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Wockhardt: Going international

Jul 15, 2003

Wockhardt Ltd, a subsidiary of Khorakiwala Holdings and Investments Pvt. Ltd, is one of the leading domestic pharmaceutical companies with strong presence in the lifestyle segment and growing focus on biotechnology. The company derives 62% of its revenues from the domestic markets. However, with the recent acquisitions in the international markets, the company has demonstrated its growing interest in exports. Wockhardt has also started increasing its R&D focus and has made investments of Rs 460 m in 2002. In this context, let us briefly understand the business of the company.

Revenue break-up
% Domestic Exports
2000 68 32
2001 65 35
2002 62 38

Although Wockhardt derives a major portion of its revenues (62%) from the domestic market, the company has increased its thrust on exports. This was primarily due to intense price competition and price regulation prevalent in the domestic markets. On the domestic front, Wockhardt’s branded formulations business grew by 8.5% in 2002. This was primarily on account of a 21% strong growth in its power brands. The company also launched 17 new products in 2002. Wockhardt generates more than 42% (2001) of its revenues from the lifestyle segment, with nutraceuticals, vaccines and diabetes among the major contributors. Anti-infectives and pain management are the other major therapeutic segments.

Exports break-up
% Bulk drugs Formulations
2001 68 32
2002 57 43

Wockhardt recorded a 41% increase in exports during 2002. While exports from India accounted for 78%, the company’s UK-based subsidiary - Wallis Laboratories - contributed the balance 22%. Formulations business (90% growth in 2002), accounts for 43% of the exports (32% in 2001). The company has recently acquired UK based CP Pharma, which is mainly into the supply of natural insulins to hospitals. The acquisition is likely to further increase the company’s exports revenues and catapult it to among the top 10 generic companies in the UK. The US market is the key growth driver and the company expects revenues to the extent of Rs 750 m from this region in 2003. The company has 6 approved ANDAs and 4 pending approvals. Wockhardt plans to file 8-10 ANDAs in 2003 with most filings under Para-3. However, the company has started to gradually increase the number of Para-4 filings.

NCE pipeline
Compound Indication Development status IND filing
WCK-771 Broad Spectrum with MRSA
& VISA activity
Phase-1 clinical trial Filed in Nov '01
WCK-1152 Respiratory tract infection Late preclinical Expected in 2003
WCK-1456 Potent once-a-day
& superior control of Enterococci
Toxicity studies Expected in 2004
Source: Company annual report

Increased thrust on Para-4 filings has translated into the company increasing its focus on R&D. Over the last five years, Wockhardt has spend over Rs 1.5 bn on R&D, including Rs 300 m for commissioning a new R&D centre a couple of years ago. On the biotechnology research front, Wockhardt has several products including Human insulin, Interferon alpha 2B and other anti-cancer drugs in the development stage. On the Novel Drug Delivery System (NDDS) front, Wockhardt has 9 products under various stages of development in the areas of cardiology, gastroenterology, neurology and allergy. In all, 29 new patents were filed in 2002, taking the tally up to 81. Wockhardt has also increased focus on new drug discovery and is concentrating on discoveries in the anti-biotic and anti-infective segments. As can be seen from the table, the company made its first IND filing in 2001 and expects to make one IND filing each in 2003 and 2004. These forward steps taken on the R&D front could generate huge revenues for the company going forward.

Financial overview
  2000 2001 2002
Revenues (Rs m) 5,207 6,947 7,673
Growth in revenues - 33.4% 10.4%
PAT (Rs m) 717 1,082 1,051
Growth in PAT - 50.9% -2.9%
OPM (%) 18.7 20.4 18.3
NPM (%) 13.8 15.6 13.7

On the financial front, in 2002, Wockhardt had a bad year. This was primarily on account of the stagnancy in the domestic demand and differences that the company had with Federation of Medical Representative Association of India (FMRAI), which has also resulted in the company restricting its product launches in 2003. Wockhardt has now restructured its sales force and the revenues are expected to gradually normalize. Going forward, the acquisition of CP Pharma is expected to result into higher margins for the company.

Comparative Valuation
  Wockhardt Cipla Nicholas Piramal Sun Pharma
Current Price (Rs) 383 830 339 373
EPS (Rs) 28.7 41.3 31.1 24.7
P/E (x) 13.4 20.1 10.9 15.1
OPM (%) 18.3 20.1 18.5 30.0
M Cap/Sales (x) 1.8 3.2 1.3 4.0
*All valuations pertain latest declared annual results

Wockhardt is currently trading at a P/E of 13x its 2002 earnings. The recent VAT fiasco, sales force restructuring and pricing pressure in the domestic market is likely to impact the performance of the company in the near term. Succession issues remain the primary concern. However, the increased thrust on exports market, recent international acquisitions and the growing NCE pipeline and R&D investments are likely to improve the efficiency and performance of the company in the long term.

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