Pharma will bring in 70% of Jubilant Organosys’ revenues in three years
Posted online: Sunday, June 12, 2005 at 0000 hours IST
SHYAM S BHARTIA
Once known as Vam Organics, a specialty chemicals manufacturer, Jubilant Organosys in its new makeover is trying to establish its presence throughout the pharma value chain. It is also venturing into new geographies and businesses like clinical research besides stepping up R&D efforts. In his interaction with FE’s Ravi Krishnan, chairman and managing director Shyam S Bhartia outlines the company’s strategy to grow. He shares details about the US acquisition and more. Excerpts:
The pharma and life sciences business has had a relatively subdued Q4. What is your outlook for the business?
There was marginal growth compared to the corresponding quarter. Although we did post a rise in profits, certain factors like the lower sales of some products like Carbamazepine and Azithromycin in the domestic market and some delay in the commissioning of a new multipurpose plant in CRAMS (custom research and manufacturing services) did have an impact.
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The next quarter we’ll do well. We are stepping up our focus on the international markets - like Japan, US and Europe. Even now, our overseas operations contribute around 70% of revenues in this segment. Basically these are regulated markets - the size is big and profitability is more as compared to the unregulated ones. We expect the pharma and life sciences business to grow to account for 70% of our total revenues in the next three years from the present 55%. We have also firmed up investment plans of around Rs 250 crore this year and about Rs 80-110 crore the next year.
So, will the growth be largely inorganic or organic?
We are looking at various inorganic growth opportunities though we are also expanding our capacities and facilities in India. Regarding acquisitions, recently we have raised $75 million with $25 million upsizing potential through FCCBs. Add to this the Rs 100 crore that we raised from Citibank Henderson and internal accruals, we have a sizeable corpus for buying a generic company in the US and also for expanding our facilities here - mainly setting up a finished dosage and formulations plant in Haridwar, where we hope to start production in October next year. The acquisition is in line with the strategic intent of expanding our presence in the US and Europe - like last year, we had acquired a Belgian generics company PSI. At the same time, we are also continuously evaluating opportunities in India.
Can you share more details of your US acquisition?
We are acquiring a 75% stake in a generic company, which also has a USFDA approved formulations manufacturing facility. We have set up a formulations development R&D, which will enhance their existing generic pipeline of 8 drugs. Lots of drugs are going off patent in the next 5 years. We hope to grow our portfolio of ANDAs (abbreviated new drug approvals). We have around 30 products (including APIs or active pharmaceutical ingredients) under commercialisation. We hope to have atleast 20-25 ANDAs by the end of 2006 for the US market. As far as the deal is concerned, it is expected to be signed in 2-3 weeks and we expect to start operations soon afterwards.
Are you also looking at acquiring the remaining 25%? What other target acquisitions?
There is no proposal to buy out the residual 25% immediately. A 75% stake gives us management control of the company. Regarding other acquisitions, as I said earlier, we are continuously evaluating opportunities in the market.
It seems that your thrust is on forward integrating your API business into formulations. Where does the CRAMS business fit in and what are its growth prospects?
The CRAMS business accounts for 30% of our revenues in the pharma & life sciences segment and recorded a growth of 40% last year. We expect growth from both CRAMS and API & formulations businesses, though the growth prospects are more promising in the latter businesses. The API and dosage form sales grew 55% last year. We are launching new products in the US and European markets soon - oxcarbamazepine and Lamotrigine.
The basic idea is to derive synergies from integrating our API and formulations businesses. Besides we have also developed regulatory affairs capabilities.
Having said that, the CRAMS business too is very important for us. We are the largest such company in India and service several large pharmaceutical and agrochemical companies in Europe and the USA. It is a growing business. We have a global position in some products like pyridine and its derivatives and offer services in 25-30 key chemical reactions to 15 out of the top 25 pharma companies in the world. Though manufacturing contributes a major part of these revenues we have also shored up our R&D efforts.
We are also expanding into offering new services like clinical research, for instance. We have set up a subsidiary - Jubilant Clinsys. The operations of this company are slated to start next month. Initially we will offer bio-equivalence and Phase-I trials. Once the business stabilises, next year, we will also start Phase-II and Phase-III trials.
What is the focus of your R&D strategy?
We have developed our research and development facilities to mainly address the generic drug market opportunity. We also do custom research for several large pharma and biotech companies. Now, we have started focusing on the area of new drug discovery or new chemical entities. Our subsidiaries Jubilant Biosys and Jubilant Chemsys, which do work in the areas of bioinformatics and chemoinformatics, provide early leads in the drug discovery process. We have 450 scientists working for us in these areas.
Are your other businesses - industrial and performance chemicals - proving to be a drag? Do you plan to hive off them at a later stage and concentrate only on pharma and life sciences?
We have made a profit in the industrial chemicals business though operating margins are under pressure. That is because of increase in the prices of the raw materials - molasses and alcohol. But this quarter prices have already started coming down due to expectations of a bumper sugar crop this season. We expect it to go down further and the margins will improve in this segment.
Input costs - this time petroleum - are the reason for the low profitability in the performance chemicals segment. We hope to do better the next quarter. Chemicals is our traditional business and we will continue to grow this segment. These two segments de-risk our business model and provide us with steady cash flows and backward integration capabilities.
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