Small but ambitious: Alembic has a big American dream

Being small holds out a promise to grow big. That’s the attitude Alembic Pharmaceuticals Ltd (APL) carries with it as the Vadodara-based drugmaker charts its growth in the highly regulated and competitive US market.

It’s been a growth pathway that many of Alembic’s counterparts in the industry took many years ago. Some have faltered, while others soldier on in the face of severe pricing pressure and intense scrutiny by the regulator, the US Food and Drug Administration (USFDA). In fact, some of the biggest names in the Indian pharmaceutical industry are presently tackling regulatory action and warning letters against some of their plants.

But Pranav Amin, eldest of three sons of Alembic group Chairman Chirayu Amin, is undeterred by this ‘turbulent market’ sentiment. Representing the young voice from a 112-year-old company, Pranav believes the generics story is not over in the US market, just yet.

Despite the company being a late entrant, having forayed into the US in 2009-10, Pranav says, “It is the only international market where we sell directly with our own sales team. Apart from oral solids, which is driving growth currently, we believe our strength in the US will be Dermatology and Ophthalmics.”

APL’s numbers already reflect this intent. Its financial performance for 2018-19 shows that the US contributed about 73 per cent of its overall international generics business of ₹1,782 crore. The US business grew by around 40 per cent, giving many others in the fray a reason for envy.

Pranav’s younger brother, Shaunak, runs APL’s domestic business. In fact, the pharmaceutical business was demerged from the Alembic group in 2010 to leverage healthcare and leave behind legacy issues of the group, which also has a real estate division that is handled by the youngest son, Udit.

In the last three years, APL has invested close to ₹1,500 crore in its facilities. The oral oncology facility at Panelav near Vadodara was inspected by the USFDA recently. The injectibles facility at Karkhadi is set for inspection later. A new formulations plant is coming up at Jarod and is likely to get commissioned in the second half of this year.

APL’s joint venture Aleor, for dermatology products, has also received US regulatory approvals. All these facilities are focussed on supplying to the US and will go on stream from fiscal 2022.

Other international geographies like Europe, Canada, South Africa and Australia are also promising markets. But Pranav finds the US market most dynamic. “And because we are a relatively small player at present, we can visualise our growing multifold in the next three to four years in the US market,” he says.

Admitting that generics may lose their lustre beyond five years, Pranav is looking at specialty and innovative products. For instance, APL owns 50 per cent stake in Swiss-based Rhizen Pharmaceuticals, which has an out-licensing agreement with TG Therapeutics for an oncology product that is in the late phase of the regulatory approval process. Once approved, “probably it could be the first drug developed by an Indian company to get approved in the US. So it is an exciting side,” Pranav says.

The journey to bring out interesting products and get that competitive edge starts with research and development (R&D). APL spends about 14 per cent of its total revenues, easily among the highest in the industry, towards R&D. “Of the overall R&D spend, about 90 per cent is towards the US market.”

Challenges and opportunities

However, equity analysts are cautious on Indian pharma companies having a big exposure to the US. “Companies that have big revenues coming from the US are at the risk of downgrade on earnings and valuation. The price pressure in the US market is hurting even some of the big names. And secondly, the brand of Indian pharma has taken a beating,” says Vinod Nair, Head-Equity, Geojit Financial Services.

Nair, however, clarifies that companies developing new, possibly non-generic products in niche areas are a promising bet after 2020-21. Pranav agrees that risk factors in the US could play spoilsport. “For FDA compliance, we believe it to be a cultural issue with the workers. We are tackling it accordingly, and keeping all our units in proximity to our HO for quick and better monitoring,” he says.

In fact, Pranav is clear that APL will not sell below a certain level, where the cost economics fail. “We back off if prices are not attractive. We are very much driven by bottom line, not by top line. Our focus is supply chain efficiency by ensuring product availability at the right time. We don’t like to compete much on the price. That’s how we insulate ourselves from the US challenges,” he says, looking to play the generics game, but differently.