Glaxo India: tough times
08 Mar 2000
The latest high profile merger decision of Glaxo Wellcome, UK, is with another global major, Smithkiline Beecham, UK. While the parent Glaxo Wellcome didn't find any problems in merging with itself the new acquisitions, its Indian 51 per cent subsidiary is facing problems on that count. Glaxo India is yet to merge Burroughs Wellcome -- though it is globally a part of Glaxo -- and Biddle Sawyer group of companies. The two still continue to be independent entities.
Argues Khusrokhan, "Except for being separate entities, operations and command structure are synchronised with Glaxo India." Beyond that, he's not willing to discuss the issue further. What he does want to discuss are issues relating to the pharmaceutical industry.
Call for government support
"The centre extends a Rs 12,000 crore subsidy to the fertiliser sector. Why not at least extend Rs 1,000 crore to the pharmaceutical industry, if it really wants medicines at an affordable cost available to the people?" he demands.
Another one: "In order to enthuse domestic companies to spend on research and development, the government should tax-exempt the revenues generated by new drugs discovered out of R&D efforts, at least for 10 years."
Strictly against any move to link a drug companies' promotional spend with that of their R&D expenditure, Khusrokhan says that R&D doesn't come cheap. "It costs at least $50 million and takes about 11 years to bring a new drug into the market," he argues.
So, how much does Glaxo India spends on R&D? "In India, we do only process research. Our parent company does the basic research and I don't want to duplicate that," he justifies. "Till a proper patent law is in place, w will not do any basic research here."
His prescription for other domestic companies that are into basic research is to sell off their discovery to bigger players, rather than take the risk of competition from small players adept in reverse engineering.
Wish list
Khusrokhan, who is also the president of the Organisation of Pharmaceutical Producers of India, wishes the centre would subsidise the drug industry; abolish Drug Prices Control Order (DPCO); legislate proper patent law and give a 10-year tax exemption for revenues generated by drugs developed by a domestic company through R&D!
Company performance
Wish list aside, Khusrokhan has tough job ahead. Glaxo India today finds the market roads difficult to negotiate, thanks to stiff competition. Many of the bulk drug manufacturers have ventured into formulations, and more particularly, the anti infectives segment. In addition, cheap Korean imports have affected Glaxo India's sales of its Ceftum brand.
The Rs 886 crore Glaxo India, despite a Rs 92 crore increase in turnover, posted a reduced net profit for the year ended December 1999. The net profit came down by 11 per cent to Rs 77.06 crore, a figure that includes nearly Rs 22 crore profit on sale of real estate.
Adding to the company's woes is the bad international market for sulphamethaxazole, putting spokes in its export growth. Thanks to the good export market for ranitidine, another bulk drug, the company registered a 14 per cent increase in its export turnover.
"The growth in the domestic market slowed down and also, the huge customs duty impacted us," Khusrokhan explains. While this is true to some extent -- the centre had levied 10 per cent surcharge on imports, impacting the company's cost structure -- what is undeniable is the steep hike in Glaxo's promotional spend to protect its market turf.
The company's total expenditure amounted to just around Rs 822 crore, an increase of about Rs 117 crore over the previous year.
Reorganising Glaxo
In order to meet the market threats in a focussed fashion, Glaxo India reworked its marketing team and also recruited a sizeable number of personnel. This added to the operational costs.
Speaking about the marketing team reorganisation, Khusrokhan says, "We have seven teams to look after different therapeutic segments. In rural areas, we now sell around Rs 50 crore worth of products."
Glaxo India, with its primary presence in corticosteroids, anti-infectives, anti-ulcer and vitamin formulations, has an envious product basket. Nearly 20 of its products figure in the list of the top 250 brands of the industry. Some of the leading brands are Betnesol, Phexin, Zinetac, Ceftum, Septran, Calpol, Cobadex Forte, Betnovate, all enjoying good market shares.
However, the weakness is that most of the brands are very old and new entrants are advantageously placed to eat into their markets. Further, 60 per cent of the company's products fall under DPCO. "Many of them are good revenue earners," remarks Khusrokhan. "Addition of new products will be based on the market needs and on not whether the new drug is under or outside DPCO."
Glaxo strategy
When queried about Glaxo India's millennium strategy, Khusrokhan says that the company is set to launch a series of new products. "Our focus is to build market share by building a few strong brands." And that is a welcome change as the one complaint about the company is that it sustains itself with products introduced decades back.
"We will be introducing seretide, salmeterio, fluticasone accuhaler, a major anti-asthmatic discovery of our parent company," he discloses. In addition, the company has applied for registration to market an anti-epilepsy drug, Lamotrigine, and an anesthetics drug, Remefintenil.
These will add to its other new products such as Stibs (anti-diarrhea), Equal (anti-diabetic), Capromin (cough & cold), Zondan (a product for addressing nausea and vomiting associated with chemotherapy), Oxistat (anti-fungal), Valicyclovir (anti-herpes), Hepitec (anti-Hepatitis), all launched in the recent past.
Recently, the National Pharmaceuticals Pricing Authority (NPPA) revised the prices of betamethasome, the bulk, upwards. While analysts says that the move would increase Glaxo India's revenues from the drug to the tune of 12 per cent, Khusrokhan prefers to downplay that.
"It is only the media which created the hype. Actually, it was a much-delayed decision which should have come in 1998 itself. Only if the prices of formulations are revised upwards would our profits go up by Rs 7.5 crore," he says.
What is encouraging, in spite of a not-so-encouraging performance, is the 22 per cent growth registered by the company's animal healthcare division. This includes sales of ICI's brands, acquired by Glaxo sometime back.
Khusrokhan is also satisfied with the performance of Equal, which is produced by Monsanto. "We have good presence in the anti-diabetic segment and have decided to sell Equal as a sugar substitute," he explains. According to him, the product contributes about Rs 5 crore to the turnover.
Glaxo India has also entered into a co-marketing agreement with Ranbaxy for cephalosporin and anti-infective cefalexin drugs. With this, the company has converted a competitor into a business partner and also erected a barrier against newer entrants.
With its operational costs climbing up, Khusrokhan says that Glaxo's cost reduction can take place only in two areas: labour and contract manufacturing. As regards the latter, barring injectibles produced in-house, Glaxo India currently outsources 35-45 per cent of its drugs. In the case of the former, everything hinges on the merger of Burroughs Wellcome, Biddle Sawyer group of companies and Smithkline Beecham. And that's where Khusrokhan clams up.
