Mid-sized pharma players diversify to mitigate risk

Don’t put all your eggs in one basket. That’s an advice midsized drugmakers are taking rather seriously.

Pharmaceuticals companies that have been global leaders in a particular medicine category are now focusing more and more on expanding their portfolio, using diversification as a risk mitigation tool.

A research analyst with a foreign broking firm said focusing on only a few products and gaining world dominance in them was a strategy that worked wonders in the past. “But nowadays, from a growth and profitability perspective, a wider portfolio of products is more welcoming.”

Orchid Chemicals and Pharmaceuticals, the Chennai-based global leader in the antibiotic cephalosporin, is strategically expanding its focus to other antibiotics such as penicillin injections and carbapenems. CH Ram, head (communications and investor relations), said currently, 85-90% of the Rs 1,300 crore company’s turnover comes from cephalosporins.

“But in financial year 2009-10, our turnover from cephalosporins will reduce and that from penicillin injections, particularly Tazo-Pip (tazobactam piperacillin) will be 10-15%,” he said. Likewise, in fiscal 2010-11, carbapenems will contribute 10-15% to Orchid’s turnover. “So gradually, our dependence on cephalosporins would come down, and that on carbapenems and penicillin injections would go up,” Ram said.

Similarly, Mumbai-based Wanbury Ltd, which is the world leader in metformin, a diabetes product, is also increasing play in other products like salsalete (anti-inflammatory), tramadol (painkiller), atenolol (for hypertension), etc. Metformin contributes over Rs 100 crore to Wanbury’s turnover of Rs 465 crore. Ashok Shinkar, director (corporate finance), said, “Wanbury believes in focusing on fewer products and achieving huge market share.”

Shinkar said Wanbury is focusing on therapeutic areas such as orthopaedics, painkiller, and haematinics (for iron deficiency). It is also expanding presence in the contract research and manufacturing services (Crams) space, wherein foreign giants outsource research and manufacturing of bulk drugs and formulations to Indian firms.

An analyst from IIFL Capital said a larger basket of products and presence in different business segments is a better option in the pharma sector, as there is uncertainty over competition. “A company making more products can get better valuations than one that has limited offerings.”

The Hyderabad-based Virchow Laboratories, which is the world’s biggest producer of the antibiotic sulphamethaxazole, is also expanding to areas such as biotech products, ranitidine (for ulcers), and cephalosporins. Sulphamethaxazole contributed about 50% to the company’s revenues.

NV Reddy, managing director, said focus on other areas would aid Virchow’s long-term growth. “It is a safer to have a wider product portfolio,” he said.