Indian pharmaceutical companies that enjoyed a great run in the U.S. for years with their cost-competitive generic drugs have been feeling the heat of late.
Pricing pressure in the U.S., the largest market for generic drugs in the world, due to supply chain consolidation, increased scrutiny by the U.S. Food and Drug Administration (USFDA), and greater competition has taken a toll on the financials of most Indian pharma companies. Lupin, the third largest Indian pharma company by global sales (and eighth largest in the world), has been no exception. The company's net profit in FY19 declined 32.1% year-on-year to ₹947 crore, as revenue rose 5.2% to ₹16,369 crore.
But Vinita Gupta, Lupin’s chief executive officer, believes that the toughest period is behind the company and the Mumbai-based drugmaker seems to have gotten off to a strong start in FY20. For the first quarter of FY20, Lupin reported a 49.5% rise in net profit to ₹303 crore, even as its revenue grew 15.4% in the same period to ₹4,356 crore. Lupin followed up the stellar performance by getting into a partnership with global pharma major Boehringer Ingelheim to co-develop and commercialise a novel oncology drug. It also received USFDA approval for two new generic drugs – a tablet to treat edema and an injectable drug to treat nausea and vomiting associated with chemotherapy treatment.
Gupta tells Fortune India in an interview that Lupin has made structural changes to its leadership team to separate responsibilities for selling generic and specialty drugs in the U.S.; is tightening its belt by cutting down on costs and focussing on a pipeline of new products that includes complex generics, novel drugs and biosimilars to secure the company’s future growth. But the challenges faced by the company with respect to adverse observations made by the USFDA vis-à-vis some of its manufacturing units in India are still to be fully addressed, but Lupin is making progress towards ensuring the regulator’s concerns are addressed at the earliest, Gupta states. Edited excerpts:
The last couple of years have been difficult for the Indian pharmaceutical industry, as well as Lupin. What is the outlook for FY2020?
The last couple of years have been tough. In the first half of the previous fiscal we declined in the U.S., but we started to turn around on Q3 and Q4 of FY2019. We saw growth in these quarters due to products like Ranolazine and the efforts of our team on the baseline business. That momentum continued in the first quarter of this fiscal and it is heartening to see. The baseline generic business has finally started to stabilise after many years of pressure due to the supply chain consolidation in the U.S. Many pharma companies have exited certain portfolio of drugs and this has led our buyers and partners to realise the need to work together with us to ensure a healthy generic industry.
We have brought in new leadership in the U.S. as a consequence of splitting our North American business into generics and specialty to ensure undiluted focus on both sides of the business. As companies exited, we took on additional business wherever it made sense for us. We have approvals for new products like Levothyroxine, wherein we are targeting a 20% market share, which would be material for us. We also have the potential of launching our first major inhalation drug in the U.S. this fiscal, depending on USFDA approval. So far we have participated in producing and selling oral generics and now we are also getting into injectable drugs. On the branded side of the business, it is all about Solosec (a women’s health medicine). Our team is building the product month-on-month and quarter-on-quarter. In the last quarter alone (April-June 2019) Solosec grew 20% on prescriptions.
In the domestic (India) business, we are doing well and that is a combination of volume growth, new product launches, and price growth.
FY2020 is going to be an exciting year for us. We believe that the toughest period is behind us. We feel confident of growing the business this year. We stayed very focussed during the tough times on evolving our business into complex generics and specialty drugs, and building a pipeline of products and capabilities to deliver them.
What is the current status with respect to the manufacturing issues highlighted by the USFDA, and when do you expect the matter to be fully resolved?
This matter has been going on for some time but I believe that we have come a long way. We have had many inspections and opportunities to learn. We sent updates to the USFDA on all the issues with respect to the four manufacturing sites in question. Over the last 6-8 months we have been able to narrow the issues down. We think it is all about the robustness of investigation and we have done a lot of good work at our sites and at the corporate level to ensure that. There is a little more work to be done before we can invite them for a re-inspection. We believe that this fiscal we should be able to get clearance for at least two of the sites.
We are pretty good for this fiscal since the 20 plus products that we intend to launch this year including Albuterol and Levothyroxine are all from other plants that are approved. But we need to clear the other sites which have a number of applications pending.
The pharma industry has undergone a lot of stress in recent times. In that content, what sort of belt-tightening measures have you implemented?
We have a significant project that is underway since May last year to optimise costs. We felt there was room for optimisation on our manpower costs as well as savings on procurement of material, promotional spends, and what we spend on data. We have already realised significant cost savings on the manpower front by right-sizing a number of teams like our R&D teams in Pune and the U.S., sales force in the U.S., and the commercial team in Japan. Simultaneously, we have also started realising savings in indirect costs. The bigger part of the cost savings will come in FY21 when we reduce our material spend by switching over to new vendors.
What are Lupin’s plans on biosimilars and novel drugs?
We are looking at the launch of Eternacept (a biosimilars drug) in Japan possibly by the end of the current fiscal and in Europe by early next. We have another biosimilar under development, Pegfilgrastim. We are pretty far along in the development of this drug and once we can launch it in the U.S., it will be a material opportunity for us. The market for biosimilars in the U.S. is going to open, whereas Europe is already a pretty developed market. The success that we have seen with some of the products we are developing gives us confidence that there is significant potential in this segment for us over the next five years. I believe in biosimilars, there is an advantage in being a fast-follower rather than a trailblazer since this business requires huge investments. So we will be cautious on how we approach this business.
When it comes to new chemical entities (NCEs), our focus on the specialty side is all about NCEs. Solosec is a new molecule and that’s why it has the exclusivity that it does in the U.S. We are looking at novel drugs that we can bring in the U.S., especially around women’s health. It was Desh Bandhu Gupta’s (Lupin’s late founder and chairman) dream that Lupin should discover, develop and commercialise its own molecules and that’s a pretty long-drawn programme with risk-rewards of a different scale.
Our first oncology program involving a NCE was licensed out to AbbVie. We have three other oncology programs that we are developing. We have an interesting NCE on the endocrinology front that has completed phase II trials and the data looks promising. With respect to our novel drugs discovery programme, we will take a conscious call on how best we can gain scale and maximum value for Lupin through partnerships.
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