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BW Businessworld

GSK India And Its Catch-Up Formula

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At GlaxoSmithKline Pharmaceuticals (GSK India)'s corporate office at Worli in Mumbai, managing director Hasit Joshipura desperately wants to get back to work now that the interview is over. He does not want to waste time posing for the BW photographer. He is fretting about the fact that the number of GSK executives waiting to meet him is piling up.

"I don't believe in such publicity. What matters is how we create value for our shareholders, and offer new therapies to save lives," he says. Joshipura, who took charge in January 2007, is acutely aware that there is plenty of work left to be done in terms of creating more value for shareholders. (He was brought in from Johnson & Johnson with the mandate to shake things up.) It is not that GSK has been underperforming — indeed the stock has outperformed the BSE healthcare index over five years — but it has certainly lagged behind key rivals in terms of growing turnover and profits. And from numero uno position in the this market, it has slipped to the fourth spot now.

In 1997, when the Indian operations of Glaxo and Burroughs Wellcome were integrated as part of a global merger, the new entity — Glaxo (India) — became the largest pharma company in the domestic market with a combined market share of 7.2 per cent. Glaxo's dominance in the market was further strengthened when Glaxo (India) and SmithKline Beecham Pharmaceuticals (India) were merged in 2001 to form GlaxoSmithKline Pharmaceuticals (GSK India) — again as part of a global merger.

At that time, GSK India had a turnover of Rs 1,097 crore (2001) with a net profit of Rs 75 crore. Homegrown giant Cipla, one of the oldest Indian drug companies, was way behind it with Rs 795 crore (2000-01) sales, though it had a superior net profit of Rs 133 crore. The then largest Indian drug company — Ranbaxy Laboratories — had sales of Rs 1,741 crore (2000) with a net profit of Rs 180 crore, thanks to its foray into exports. Roughly, Rs 930 crore of the Ranbaxy turnover then came from the Indian market.

After a decade, GSK is way behind the trio. Abbott Laboratories, following its acquisition of Piramal Healthcare's formulation business, is the No. 1 in terms of market share. Ranbaxy, owned by Japan's Daiichi Sankyo, grew to a sales turnover of Rs 8,550 crore with Rs 1,496 crore net profit in 2010. Now Cipla has global operations with Rs 6,183 crore turnover and a Rs 960-crore net profit (2010-11). Compared to them, GSK India's turnover in 2010 was only Rs 2,155 crore, with a net profit of Rs 581 crore. Its market share has shrunk to 4.2 per cent of the Rs 58,842-crore Indian pharma market, according to drug sales tracking agency, IMS Health India.

Joshipura says it is unfair to compare a company that sells patented medicines with competitors who primarily rely on generics. GSK has six patented drugs (after India adopted a product-patent regime in 2005), and has a basket of around 250 off-patent generic and branded drugs. Compared to GSK, Cipla and Ranbaxy's product basket is over 600 generics. But Joshipura explains that 2001-07 was a phase for consolidating the mergers. "We were focusing on optimising operational efficiencies and increasing profitability."

Now, having achieved the efficiency goal to a large extent, GSK India wants to grow aggressively, with restructured operations and smart marketing. In the past two years, the business has been re-grouped under six divisions — mass market, mass specialty, dermatologicals, oncology, critical care and vaccines. Soon, two more divisions will be added in cardiovascular and respiratory diseases. Joshipura says the future growth will be powered by new vaccines and medicines from its parent, in-licensing of drugs from other innovator firms, foray into off-patent branded generics and, notably, through acquisitions.

He has the cash to acquire at least a few small firms. GSK India is sitting on a pile of Rs 2,000 crore. "We are looking at assets that strategically fit our business," says Joshipura. Organically, the company cannot hope to grow faster than 12-16 per cent annually and, hence, big-ticket jumps in turnover will have to come from a buyout. Analysts think restructuring has helped create a leaner GSK India. An Angel Broking analysis figures GSK's sales to grow 13.8 per cent in 2011 and 14 per cent in 2012, and net profit to be lesser by 21 per cent in 2011 and a growth of 66.4 per cent in 2012.

"The share of price-controlled products (which are of low margin) have come down from 30 per cent to 25 per cent in GSK's product basket and will go down further. This means GSK will grow above the industry average within a few years," says Ranjit Kapadia, senior vice-president of Centrum Broking.
Last year, GSK's net sales grew 13 per cent and profitability was maintained at 35 per cent. New products launched in the past four years contributed 7 per cent of overall prescription sales in 2010 with a growth of 26 per cent over 2009.

Its flagship brand, anti-infectant Augmentin, has regained its position as the largest selling drug in India with sales of Rs 244 crore for the 12 months ended June 2011, according to IMS Health India. Since antibacterials and anti-infectives is the biggest segment of the Indian market, this has been particularly welcome.

The firm in-licensed two products last year — Mycamine injection (Micafungin) from Astellas Pharma and Parit D capsules from Japan's Eisai. Again, these are drugs meant for high-growth segments in the market. Its other popular brands have been doing well and it is adding to those with new launches. It launched Zemetril (an anti-bacterial drug) a few years ago, and that has climbed to No. 1 in its category. Another popular brand — pain balm Iodex — grew 4 per cent last year with sales of Rs 88.2 crore.

Meanwhile, its oncology division, started in 2008 to launch breast cancer drug Tykerb, recently launched two more drugs — Revolade, a tablet for treatmenting reduced blood platelet count, and the kidney cancer drug Votrient. The division plans to launch at least one cancer drug every year from the parent's pipeline or through in-licensing, says C.T. Renganathan, vice-president of pharmaceuticals with GSK India.

Despite this, while GSK has beaten the broad pharma sector in terms of growth, so have its main rivals. Ranbaxy's sales grew by 16 per cent last year, while Cipla's grew by 14 per cent. Though both the firms had lower profitability than GSK, that has been small consolation.

While restructuring and chasing efficiencies, GSK cut manpower too sharply. And that is beginning to tell as the market gets more competitive by the day. GSK's manpower was more than 5,000 in 2001, and is now down to about 4,400. Out of these, 3,500 are sales representatives. Meanwhile, rivals have been adding more feet on street. Abbott has 7,000 medical representatives in the country, Cipla has over 5,000 and Ranbaxy, which has 4,300, is recruiting 1,500.

As GSK prepares for a flurry of launches, it realises the need to hire more sales personnel. It plans to add about 800 sales people by the end of the fiscal. As part of GSK's global strategy of tier-pricing (related to GDP growth of a developing country), the Indian arm is selling patented medicines 35-70 per cent less than its cost in developed markets. In India, Revolade is priced at Rs 27,000 a month and Votrient at Rs 58,000, almost 75 per less than its US price.  Other patented drugs such as breast cancer drug Tykerb and vaccines Rotarix and Cervarix are priced 25-40 per cent less in India than in the US. This strategy, hopes GSK, will help it gain traction with its new drugs.

GSK has launched half a dozen drugs and vaccines in the past two years from the parent's product basket. It was forced to withdraw antidiabetic drug Rosiglitazone (Windia) on safety issues two years ago, shaving off about Rs 15 crore from annual sales. The withdrawal was a big blow given that the anti-diabetic market is growing rapidly and GSK has no presence here.

A large basket of vaccines has helped GSK emerge as the leader in the Rs 210-crore Indian vaccine market. It cornered 19.86 per cent market share, ahead of rivals Sanofi-Aventis (19.62 per cent) and Novartis (10.77 per cent) in 2010. Vaccines contribute about 10 per cent of GSK's turnover and are expected to contribute 15 per cent in a few years.

GSK has also changed its marketing strategies. It now focuses more on selling drugs to hospitals, direct to doctors and tender orders. About 16 per cent of its annual drug sales are through hospitals and doctors. Selling drugs in rural areas are another priority and GSK is implementing ‘Reach' programme to tap rural India.

But all these are hygiene steps and GSK knows that it cannot play catch up in the league tables unless it does some acquisitions. But finding proper targets is no easy task. "I don't know when it will happen," says Joshipura candidly.

(This story was published in Businessworld Issue Dated 29-08-2011)