• SEPTEMBER 23, 2003

Wockhardt: The insulin story

In line with the general market sentiment, Wockhardt has been steadily gaining in the past few months. The key reason for this upswing in Wockhardt’s stock price has been the launch of human insulins (branded as ‘Wosulin’) by the company. Wockhardt has thus become Asia’s first and the world’s fourth producer of human recombinant insulin. But how big is this news and what could be its implications on the future revenues of the company. Let’s find out.

The insulin market can be broadly classified into two segments – animal insulin and human insulin. Globally the insulin market was valued at US$ 3.2 bn in 2002. The Indian insulin market is valued at Rs 2.5 bn currently and is expected to touch over Rs 7 bn by 2025. While animal insulins contribute 90% of the insulin market, human insulins make up for the remaining 10%. Recombinant human insulins avoid the risks of viral infections and neurological disorders associated with animal insulins. Despite this, animal insulin segment continues to dominate the market. This was due to the fact that till 2002, there were only three MNCs selling human insulin at a very high price.

However, in Jan ’03, in view of a probable launch of human insulins by Wockhardt, the MNCs brought down the human insulin prices by 35 – 45%. They are currently selling the same at a price range of Rs 145 – Rs 262 per unit. However, the price is still higher than that offered by Wockhardt (Rs 129 per unit). As a result of these sharp price-cuts, the price differential between animal insulins and human insulins has declined substantially and is expected to reduce further. Consequently, animal insulins are likely to lose market share to human insulins. Eli Lilly has recently announced a withdrawal of its total animal insulin folio.

Thus Wockhardt, with its cost advantage is in a good position to capture market share. The company’s strategy is to first target the domestic market. Once it gains dominance in the Rs 2.5 bn domestic market, the company plans to launch ‘Wosulin’ in the international markets. Wockhardt has US-FDA approved manufacturing facilities with global scale capacities. However, the ‘Wosulin’ exports will start only after 2-3 years since the regulatory bodies in most countries require the drug to be first marketed in the country of origin for a couple of years. Thus the export of human insulins by Wockhardt is expected to commence only from FY06. Consequently, for FY04 and FY05, revenues will be generated from only the domestic market. We expect ‘Wosulin’ to generate revenues of Rs 80 m in FY04 and Rs 275 m in FY05.

Although not a very big amount as compared to its total revenues (Rs 7.7 bn in FY03), the launch of ‘Wosulin’ has demonstrated Wockhardt’s potential in the biotechnology front. The company has already succeeded in developing ‘Biovac-B’ (Hepatitis-B) and ‘Wepox’ (Erythropoeitin), which has been well received in the market. Besides, Wockhardt has several products like Interferon alpha 2B and other anti-cancer drugs under development. Wockhardt thus has one of the most enviable biotechnology products pipeline in the country.

At Rs 507, Wockhardt is trading at a P/E of 21x its annualized 1HFY04 earnings. In view of the growing biotechnology products pipeline and international acquisitions made by the company (Wallis and C P Pharma), which are expected to spurt exports going forward, we remain positive about the long-term prospects of the company. The only thing that may keep investors wary is the past diversification record of the company.

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