Sun Pharma expects 25% growth in US
Even as declining profits from generic medicine sales in the United States are prompting domestic pharma companies to shed their US-centric business, Sun Pharmaceuticals, India’s most valuable drug company by market capitalisation, continues its focus on the country with new vigour.
Sun generates 41 per cent of its annual revenues from the US market, a record of sorts among Indian drug firms. The company is bullish on its US prospects and expects 25 per cent growth in the country this year, higher than the 18-20 per cent growth projection it has given for other markets including India.
The United States is the world’s largest market for medicines and accounts for nearly 50 per cent of the $780 billion global medicine sales.
In a telephonic interview, Dilip Shanghvi, chairman and managing director of Sun Pharmaceuticals, said the US still offers the best growth platform for the company.
"The US is a large market, where a meaningful generic player can generate several billion dollars as revenues. We are far away from that. Rather than diffusing our energy in other markets, we want to concentrate on this market," Shanghvi said.
The growth projections are not based on any sudden revenue flows arising out of exclusive marketing rights, but on normal sales projections, he added.
Sun is betting high on a region that was found to be tricky by several pharma majors in the past. India’s largest drug maker Ranbaxy, which derived 36 per cent of its global sales from the US in 2004 has brought down its US dependence by spreading across geographies over the last four years. Ranbaxy’s US business was 29 per cent of its global sales in 2005. It came down to 24 per cent last year. Dr Reddy’s says that its international sales was primarily driven by Russia, CIS countries, Romania, Vietnam and Venezula, while its US sales dropped in 2007-08.
The commonly-cited reason for the decline in revenues from drug business in the US is the continuing price erosion.
Contrary to the general trend, Sun’s US presence, which was a meagre 2 per cent of its turnover in 1999-2000, grew to 22 per cent in 2005-06 and 23 per cent in 2006-07. It reached 41 per cent of its global turnover in 2007-08.
Unlike several others who source their entire medicine supplies to the US from the low-cost production bases in India, Sun puts in lot of focus on developing its own manufacturing capabilities there.
"Our US operations are routed through Sun’s wholly-owned subsidiary Sun Pharmaceutical Industries and Caraco Pharmaceutical Laboratories. Last year (in 2007-08), 30 per cent of our total US sales were made there itself. This should be slightly higher this year," Shanghvi said.
According to the company, manufacturing flexibility is a key advantage that Sun has built into its US business. Among three of its manufacturing units in the US, it can handle all kinds of dosage, from varieties of medicines such as tablets, capsules, injections and sprays. A $17-million capacity expansion programme is currently on at its Caraco facility.
Sun remains unperturbed by the intensified regulatory interventions against companies like Ranbaxy on technical issues. "We feel the USFDA will not be a problem if we are operationally focused and disciplined to have all systems in place. We are consistently focused on quality and greater scrutiny will only strengthen our vigil," Shanghvi said.
Sun feels that the increasing competition and declining prices can only help the company improve its cost efficiency. "Tighter cost controls and speedy introduction of generic molecules will ensure profitable cash flow," he said.
While patent challenges in the US are often considered as a high-risk business by domestic pharma firms, Sun feels that appropriate patent challenges can help the company ensure reasonable profits without fearing severe damages.
"One should be careful while selecting the product for patent challenge. The bigger the drug, the bigger the chance of a high-profile litigation. We had four Para-IV challenges (patent challenges) in the US and three of them were launched last year. Though none of them were global blockbusters, they contributed significantly to our US revenues," Uday Baldota, vice-president, investor relations, Sun Pharma said.
October 06, 2008