Just what the Doctor Ordered

by T Surendar

Lupin’s Desh Bandhu Gupta took time to recover from the scars of the last decade. But now he finds himself in the right place at the right time

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all it luck or design. But in the gallery of large Indian drug makers, Desh Bandhu Gupta is among the last men still holding their heads high. A tumultuous year has taken a toll on most domestic names. Companies had either bitten off more than they could chew by making expensive acquisitions or were caught on the wrong foot by the US federal inspectors picking holes in their quality control.

Not Mumbai-based Lupin, named after the flower from a plant with leguminous properties that enriches the soil in which it grows. The company’s sales and profit have grown more than 30 percent in the last three years. Its strategy to acquire half-a-dozen small companies has proven — in hindsight, of course — a much better strategy than the large buyouts of competitors. Along with conservative domestic market leader Cipla, Lupin has not only survived the crisis but is now getting ready to fire on all cylinders. Its stock is up more than 150 percent from a year ago, double the industry average.


Image: Vikas Khot
Lupin's Deshbandhu Gupta

More importantly, a strong balance sheet has enabled Gupta to take his company on a faster growth trajectory now. He is talking of more acquisitions, a renewed thrust in research and a unique strategy to launch branded products in the US, the worlds largest pharmaceutical market. The newfound energy was visible when Forbes India caught up with him. Dressed in a bandhgala, Gupta, founding chairman of the four-decade-old firm, presents the big picture: “Our eyes are firmly set on the net orbit now. We want to be a $3-billion company by 2013.”

But less than a decade ago, it had seemed Lupin had lost its way. Lupin had been cruising along as one of the country’s top drug companies when some real estate investments went bad and loaded the balance sheet with debt. Its most important business as the largest producer of anti-tuberclosis drug rifampicin, whose price was controlled by the government, was a volume game and not a margin game. It took a lot of time to recover from the scars. The companies it used to earlier rub shoulders with — Delhi-based Ranbaxy and Hyderabad-based Dr Reddys — went on to become stock market darlings, as their bold US expansion saw their sales and profits grow quickly. Mumbai-based Sun Pharmaceuticals, which came on the scene much later, was already bigger. Lupin’s sales grew just 7 percent each year between 2001-05, half the rate at which other big players grew. Gupta, a self made businessman, seemed a force no longer to be reckoned with.

The story has changed in the last four years. Even as the financial numbers reflect Lupin’s strategic course correction, Gupta has managed to create his own rules for doing business. Unlike the two largest Indian companies in the US market, Ranbaxy and Dr Reddys, it did’nt go for volumes in the generic business. It followed a conservative strategy, in taking on the US Big Pharma in litigation, yet won significant victories in the cases it fought.

Today, 70 percent of its revenues come from the overseas market, in line with the industry norm. Its geographical risk is mitigated as it is the only Indian company with a significant presence in Japan, which brings 12 percent of the revenue. Gupta is also driving a unique theme; he wants 25 percent of his revenue to come from branded products in the US. So far, no other Indian company has tried putting a sales force to promote its brands in the US, because they don’t have the products to justify the increased cost. Besides, any product-related ligitation or recall can prove fatal. Gupta feels ready to take on that challenge. He thinks higher margins from branded sales will soften the vagaries from rampant price erosions from the generic side of its business.

This year, Lupin’s consolidated global revenues are expected to touch the elusive $1 billion mark. The path of history is strewn with companies that grew quickly to reach that milestone but lost steam soon afterwards. Armed with $1 billion in sales, both Ranbaxy and Dr Reddy’s took the large acquisition route to grow and landed in trouble. Wockhardt and Sun nearly reached there but got mired in credit and regulatory issues respectively. Only Cipla crossed that barrier last year without much ado. Now, Gupta and his team will have to prove all over again that the growth model they followed in the last few years is replicable to get past a billion and beyond to the next orbit.

In 2004, when Gupta ventured to the US, he took a safe option though he had a robust product portfolio. The US Food and Drugs Administration’s (FDA) regulations are more stringent for injectable dosage forms and even approvals for factories to make these drugs were hard to come by. Lupin made a class of injectable antibiotics called cephalosporins used to treat chronic infection. It already had a US-FDA approved factory in Mandideep, Madhya Pradesh, and product approvals too in place. Yet, the company chose to sell drugs in the form of bulk chemicals rather than as tablets or capsules (formulations). The implications were clear. Selling bulk drugs, being lower in the value addition chart, also fetches lower margins.