More than 90% of revenues still come from acute therapy business: A Vaidheesh, GSK Pharma

The National Health Protection Scheme announced by the government is going to open up huge opportunities for many Indian and multinational companies, A Vaidheesh, Vice President, South Asia & Managing Director, GSK Pharmaceuticals, tells ET Now.

Edited excerpts:

What is your broad takeaway in terms of the trends that you are observing for the business?

First and foremost, we have come out of the situation we were in last year. We are seeing good progress. Even though we have showed a very strong growth of 20 odd per cent top line, I would not say all of this is because of our efforts. It is also because of the base effect.

Last year, GST had led to reduced stock holdings. So, our underlying growth is about 11% on focused business. We are very happy with what we are currently focussing on. So, the trend is good. I should not be saying but the season is here. We need to go and serve the patients. Currently, it is the season of acute therapy.

Since you have talked about therapies, I want to talk about Augmentin, Synflorix, Calpol, Betnovate, have all delivered some very strong numbers. Will they continue to be the growth drivers for you?

These have been strong horses for GSK for many years. One of the reason for showing good growth is mainly because we have decided to focus and reduce complexity in our company. That is one of the reasons why we are seeing strong double digit growth for some of the old brands.

Yes some of them are household names. Will they continue to be leaders?

Absolutely. That is our focus and we do not want to spread our resources to multiple things. We have reduced the number of brands that we now promote. Typically, one tends to get cluttered with multiple brands and that disperses the efforts and resources of the company. One of the strategies that we have decided upon is to simplify the offerings and put resources behind select brands rather diluting efforts with multiple brands. So far it is working and we think that it will continue because the markets are still underpenetrated. We believe there is still a big opportunity for us.

Are you saying that more than 90% of your revenues will still come in from the acute therapy business and that you would not diversify?

Well that is our current focus. Acute is primarily our focus is on respiratory and in respiratory we have never invested in India in the past but right now we are investing. We have a product called Seretide Accuhaler and we are also going to bring in some IP products from our parent company. We have got a marketing approval for a very tough asthmatic condition. There is biologics. Hopefully, we should be in a position to launch this product by April or May next year.

Would you say price control, demonetisation and GST have impacted you in this quarter as well or are those adjustments now behind you?

I think so. It was a perfect storm that happened in the last two years. We believe that it is behind us and we do not expect anything else to come in. As of today, I would say there are no more clouds in the horizon. The government understands the pharma industrys needs and enough has been done. We are getting good support from regulatory bodies for the pharma industry. I see a positive direction for India. Growth to continue in 10-12% range for the industry.

What has been the response to the new vaccine that you have launched — Infanrix Hexa? What kind of revenue and profits are you expecting?

This is one of our terrific launches. This is a six vaccine in one so that the mother does not need to carry children multiple times to get these vaccines done. It gets done in one shot and it is not that expensive. We have got a fantastic response. Pediatricians are very happy with that we have managed to bring it into India. We see a strong prospect for this brand.

How much contribution to revenues do you…?

For the vaccine business, this should contribute at least 15-20%.

On what margins does this vaccine come at?

Margins are similar to what we are delivering right now.

So 19%, roughly 19-20%?

Around yes.

Your Vemgal plant is nearing completion. What are the timelines, the capacities that we can see transpire out of that plant? How meaningful is this going to be?

We are one of the few companies who invested almost Rs 1,000-crore in a greenfield manufacturing project. In India, it is all about scale. If you do not have scale, it is going to be tough. We are looking at eight billion tablets and a billion capsules.

We believe by 2023, this capacity is going to get fully utilised. In the last 14 years, our PLC has not invested in any other greenfield. We propose to manufacture some of our fast-moving brands out there. We are expecting commercial production to start from September 19. The stability batches are starting now. It will take about seven to eight months before we start rolling out.

With that kind of high capex and the kind of size, what kind of revenue contribution is expected? Just a ballpark percentage, if you could give us as an overall revenue pie that we could see come out of this plant?

For us to grow at about 10-12% minimum, you require that volume. Right now, we are one of the largest volume players in India across all companies, only few companies are above us. To grow even 12-13%, we need that kind of volume. We cannot rely on CMOs to produce that volume. If we continue to grow at about a little faster than the market this capacity will help us to meet those goals.

What we are trying to understand is how do you cover the costs that you have made in terms of the investments that have gone into this plant? Also, your ROI on the plant because that will be a key contributor. At the end of the day it is really about cash flows. How do you map that?

We are already committed to those cash flows and already around 90% is done. From a breakeven point of view, we are looking somewhere around 2024-2025.

And is it an ROI that you are hoping to achieve?

Yes, so once we get a breakeven, then automatically it starts paying back into our P&L.

What kind of payouts are you expecting? You must have done a net present value of future revenues coming in from the plant?

At net present value, we are expecting a good return to come only around 2025-2026.

How is MNC pharma battling it out with domestic pharma, especially in the generics business?

As far as Indian domestic market is concerned, it will continue to have its potential. As I told you it will continue to grow at 10-12%. The National Health Protection Scheme announced by the government is going to open up another set of huge opportunities for many Indian companies and also for multinational companies for many of the branded generics.

We need to segregate the domestic and the international because the western market is a very different ball game. The way in which you get your approvals and the kind of pricing pressure you get from authorities there, I am not competent to make a comment on whether it is going to be a pressure for Indian companies or not. But considering that we are 35% of generic supplier to US, if there is any temporary setback, the Indian companies will get over it. I do not see a challenge personally.

How is your global parent viewing the Indian pharma market after the price cuts and GST? Are they willing to invest more on high price launches?

GSK as a company has been in India for 93 years. During this period, they have seen ups and downs, political decisions etc. GST has been long on India and of course, price cuts pose a challenge because not only profitability, even the manufacturing investment has an impact on the payback.

However, there is a huge trust in India. We are going to invest Rs 1000 crore in the Karnataka plant, upgrading Nasik manufacturing plant for another Rs 250 crore. We are also expanding our field force and reallocating our backend resources and putting in frontend resources. This year, we are going to add more people.
The parent company feels confident that we are here to deliver.

Are you looking at setting up an innovation centre in India? Is that the way forward besides selling branded generics?

The pharma drug discovery is a very big process, you cannot put it into multiple centres, there is one big centre. GSK is looking at utilising some of the scientific resources for our backend operation in Bangalore. There is a good amount of recruitment that is happening to support R&D efforts but not necessarily in the drug discovery. There is a sub component of the drug discovery process that GSK is considering for investing in India, particularly in Bangalore.

Is the worst behind you, can you better your margins to 18-20% range?

: In fact, I have made this point even in a previous call also. Our aim is to get back to 20-22% range and last quarter also we were at 21%. Even this quarter, we expect our margins to improve.

There is a huge amount of efficiency improvement that we are doing right now in the company, putting the energy where it matters. We are very confident that we will be upwards of 20%.

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