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Wockhardt: Research meet extracts
Sep 20, 2005

We met Wockhardt recently to discuss the future prospects of the pharmaceutical sector and how the company hopes to benefit from the same. Here are some key extracts. What is the company’s business?

Wockhardt Ltd, a subsidiary of Khorakiwala Holdings and Investments Pvt. Ltd (75% stake), is one of the leading domestic pharmaceutical companies with strong presence in the lifestyle segment with a growing focus on biotechnology. With acquisitions in the international markets, the company has demonstrated its growing global ambitions. During CY04, Wockhardt derived 60% of its revenues from non-India regions (up from 54% in CY03). Wockhardt has a subsidiary in the UK, which holds 100% in CP Pharma and Wallis Laboratories. The company has acquired ‘Esparma GmbH’ in Germany and has set up presence in Brazil and the US. It is one of the largest spenders on R&D among its domestic peers (about 8% of consolidated revenues) and has proven its R&D capabilities by indigenously developing and launching Biovac-B (Hepatitis-B vaccine), Wepox (Erythropotein) and Wosulin (human insulin).

Acquisitions: Wockhardt is actively looking to ramp up its growth through the inorganic route. The criteria for selection would depend upon what geography the potential target is operating in, as patents are country specific, what new markets will the acquisition add to Wockhardt’s existing markets, product basket of this company with emphasis on which regions the product authorization has been received. Further, in terms of cost savings, the amount of manufacturing activity that can be moved back to India (enjoying a low cost advantage) will play a critical role. The management has stressed on the fact that that an appropriate target is crucial in terms of having the ability to digest the acquisition and ramp up.

Biotechnology: Wockhardt has identified biotechnology as its main focus area going forward. The company is a leader in the erythropotein market in India with its product Wepox. Its key insulin brand, ‘Wosulin’, grew by over 50% YoY and continues to increase its market share in the segment. The R&D focus, especially on the diabetology folio, is likely to result in the introduction of a new product ‘Glargine’ in CY06. Also, besides the domestic market, biotech products will be the growth drivers in the semi-regulated markets (Russia, CIS) as well. This can be gauged by the fact that the total number of product registrations by the company in these markets stand at 20.

R&D: R&D initiatives, especially in the field of new drug discovery research, will be a key growth driver for the company going forward. The company currently has 5 molecules in the pipeline in the anti-infectives segment. The R&D efforts will also be directed towards generics and biotechnology.

Generics – It’s a price game: Wockhardt stated that generics is a price game, which means that a pharma company has to produce at the lowest cost to survive and gain market share. As far as the pricing pressure across regions are concerned, while the US region has been facing intense competition and price erosion, the fact is that realisations in the US are still higher than that in Europe implying that customers in the US are more accustomed to higher prices. Wockhardt’s strategy to succeed in these markets is clearly driven by cutting down costs. It currently has more than 50 products in various stages of development.

Marketing and distribution: While low prices are a necessity to survive in the generics market, a strong marketing and distribution network also assumes significant importance. The kind of marketing network boils down to the model that each country adopts. In US, for instance, establishing relationships with physicians is crucial to gain visibility for a company’s products. In India, relationships with stockists are important. The company has had its own sales and marketing organisation in the US since CY04. It is also looking to enter into co-marketing alliances with established players for its products.

ANDA filings: Wockhardt has filed 72 ANDAs out of which 13 ANDAs are pending approval. The filings are made in 3 strategic areas, which include injectables, blockbuster molecules going off patent and value added generics (NDDS, niche, follow-on Para IV).

What to expect?

At the current price of Rs 546, the stock is trading at a price to earnings multiple of 16 times our estimated CY07 earnings, which is at the higher end of our valuation spectrum. Going forward, on the domestic business front, biotech and diabetology will continue to remain the key growth drivers for Wockhardt. Also, continued focus on its power brands will help the company sustain revenue growth. The international business is also expected to significantly aid growth and garner a larger share of the revenue pie. Wockhardt has also commenced its new plant at Baddi, Himachal Pradesh, which is likely to provide various fiscal advantages in the near term.

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