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Just what the Doctor Ordered

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

Published: Dec 1, 2009 08:20:00 AM IST
Updated: Feb 28, 2014 04:58:43 PM IST

Call 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.

Lupin's Deshbandhu Gupta
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.


That limited start also set the tone of Gupta’s strategy in the US. As the distributor wanted only more of cephalosporin antibiotics, Lupin refrained from launching a large basket of products (unlike Ranbaxy and Dr. Reddys). As there was no great need to churn out copycat drugs, Lupin was doing new drug research with no immediate commercial benefit. For Lupin, therefore, US contributes to just 30 percent of its sales, lower than the 40-55 percent for competitors.

The first attempt to overhaul the US strategy came in 2006, from Kamal Sharma, Lupin’s managing director and Vinita, Gupta’s daughter who runs the US business. The effects are showing now.



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Meanwhile, Vinita has been changing the face of Lupin’s US business. She quickly discovered that the stringent FDA norms also meant lesser competition to its range of products. Around the same time, it took Chennai-based Orchid Chemicals nearly five years to get US FDA for its injectible cephalosporin plant. Vinita moved to selling formulations through large dealers. As a result, sales in the US have increased from less than $5 million to $187 million in 2009. Though the company had only 22 products in its portfolio, eight became market leaders. Lupin is now the fastest growing generic company in the US, according to research agency IMS. Says Vinita: “Clearly, we have moved from a push to a pull situation for our products.”

In a way, that pull will now force Lupin to change further. So far, the company had stuck to a product portfolio dictated by its manufacturing strengths. Nearly all the 22 products in the US market was cephalosporins or a class of blood pressure drugs called prils. The company has nearly exhausted every known molecule in these drug categories. The formula cannot work forever. Says an analyst with a foreign bank: “The company needs to look at new areas of growth rather than incremental revenues from existing products.”

To a bystander, it may look as if Lupin is abandoning its niche focus and getting ready to fight in the mainstream US generic like other Indian companies. Why is the company, after all these years, going for the volume model that is fraught with price erosion and high litigation costs?

Nilesh Gupta, the chairman’s son who is in charge of research and development argues that Lupin has the infrastructure and market presence to make the big move. Two years ago, Nilesh revamped the research setup and brought in two new experts to run research for the generic and novel drug development businesses.


The results are showing. In 2008-09, Lupin filed 28 new applications with the US FDA, its highest since inception. Two of these applications, if successful, will give them exclusive rights to market generic copies in the US for six months. Lupin’s cumulative filings with the FDA stand at 90, addressing an estimated market size of $90 billion.

But the bigger and more interesting move is Lupin’s new focus in building a branded business in the US. Typically, putting a branded formulation in the market can cost a company between $1-2 million whereas Lupin’s acquisition of the Antara brand, a cholesterol-related drug, cost $38 million at one go. Says S. Ramesh, Lupin’s chief financial officer: “Profits from brands don’t fluctuate but grow unlike in the generic business.”

In two years, Lupin has bought three brands paying small sums of money. In September 2009, it bought Antara after its owner had filed for bankruptcy. It paid $38 million for it, or just one times sales compared to industry norm of two or three times. Earlier, in June, it bought AllerNaze, a nasal spray for chronic inflammation and runny nose. Both these products have marketing exclusivity and Lupin has now hired the services of a contract marketing company to detail these products to doctors. Says Vinita: “In three years, we will internalise the field force as the volumes of these products grow.”

Last year, Lupin’s sales from branded drugs like Suprax (an antibiotic useful in paediatric treatment also) stood at $74 million. With the addition of Antara and the launch of AllerNaze, sales are expected to double this year. The company has exclusive rights to market AllerNaze as a nasal spray. Vinita says that they selected the three products as they had enough synergies to build marketing strength in two areas­ — paediatrics and dermatology.

Simultaneously, Sharma and Nilesh are driving effort in two new segments: Oral contraceptives and opthalmics. Gupta again approved the new focus as there was not much competition in these segments and the No.1 US generic company Teva virtually had a monopoly. Says Sharma: “Our customers for generics comprising chains, wholesalers and mail order receive products that are unique.”

All these efforts are designed to boost the US business more quickly, which Sharma feels is still under-penetrated for Indian companies. Though Nilesh quickly admits that Indian research — including theirs — has failed in the new drug development space, yet it is inevitable to stay away from it. He is banking on recent success to put more money into it.

Apart from the spate of filings for new generic products, Lupin has outlicensed US rights for a novel technology it developed. US-based Salix Pharmaceuticals has made a $5-million upfront payment with a promise for further royalties if the product succeeds. The two companies will collaborate to fix the bioadhesive to an antibiotic rifaximin to make it release more slowly in the stomach. With many drugs going out of patent, Nilesh feels that new technologies like these will be the Holy Grail for generic companies like Lupin.

Gupta will be adding 400 more scientists and do research in newer areas like bio-similars, the generic equivalent of biological drugs.

There has been action elsewhere too. Gupta bought a Japanese firm, Kyowa Pharmaceutical, in October 2007. Lupin, which was earlier supplying bulk drugs to Kyowa, again got a break which has been hard to break into for Indian companies. Sharma says that the growing awareness of generics in a predominantely patented medicine market portends well for Kyowa.

Lupin’s strategy is being watched by rivals who aren’t so sure of its success.

Gupta’s renewed thinking on the business, comes when the business needs it the most. US president Barrack Obama has floated a new bill promising far reaching changes in healthcare. Indian companies, with a strong generic footprint in the US, have suddenly become more valuable as Big Pharma firms like Pfizer and Glaxo are scouting for buys in India. Any strategy to boost their presence in the US will only make Indian firms more valuable. At least for now, shareholders have nothing to complain about.

(This story appears in the 04 December, 2009 issue of Forbes India. To visit our Archives, click here.)

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  • gdgupta

    Dear Mr Desbandhu guptaji, How much share you feel drawing in promoting Aryuvedic medicines in your produccts, Can you focus- light on it.pls. thanks

    on Jan 27, 2010