Primarily, our growth model has been organic and it will continue to remain so because we do believe that acquiring businesses is very easy but integrating it into your mainstream is a challenge which Lupin has done quite effectively. But I do not think that will be our key driver.

B&E: What is your opinion on the drug price control policy of the Indian government and how it affects business?
KKS: Obviously, this is not something good for the growth of the business because unlike many other businesses, the pharmaceutical business is one, which clearly demands a significant investment in R&D. While price may be an important consideration for the administration, the more important concern for pharma companies is to provide the best treatment possible for a particular illness and it requires continuous endeavors towards not just developing those products but also towards inventing methods to deliver those products. We ourselves spend about 8% of sales on R&D despite being largely in branded generic or generic drug business. From the perspective of the industry and the players, price control is proving to be a dampener for R&D. Eventually, the market stagnates due to these pulls and pressures.

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