Interview

'Europe will be the next destination'

Sundeep V Bambolkar, Director-Finance and Operations, Indoco Remedies, after his recent visit to China is of the view that post Olympics there shall be a correction in prices of pharmaceutical intermediates. He offers insight into the company, market scenario and future trends, in conversation with Arshiya Khan

What is the situation in the Indian Active Pharmaceutical Ingredients (APIs) and intermediates market like?

The situation Indian companies are facing now is quite risky. Firstly, availability is a big problem. The Chinese government has shut down the plants which are known as pollutant plants, because of the Olympic Games. Secondly, most of the chemicals for making formulations have their base in petroleum products, and as the price of petroleum has increased, the prices of intermediates have also shot up. As a result Indian industry is finding it very difficult to cope up with this.

What is the company's core competency?

Traditionally, Indoco has always been a formulations company. From time immemorial our strong hold was in domestic formulation business. And as the company started looking outwards, about five to six years back we ventured into international business, which now comprises of two strategies. First is our focus on the semi regulated markets of Africa, South East Asia, Latin America, other than Brazil, CIS countries etc. Our business model here is that we prepare dossiers and register our products. We have cost sharing arrangements with our agents in each of these countries and a country manager is appointed by Indoco.

As far as the regulated markets of UK, USA, Europe, Germany, South Africa, Australia, Eastern Europe is considered, the situation is completely different. The focus in these countries is on generic business. Here too, we have adopted a two fold business model ie contract manufacturing, which we are already into, and secondly, as we move up the value chain, we again make our own dossiers and the required bioequivalence studies.

Our core competency still remains formulation development, manufacturing and marketing. And in this area we are as good as anybody else in the country. But APIs for us is a comparatively new venture, which was started with our acquisition of La Novachem (India), two years back and was then integrated to become an API division of Indoco.

Please tell us about the dossiers for which products/therapeutic areas have been filed?

We have filed dossiers for therapeutic areas like anti-diabetic, cardio vascular, anti-histamine and ophthalmic.

Going by the recent export policy of China, there has been a price hike of intermediates, how has this impacted the company, and how do you plan to tackle this problem?

Presently Indoco imports about 25-30 percent of APIs from China. So my basic aim was to first ensure availability. Our international sales form 25 percent of the total revenues and remaining 75 percent comes from the domestic market. And after analysing the market scenario in China, I believe that our sales will not be hampered.

Which other countries are you looking at, if not China?

We are looking at both alternate markets as well as the domestic market for outsourcing of APIs. With Europe becoming comparatively cheaper, as China is beating them at their game, there are select niche APIs coming from Europe which are competitive. In such a scenario what happens is if the API is niche, the formulations also become niche and they are able to command a much better selling price internationally. So this has been the strategy adopted at Indoco. At the same time we also hope that this huge spike in pricing, is temporary in nature because I have met a number of Chinese companies and they believe that post Olympics, there shall be a correction in prices.

Feeling the pinch of the price spike, companies have adopted different strategies? What options will Indoco explore?

As far as the Indian market scenario is concerned it is quite dangerous, because companies will stop making products if they are not comfortable. Also because of the regulatory norms wherein companies can raise the price by 10 percent per annum of non-controlled products, which is not sufficient considering the API price hike. This is a serious problem. As far as the international market situation is concerned, we have approached all the companies with whom we are dealing for price hike, since this is a huge international phenomena they have no choice but to grant the price hike.

Apart from Indoco exploring the EU market, which other companies have adopted a similar strategy? Will Europe be the next destination?

There is no doubt that China is a number one API supplier to the whole world. There is a huge quantity that we get only from China. From Europe it is the niche segments, like APIs for our ophthalmic business that can come from Europe, where the quantities are very small. But the solid dosage APIs which are in huge quantity come from China. So the core competency of China will be APIs. There are companies in India also who are into APIs, but again they in turn depend on China for basic raw materials.

To some extent, Europe will be the next destination, but not in its entirety, simply because they cannot make the volumes, which the Chinese can.

How will the European market benefit Indoco?

Formulations is a strong market in Europe. And we are the contract manufacturers for companies in the UK, Germany and parts of Eastern Europe. We started with UK in 2003 and entered Germany and Eastern Europe in 2006. So in terms of contract manufacturing, Europe gives us a strong foothold in all these countries. And as far as moving up the value chain is concerned, we have started getting into our own dossiers. We have a pipeline of solid dosage molecules which have gone off patent. We started with older molecules but we are now moving up the value chain and coming to new molecules like any other company is doing.

Can you tell me about the pollution control norms in China?

India has very stringent pollution central norms within the country, which is not there in China to some extent. The Chinese government has been overlooking it for some extent now, because of foreign exchange gains; which they had by selling APIs to the whole world. Now they suddenly realise that with the Olympic Games coming closer, they need to have very strict control measures. I am not saying that China is destroying pollution norms, but India is more stringent. Maybe the Chinese government gives priority to the API industry.

There are also speculations about the poor quality of Chinese products, if this holds true why do we import from them?

I think this question was like a hanging sword many years back but as time passed, China came into contact with the Americans and Europeans and realised that if they have to be successful, then quality has to be on top of the charts. With this in mind they have changed with immediate effect. I have visited China four times and have seen their manufacturing facilities which are of very good quality.

So will India replace China?

I think India has all the capabilities to make that kind of volumes, provided we are careful with our pollution control measures. I do not think we should overstep the line. We cannot destroy the green zone, as we call it. So that has to be maintained.

What are your future plans for this segment with respect to investments, expansions and acquisitions?

We have started investing in APIs with a view to integrate backwards. All the APIs used in our ANDAs and European dossiers, will be manufactured by Indoco.

arshiya.khan@expressindia.com