Unichem Laboratories Ltd (Unichem), one of the major pharmaceutical companies in the domestic market, has undergone major restructuring in the last 3-4 years. The company has major presence in anti-infectives, G I tract, cardiovasular (CVS), central nervous system (CNS), sedative and enzymes. The company has created strong brands over the years and is expanding the therapeutic segment to women healthcare through separate marketing division Foreva. In an interview with Atul Rastogi and Mukesh Singh of India Infoline, Dr Prakash Amrut Mody, Chairman and Managing Director, discussed in detail the future strategy of the company.
Unichem Laboratories Ltd (Unichem)
Can you brief us on the journey of Unichem in the last four decades, its major achievements and the driving force for the success of the company over the years? Specially, would you throw some light on the major restructuring process through which Unichem has undergone in the past 4-5 years ?
Unichem is in the pharmaceutical business of caring and curing for more than 50 years. We started this journey in 1944 as a sole proprietory y firm and became a public limited company in 1962 with the sole objective to provide economical therapy to the larger Indian mass. Just to remind you that Indian Pharmaceutical sector was under product patent till 1970 and the prices were relatively high. Over the years, sales grew steadily but the cost of production grew faster mainly due to a high cost manufacturing facility in Mumbai and the prices being controlled through DPCO. In early 80?s one of major product in women healthcare was banned and our therapeutic coverage was merely 35%.
Till 1985 Unichem had no presence in the largest therapeutic segment of anti-infectives. In 1985, We decided to enter the anti-infective segment and today Ampoxin is the biggest brand in our portfolio.
The last four to five years have been most eventful in the history of Unichem, in which we decided to make sweeping changes be it manufacturing facilities, workforce profile, product portfolio, research & development. In early 90?s we faced some problems, which needed permanent solution rather than adhoc arrangements. We had high cost manufacturing facility in Mumbai, field forces with average age exceeding 45 years. The cost of closing down the unit and offering VRS to all the employees was around Rs250mn but there was no way out.
We closed down the unit at Mumbai and paid VRS to all the employees and went on establishing three state of art manufacturing facilities in the last 3 years at Goa, Baddi and Roha. We have changed the average age of field force from 45 years to 30 years making the whole environment more vibrant and competing. There is complete change of face. You can imagine from the fact that before restructuring we were 1500 employees with 1000 working in the three plants and over 300 field force and today we are 1250 employees with more than 700 working in the field and only around 500 working in the four plants.
Unichem is entirely run by professionals, at least from the day I became Chief Executive Officer of the company. My job is to develop strategy for the future in consultation with the top professionals. Mr B K Sharma is the Chief Operating Officer whose job is to implement the strategy. Under him, we have three divisions- Pharmaceutical, Bulk drugs and International, which are again run by professionals. I am the only family member on the Board of Directors. Directly reporting to me are Research & Development, Quality Assurance and Management Audit functions. Besides, I take keen interest in deciding the selection of new products to be launched in the future.
Unichem has major presence in anti-infectives including anti-bacterials, cardiovasculars, psychiatry, G I tract, pain management, enzymes and gynecology. We have three marketing division ? main division comprising of 400 MRs cover anti-infectives, G I tract, pain management and rejuvenators. The second one is the specialty division with over 200MRs catering to specialty segment of cardiovascular and central nervous system (psychiatry). The third one is Foreva, which is totally dedicated to women's healthcare segment. This division has been recently launched with initial strength of 130MRs. At present we cover more than 150,000 doctors out of total population of 400,000 doctors.
Could you tell us Unichem?s vision for the next five years ? How do you plan to achieve the goal ? What is the future strategy of Unichem for the domestic market in terms of therapeutic expansion and market reach ?
Our vision for next five-year is to become a dominant player in the domestic market while maintaining highest quality standards and highest human values. The strategy is to improve the ranking in the prescription sales and we firmly believe that pull strategy is a better option in the marketing warfare in the longer run. Over the years Unichem has build strong brands through quality products and we intend to leverage upon our relationship with doctors by expanding our product portfolio. The products launched in the last 3 three years currently contribute around 16% of the turnover.
We are also entering into the generic domestic market and are also conducting test marketing in the rural areas. Again Foreva division (women's healthcare) has a great future which is expected to start giving handsome returns from 2001. Female healthcare is one of the most untouched markets in our country. We have everything for childcare but not for mother care.. We plan to cover each gynecologist/ specialist through the Foreva division with a basket of products, which gives complete solution for female healthcare.
In the next 2 years, we plan to expand the doctor coverage from current 150,000 to 200,000 doctors and expand the therapeutic reach to 60% of the market. Besides there are many therapeutic segments where we plan enter in the next five years but we do not have concrete plans at present. These segments are asthma, anti-viral (anti-AIDs) and vaccines.
What is the expansion plan in the next 3 to 5 years ? If yes, how do you plan to fund the expansion plan ?
We do not have any major capital expenditure plan in the near future. We have already set up state of the art manufacturing facilities at Baddi, Roha and Goa. Our fourth plant at Ghaziabad is undergoing modernization and is expected to be complete by the end of the next year. We have enough capacity to meet the increasing demands for the next 3-4 years. Moreover, we can expand our capacity at our multi-purpose facility at Roha. For the next 3-4 years we will be investing only in R&D and strengthening the marketing network.
Will the company look for brand acquisition (recently two brands were acquired in female healthcare from M M Labs by Unichem) as expansion strategy besides organic growth ?
Well brand acquisition is certainly a good expansion strategy but it must have some economic justification. Just for the sake of increasing the turnover, we won?t go for brand acquisition. First of all the product must fit to our portfolio requirement, secondly the product should have the capability to grow much faster than its present growth rate. In crude terms, the acquired product must grow by at least 30% p.a. for the next three years. Then only we can add some value to our shareholders otherwise it will become a liability on portfolio.
Can you elaborate on the presence of Unichem in the international market at present ? What is the company?s export strategy to tap the huge generic market opening up in the next 10 years ?
At present we have presence in Russia, Africa and neighboring countries. We have ambitious plans to tap the international market in a big way in the next 2 to 3 years. The roadmap is already drawn and substantial work is already done in this area.
First of all, we expect to get UK MCA approval for our Goa plant in next 3 months. Almost 90% of the job is done, the inspectors are visiting the plant in this week itself. The Goa plant is a state of the art plant and meets all International standards compliance. At the same time we have also applied for drug master file, product dossier and related formalities. We expect all this activity to take another 9 months, which will give access to the high margin market of UK and Europe. In the mean time we are in talks with major generic players in Europe and UK both for contract manufacturing of bulk drugs/intermediates and profit sharing alliance in case of certain formulations.
Secondly, we plan to register our drug master file and product dossier in 15 to 20 countries by the end of next year. The targeted export markets are Africa, South East Asia, Middle East and South America besides existing markets.
For the US market, we have no plans for entering the formulations segment. We will be concentrating on bulk and intermediates. But that also could take some time. We feel the competition is fiercer in the US market than in India. The larger generic companies are unlikely to let smaller companies survive and flourish.
What is the R&D structure/ capability of the company at present both in terms of manpower and skills ? What is the focus area of R&D ? What is the strategy in terms of process development, novel drug delivery system (NDDS), chiral synthesis, recombinant technology or new drug discovery ?
Unichem was one of the first amongst domestic companies to set up R&D facilities way back in 1967. But we had to close down temporarily while undergoing major restructuring in the last 3-4 years. At present our R&D team comprises of 15 people mainly doing chemical research & development. As I have said earlier, the major part of our expenditure in the coming 3-4 years will go to research and development. We are setting up a new R&D center at our corporate office Jogeshwari (northern suburbs of Mumbai) at a capital expenditure of Rs100mn and is expected to be completed by September 2000. This center will have a facility of 75 scientists to work.
In the medium term, our focus areas will be chemical R&D and biotechnology. A lot of work is already done in this area but the major thrust will start with the commissioning of the new R&D center. The objective is very clear ? we intend to tap the huge generics market coming up in the next 5-10 years to the best of our capability. So the R&D efforts will be focussed on developing patent non-infringing products in next 3 to 4 years. Once we attain a comfortable level in terms of process synthesis, we plan to set up biotechnology lab with long term objective say 10 to 15 years. Our R&D expenditure as percentage of turnover will increase from current 1% to 3-4% in next 5 years.
As a domestic pharmaceutical company what are your views on the price control regime ? Should the government continue with DPCO in the larger interest of the poor mass or should it be discontinued in order to boost the profitability of the industry which in turn will encourage the domestic players to invest more in R&D activities ?
The price control regime has reduced the pharmaceutical industry as cost plus industry. Here we are cutting ourselves and the whole system has become degenerative in nature. We have a low margin situation here and we feel proud in reducing the manufacturing cost. Globally, the pharmaceutical sector is recognized as knowledge based industry and the raw material cost of any innovative product is around 5-10% of the consumer price. This high margin further induces to invest more in R&D. The R&D expenditure of Glaxo Wellcome is more than the size of the Indian pharmaceutical industry. I do not feel that any substantial changes are likely to happen in this regarding the near future.
Do you want to convey some message to the investors ? What are the company?s parameters to measure the shareholders? value ?
Definitely, Unichem owes a lot to the investors who have entrusted faith in the company over the years. I would like to say that the consolidation phase is over and we are all set to enter into the growth phase. Unichem has undergone major transformation in the past 3-4 years and we have emerged as a knowledge based adaptive organization ready to face turbulent times ahead. I reaffirm that all our actions will be identified with the corporate ethics of high quality and highest human values. We will keep on coming with products relevant to the market and adding value to the shareholders. We have made our house 2005 compliant.