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Wockhardt: On an expansion mode - Views on News from Equitymaster
 
 
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  • Mar 9, 2002

    Wockhardt: On an expansion mode

    Wockhardt, the Rs 6.5 bn biotech pioneer in India seems to be on a major expansion drive with a clear growth strategy. While the company seems to have missed out on the generics boom, the export strategy, going forward, seems quite clear. The company is aiming to create global class capacities in some niche product categories.

    Biotech- The key growth driver for the company...
    Pharma biotech has been one of the key focus areas for Wockhardt. The company's biotech research has yielded impressive results so far with two product launches. Biovac-B, the largest selling Hepatitis B vaccine in the country, is from the company's biotech research stable. EPOX, an erythropoietin is another biotech product after Biovac-B. Both these products now contribute around 8% to the company's revenues with more than 100% growth recorded last year. Wockhardt is planning to expand its pilot Hepatitis B manufacturing capacity by 10 times from current 5 m doses to 50 m doses as part of the mega biotech farm investment. The manufacturing plant of the company would be the only WHO (World Health Organisation) approved facility for vaccines outside developed countries. Post expansion, the company is targeting to participate in WHO export tenders. Wockhardt could also benefit immensely if Hepatitis B is included in the mass immunization program of the Indian government.

    A major forthcoming highlight from the company's biotech division is the commencement of human recombinant insulin manufacturing capacity. Currently, there are only three other companies in the world to have the required expertise in this field. The domestic requirement of human insulin is currently met through imports. Wockhardt is planning to launch this product by end 2003 with an aggressive pricing of 30-40% discount to the imported alternatives. We expect the company to launch the same in developed markets within 18-24 months of domestic launch, keeping in mind regulatory approvals. Considering strong competitive advantage, we expect the company to capture a considerable share of the domestic Rs 3 bn (global demand US$ 3.5 bn), insulin market.

    Wockhardt is expecting one product introduction every year from its biotech division. Besides these, the product lineup of the company seems to be strong with various combinational vaccines, typhoid vaccine and other drugs in lifestyle therapeutics (chronic segment). The company is consciously shifting its revenue mix towards chronic segment where growth and margins are higher compared to acute segment.

    A different export strategy....
    Coming to exports, the strategy adopted by Wockhardt seems to be quite different from other domestic players. While most of its peers have chosen the ANDA (Abbreviated new drug application) route, the company is targeting to create giant manufacturing capacities in difficult to manufacture bulk drugs. The idea is to focus on super generics, especially products on NDDS platform (Novel Drug Delivery system) derived from its proprietary sustained release products.

    Almost two thirds of export revenues, currently, comes from bulk drugs with a concentration on three main products viz; analgesic bulk -DMP, anti-cold bulk active-DPP, and Vitamin B12. During the year, Wockhardt significantly expanded the manufacturing capacities of its bulk-actives DPP and Vitamin B12. Post expansion, the company is the largest global producer of US$ 30 m DPP bulk drug with 35% market share. In DMP and Vitamin B12, the company is expected to achieve 25% and 20% global market share. Though these being older generation molecules the chances of substitute molecules capturing the market are less considering the fact that not much global research is happening in these segments.

    As far exploring generic formulations market, the company intends to go through the partnership route with companies filing ANDA in the US and Europe. The company is clear on not investing in any marketing infrastructure abroad. The strategy is similar to that of Cipla. Wockhardt has till date also forged partnerships with 3 companies in the US market for a total of 9 products. Considering that the management has indicated that the total market size of all these products is in excess of US$ 9 bn, which indicates that the company is targeting big molecules. The US generic approval for the first product on the block could come early next year. Considering the uncertainties, it is prudent not to build up any revenue stream at this point of time.

    Wallis Laboratories specalises in the manufacturing of generic and over-the-counter pharmaceuticals and has almost all the major retail pharmacy chains as its customers in Europe. This subsidiary of the company generated a net profit of 1m last year.

    R&D- Too early to comment
    On the R&D front, though it is very early to comment, the company has a pipeline, which could hold promise going forward. One of its anti-infective molecule (WCK 771) has finished its pre-clinical trials and the company is in talks for outlicensing this molecule. Read more. However, it would be pre-mature to build expectations from the same at this point of time.

    The conclusion one draws from the above is that the company does have a clear growth strategy. The biotech division of the company is capable of giving positive surprises, especially the human insulin production that has the potential to put the company on the global pharma map. However, the export basket of the company is too concentrated and skewed towards older generation bulk drugs. Though the generic business of the company is likely to help the company reduce the concentration, this business would take time before it takes off as the company (or its current partners) lacks mature ANDA filings.

     

     

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