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Structural changes across US, Japan and India to impact Lupin this year: Vice-chairman

"There are major structural changes taking place in the pharma business across the globe whether it is US or India or Japan and that will put pressure," said Kamal K. Sharma, vice chairman of Lupin in an exclusive interview to Moneycontrol.

May 25, 2017 / 06:20 PM IST
 
 
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Lupin, which emerged as the second largest Indian drug maker in terms of sales in FY17 replacing Dr Reddy's, says FY18 isn't going to be an easy ride due to headwinds faced on account of channel consolidation, more generic competition and a vigilant regulator in its key US market.

To be sure, US sales could be under pressure with tapering sales of anti-diabetic generic drugs Glumetza and Fortamet due to competition. The company will also have to contend with price controls of generic drugs in its other important geographies like India and Japan.

"There are major structural changes taking place in the pharma business across the globe whether it is US or India or Japan and that will put pressure," said Kamal K Sharma, Vice-Chairman of Lupin in an exclusive interview over phone to Moneycontrol.

Sharma touched upon various aspects that's going to have an impact on the growth trajectory of the company.

Below are the excerpts of the interview.


What has led to a kind of slowdown in terms of sales in Q4? Is US the main reason?

The main reason is that in US there has been competition. Glumetza has put a little pressure on the sales. In addition, there is also too much consolidation of channel partners. So, there is always price pressure in general. It is not only one product but many products where we normally would not experience pressures. There was a pressure here because of the consolidation in the channel.

What is the kind of pricing pressure you were facing? What kind of erosion is happening in the base business due to the pricing pressure?

On an average, the generics business grows about 3-5 percent and the price reduction is anything between 5 percent and 10 percent. Also, Glumetza has been holding up for Lupin for several quarters.

Do you see any new generic entrant coming in for Glumetza or what has actually led to the kind of the pricing pressure on you?

We had an exclusivity in the product. In fact, because it is a very difficult product to make, we had a good run even beyond our exclusivity period. And then of course, the innovator which is Valeant introduced authorised generics. And now, Teva in the month of May, launched their product. And Sun Pharmaceuticals also has an approval. But they have not yet launched because getting the product together is quite a challenge. It is a very tricky product.

How do you mitigate the kind of pricing pressure and the channel consolidation in the US in the coming quarters? What is your strategy to deal with the kind of pressure you are facing in the US?

Strategy is very clear. It all means that in the short to medium-term you should be able to launch more products and hope to get a few products which are of high contribution, aside from the fact that you do a lot of in-house innovation and efficiency improvement, productivity improvement in terms of keeping your costs down. And in the medium to long-term you have to move up the value curve from generics to complex generics to biosimilars and to specialties because the pressure on prices has come to stay now.

How is the medium to long-term strategy? I mean, getting into complex (generics), specialty and biosimilar. How is that panning out? Methergine has been a major specialty product for you. How has that product been gaining traction?

It is doing well. We are already at the level of 5.5 per month now (million dollars).

Any new products in the specialty pipeline?

We have many. We have products in the paediatrics range; we have also some products in the area of inhalation. We just got an approval for a nasal solution. We also have submitted our application for scrutiny on albuterol. We are also in the process of developing generic Advair.

What is the status of biosimilar development?

We have etanercept Phase III getting completed by the end of this calendar (year).

This calendar means the third quarter, before December?

End of the calendar year. Then, we have a couple of other biosimilars which we are speaking with the US Food and Drug Administration to clear the path. So, those are various initiatives that we have in the pipeline. We are going to launch it (etanercept)  in Europe and in Japan and later in America also.

What is the outlook for FY18 in terms of launches? Will it be the same as FY17? How do you see the launch pipeline?

There will be launches, but it will be difficult to offset the effect of Glumetza because that is a huge product. So, I see that while we will have many launches and some of them very good launches, to offset the effect of Glumetza will be quite a challenge, especially in the face of consolidation of channel partners. Plus, the FDA's ability to clear both files over time. That also obviously increases competition because too many approvals come in the market. So, I see that for the industry as a whole, while Lupin will continue to do relatively better, there will be a lot of pressure on prices and on growth.

Last year has been good in terms of number of approvals you have got. Do you see that holding out this year as well?

We hope so. It is very difficult to say what the average run rate can be, but we do hope that as we see a steady improvement in FDA's ability to clear Abbreviated New Drug Applications (ANDA), that will continue, but at the same time, the regulator is also very strict on the manufacturing side. So, it is not one variable which determines the end game, there are many irons in the fire.

Two of your facilities – Goa has got three observations and Aurangabad has got eight observations and you said they are procedural in nature in the exchanges. So how has it been? Are there anything to worry or are you confident that those observations will be resolved?

We are preparing our responses and we believe that these are, as we have mentioned, procedural, but we obviously cannot speak for FDA. They have made their observations. Earlier also, if you recall, for a long time, there was this suspicion in the minds that Goa had observations for which finally we got an establishment inspection report (EIR). We believe that these are in a procedural sense and our job is to give the response to the best of our ability.

Have you filed the response already?

No, we are working on it.

Do you see the 483 observations impacting approvals from those facilities?

No nothing. We are getting approvals on a regular basis (from these two facilities).

So, there is no impact on the approvals?

No, there never was. I do not think we ever had. Even when the Goa observations were there, we had got approvals from there at that time also.

How is GAVIS, the company you acquired in US, doing? What is the pipeline of product?

We have almost 21-22 products. The only thing is that the gestation time is a little longer than what we had expected. Our manufacturing plant in New Jersey took a little longer, almost six months delayed. But in the meantime, we had two FDA inspections which went off very well and we had some delays also from the Drug Enforcement Agency (DEA) for getting our quotas because these quotas are granted to you based on your consumption. But yes, notwithstanding, I would say that we are really about eight months to a year behind on our plan.

Could you explain how does this DEA quota works?

There is a standard procedure where you have to first get a small quota and make sales and based on your consumption they will grant you; you have to also prove to them that the market is going at a certain rate and then you get a little increased quota and then again you have to consume. So, those gaps take a little time in the beginning till you build a reasonable amount of volume.

This is what has delayed your expectations?

Slightly, yes.

In terms of controlled substances, the US FDA recently has taken a major stand on regulating the abuse of opiates. So, how do you see US government stepping in to control the opiate abuse and will that have an impact on the approval and sales of the controlled substances?

That is the general situation across the globe. Every government, every administration is concerned about the abuse of controlled substances. But at the same time, there is a therapeutic use of those products and that cannot be denied. So, I am sure there will be more. Already, there are very good controls in place. They may like to enforce and strengthen those controls further, but the business... yes, it can cause some attendant pathways which get longer; but I do not think the business gets affected in that sense.

So, this is not causing any delays for that quotas that you get or it has no relation to that?

It will have some relation, but at the moment, it is not affecting.

Some of your counterparts are acquiring/licensing products or brands that are under development. So, is that a route that you look at to spruce up your pipeline?

We have been evaluating it.

In which areas are you evaluating? Is it specialties or is it biosimilars?

Specialty.

In the (therapeutic) areas that you are present or are you looking at new therapeutic areas?

We are looking at areas where we are present at the moment. (Lupin currently markets specialty drugs in US to treat women and child healthcare and developing products for central nervous system)

Coming to the Indian market, how much of your portfolio is covered by the Drug Price Control Orders (DPCO)?

About 24 percent.

The National Pharmaceutical Pricing Authority (NPPA) recently issued notices threatening penal action for marketing 201 fixed dose combinations without following pricing order. So, what's your response on that?

You know it better; you have already said it; there is nothing that I am facing anything different. So, it is an industry-wide phenomenon.

Recently, you have tied up with Eli Lilly to launch generic Cialis in India. Lupin has been thick into licensing and partnering deals; do we see that as a strategy to mitigate the price control?

Lupin is one of the most sought-after company for partnership with multinationals. We have currently four alliances running - Eli Lilly, Boehringer Ingelheim, Novartis and MSD. This is our way to really expand the market both for ourselves as well as for the multinationals because we have the understanding of the local landscape of the business. Obviously, multinationals find Lupin as a very dependable, very reliable partner. So, we have the entire human insulin range of Eli Lilly, we have Cialis, we also have DPP 4 and SGLT 2. through Boehringer Ingelheim. We have a portfolio of vaccines from MSD and so forth.

Also, with GST coming in do you see any kind of disruption in terms of inventory, supply chain?

It is a complex call. It certainly will have its own challenges in terms of systems and loading the data on the central system and then getting reconciliation of input output. So, it is not an easy task.

What's happening in your other key Japanese market. Are you looking at acquisitions and in-licensing deals to expand in that generics market?

It’s the same strategy that we normally follow in a branded generic market which is what you do with new products and volume increase, more and more prescriptions. We have acquired 21 brands of Shionogi. We have in-license products from Astellas in the CNS area. The portfolio that we have taken from Shionogi , 50 percent of that is in the area of CNS products. We are a very strong CNS company. (Lupin ranks sixth in Japanese generic market that's considered to the second largest market for drugs.)

You have in-licensed a lot of products, especially brands in the past few years. How are these brands growing and how do you see this market; will it continue at the same pace of growth or do you see the growth accelerating further?

The growth will continue in the Japanese market whether it will be accelerating or not I can’t say because it is also a controlled situation. Price cuts are also there in Japan every two years. Now, they are saying every year we will cut prices. So, we will have to deal with that situation.

FY17 has been a great year for Lupin in terms of sales and profits. How will it be in FY18? You said that it can’t be compared because of Glumetza not being there but what are the growth drivers of Lupin and how will the company march ahead in FY18?

Growth will be similar as it has been in the past because the business model is not changing at least for this year but there will be pressure on growth because structural changes are happening in all the commentary that we have discussed so far. There are major structural changes taking place in the pharma business across the globe whether it is US or India or Japan and that will put pressure. That is something not specific to Lupin; it is an industry-wide situation because when there are structural changes they affect the entire canvas of the business. So, one should expect a certain pressure on growth in the coming years.

first published: May 25, 2017 02:14 pm

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