Alok Saxena, Whole Time Director, Elder Pharmaceuticals Ltd

Alok Saxena, Whole Time Director, Elder Pharmaceuticals Ltd, has an MBA from National Institute of Management, holds a number of memberships of professional bodies from India and abroad such as the Institute of Management (U.K.), the Institute of Sales and Marketing Management (U.K.), the Singapore Institute of Management (Singapore) and the Institute of Directors (U.K.). He is the son of Jagdish Saxena, and has been associated with the company from its inception. He has wide and varied experience and exposure and looks after the international operations of our company.

Elder Pharmaceuticals Ltd. is an integrated pharmaceuticals industry player, ranked as the 29th (ORG-IMS) largest pharmaceuticals company commenced operations in 1988. It is rated as one of the faster growing company in terms of revenue, in the pharmaceutical industry in FY 2009 in India. The company has its presence highlighted across the domestic pharmaceutical chain from in-house manufacturing, In-licensing agreements and clinical Research & Development services to gradually developing Custom Research and Manufacturing Services for advance intermediates, Active Pharmaceutical Ingredients and Dosage Formulations. Elder Pharmaceuticals has geographically diversified manufacturing facilities in five locations: Patalganga (Maharashtra), Paonta Sahib (Himachal Pradesh), Selaqui (Uttaranchal), Nerul (Maharashtra) and in Nepal (in a tie-up with Universal Pharmaceuticals). Together, these help Elder cater to customers domestically and across the globe.

Replying to Anil Mascarenhas of IIFL, Alok Saxena, says "Elder Pharma is firmly entrenched in the domestic niche categories as well as gaining traction in the mass markets."

The financial crisis has taken a toll on most industries. How has the year been for your company?
The year 2009-10 saw India weather the effects of the global economic crisis. An industrial slowdown early in 2008, followed by the global financial crisis, contributed to the deceleration in annual GDP growth to 6.1% in 2009.

However, India escaped the brunt of the global financial crisis because of cautious banking policies and a relatively low dependence on exports for growth.

Domestic demand, driven by purchases of consumer durables and automobiles, has re-emerged as a key driver of the economy, as exports have fallen since the global crisis started. Against this backdrop, the domestic pharma market has grown at a 14% CAGR over the past 18 years. However, drug consumption per capita in India is still among the lowest globally. Moreover, large swathes of India consume far lower than the national average, indicating significant scope for catch-up. A state-wise breakdown suggests per capita consumption is linked to incomes, literacy rates and availability of medical infrastructure. Along with rising income levels, we expect the share of healthcare in consumption to rise, driving strong demand for pharmaceuticals.

We reported a growth of 13.5% in top-line with an impressive operating profit margin of around 18.42% in FY10. 

How has your business model evolved over the years?
Our business model has once again proved to be resilient to the macroeconomic volatility. This impressive financial and operating performance is on the back of a healthy domestic performance. Women’s Healthcare continued to remain our lead value creator and we are aligning our efforts to grow presence in the Nutraceuticals and Pain Management business spaces. We are also optimistic on the rest of the businesses including Lifestyle Disease Care and Anti-infective, which will continue to grow at brisk pace.

Further, we remain focussed on penetrating into the hinterlands of India through our rural marketing team ELVISTA which has been expanding its presence in the rural market as well as tier 2 and tier 3 cities. This division has garnered Rs360mn revenue in FY2010.

Mass Marketing Team ADVENTTUS is a multi-specialty division present in the Anti-Infectives, pain management and the Nutraceuticals segments. This team is targeting General Practitioners (GP) in Class 1 & 2 towns with economical products.

We are currently focussing on developing new and innovative products that would add to our existing niche product basket while investing in our existing capacities to successfully cater to the growing needs of the market. This along with shifting of our manufacturing activities to excise-free zones of Uttaranchal is allowing us benefits of saving on excise duty and tax. Overall, having assimilated a robust foundation and a reputation of excellence with respect to our in-licensing partners, we are ready to realize stronger performance across the value chain while creating an enhanced shareholder value.

Comment on your financial performance. What is your outlook for the coming years?
We have started the year on a positive note with all verticals delivering robust financial and operational performances. The Company’s consolidated Net revenues for Q1 FY2011 was higher by 19.3% at Rs. 1,943mn compared to Rs. 1,629mn in the corresponding quarter last year. Operating Profits were higher by 40% and stood at Rs. 377.70mn as compared to Rs. 269.7mn in Q1 FY2010. Operating Margins stood at 19.4% compared to 16.6% last year. PAT grew 45% to Rs166.8mn as compared to Rs114.80mn in Q1 FY2010.

Our own brands like Shelcal, Chymoral, Formic and Eldervit etc delivered robust growth and In-licensed brands like Somazina and Phytomega witnessed greater traction.

Elder’s insistence has been to create a product in a therapeutic category and try to establish brand leadership in that segment apart from developing its own portfolio. It has in-license agreements which are highest in the domestic market. These products are chosen based on research and are with the companies which have discovered original molecules. The Company stays away from patent infringement and has a reason for acquiring so many licenses from companies abroad.

Our endeavour has always been to be a leading innovator of pharmaceutical products while maintaining a high standard of quality controls and overall integrity of the brand. We have introduced several new products this quarter including Ecozyme, Nicotine Replacement Therapy, and Shelcal HD and at the same time added 300 people to total strength force. Going forward, the management will increasingly invest its effort into diversifying the Company geographically and is optimistic of delivering consistently robust performance and enhancing shareholder value."

Our revenue growth is mainly driven by strong performance in Women’s Healthcare business (16% YoY), Anti-Infectives (22% YoY), and Neutraceuticals (16% YoY) in Q1 FY2011.

Five of our brands feature in top 300 brands category of ORG-IMS (as on 30th June 2010).

Tell us about new deals for in-license and outsourcing in pipeline?
We are working on quite a few in-licensing deals and would announce them at the appropriate time. The therapeutic segments for which these deals would be done include Women’s Healthcare, Pain Management, Nutraceuticals and Lifestyle Disease Care portfolio.

How are the Women’s Healthcare, Pain Management and Neutraceuticals business divisions doing?
The main strength of Elder is in its Women’s Healthcare segment and its flagship brand Shelcal with its extensions take the complete needs of calcium as a supplement, as a preventive and as a treatment for calcium deficiencies which gives rise to osteoporosis. It has a basket of other products to look to look after complete Women’s Healthcare including infections and the needs after women reach menopause.

We are now enhancing its presence in the field of Pain Management where it has identified chronic diseases like arthritis, cartilage disease and has a specific arrangement with two foreign companies to market products.

The concept of Elder is to stay in the segment of chronic diseases which requires knowledge, understanding and the product has to be extensively explained to the medical profession for its application. Two drugs Sampure and Artodar are specific for this disease.

Apart from oral intake, it has also extended its portfolio by marketing Rubeficient where immobilized joints which normally require pain relievers, are applied extensively. The Company’s own brand ‘Chymoral’ continues to remain the key revenue driver with a robust 86% domestic market share in its category. Chymoral Plus, an extension of predecessor Chymoral, has been well received.

Nutraceuticals is another area where we are expanding our operations, need-based for cardiac, diabetic, patients suffering from kidney diseases and is specific for each disease segment. Phytomega which we have introduced in arrangement with Enzymotec, Israel reduces the dose of statins over a period of time and is extremely effective in bringing down triglycerides, the cause of various coronary blockages and has been clinically proved to be effective and can be deemed as an essential product with statin intake. Ecozyme is a recent introduction CoQ10 is a vital product for promoting cardiovascular health.  

What about the performance of the Anti-infective and Lifestyle Disease Care divisions?
We recorded an encouraging performance in the Anti-infectives division. The Cefixime brands have displayed robust performance. Anti-Infectives being a mass market category have its benefits of a ‘larger and hence attractive market size’ thus offering immense magnitude of opportunities by sheer virtue of size. Anti-infectives are targeted to a substantially larger chunk of population Mass markets house substantially greater ‘number of players’ which makes the scenario highly competitive With a view to addressing the price sensitivity of mass markets, our anti-infective products are competitively priced and positioned against our peers.

The Lifestyle Disease Care products apart from over promotion are basically support products which enhance the quality of life. Issues pertaining to Hypertension, Diabetes, and Cholesterol are steadily gaining status in the domestic scenario. ‘Carnisure’, a cardiovascular product is on a growth trajectory and would be a major brand in its category. The other key brands include Somazina (for brain stroke), Hibor (low molecular weight heparin) and the recently launched own brand Nicotine Replacement Therapy (NRT) is expected to augment the existing portfolio further.

How is Shelcal doing?
The Shelcal group has time and again proven its sustainability both in terms of growing market share as well as consistency in performance. The Shelcal group has garnered total revenues of Rs1.47bn (Retail and Institutional Sales) in FY2010 and is expected to maintain similar momentum in the coming quarters of the financial year.

Shelcal stands the largest-selling Calcium supplement in the domestic market as of today, commands a domestic market share of 34%. The source of calcium used in all products in the Shelcal portfolio is from ‘oyster shell’, which provides us calcium in its purest form. We have been consistently adding line extensions to Shelcal in order to expand its reach further. Shelcal CT (Calcitrol) and Shelcal OS (alpha Calcitrol) and the recently launched Shelcal HD (high dosage of Vitamin D3) commemorate the same.

What are some of the products in the pipeline?
Our plan is to launch around 14 to 16 products over the coming 14 to 18 months in all our existing areas of strength.

How is domestic pharma market doing?
The domestic formulations market has grown at a CAGR of ~13% over FY07-FY09, primarily driven by growth in chronic segments like cardiac, anti-diabetic, and Nero/CNS. The increasing penetration is also shoring up growth in acute segments. Similarly, anti-infective, the largest therapeutic segment, has grown steadily over this period. Going forward, these segments would continue to lead growth in the domestic formulations market that is expected to record 13-14% CAGR over the next five to six years. While volumes would continue to drive growth in existing products, introduction of new products across therapeutic segments and expansion into the tier-II and tier-III cities will push overall growth.

This apart, most companies have chalked out an aggressive rural plan – this, we believe, will be another growth driver for the domestic formulations market in the long term.

Elder Pharma is firmly entrenched in the domestic niche categories as well as gaining traction in the mass markets, viz Women’s Healthcare, Nutraceuticals, Pain Management, Lifestyle segments and Anti-Infectives which are proven catalysts for the Company enabling sustainable growth.

Emerging markets, including India, will grow at a fast pace. This will benefit Elder Pharma since it has been a domestic centric company right from inception which has witnessed the Company entrench its foothold deeper and gain robust momentum in the growing Indian pharma business.

• Increase in the existing field force to penetrate deeper into the domestic market.
• Rural Marketing Team ELVISTA gaining momentum in the Tier 2 and 3 cities and is targeting categories like anti-peptic ulcerates, anti-malaria, anti-infectives, NSAIDS, quinolones and cough medication.
• Mass Marketing Team ADVENTTUS is a multi-specialty division present in the Anti-Infectives, pain management and the Nutraceuticals segments. This team is targeting General Practitioners (GP) in Class 1 & 2 towns. Efforts are concentrated on launching economical products in these mass markets
• Focussed marketing approach adopted to tap underlying opportunities
• Commissioning of Langa road manufacturing unit to help cater to the demands of the domestic market and also to drastically reduce outsourced manufacturing of Cephalosporins.
• Ramping up of the state of the art R&D facility at Nerul in Navi Mumbai. This facility is presently concentrating on developing NDDS (New Drug Delivery Systems) for the existing products in order to augment the product benefits.
• Focussed promotional activity for products in the chronic segment throughout the year.
• Launching of new innovative products as well as developing line extensions of existing products to augment the product basket.

Comment on your growth plans for the international market?
We are exporting to the non-regulated and semi-regulated markets that offer immense opportunities. We have increased our controlling stake in Biomeda, Bulgaria from 51% to 61% during Q1 FY2011. Biomeda is equipped with a formulation plant for manufacturing tablets and a robust distribution network in Bulgaria. Commencement of commercial operations in Bulgaria has witnessed the Company’s revenues from International business stand at Rs77.2mn, an increase by 64% over the corresponding quarter last year.

We are in the process of upgrading the Biomeda facility for EU compliance. This alliance also offers Elder an opportunity to market Shelcal and Chymoral in Europe. Biomeda recorded sales of 3.35mn Euros in the financial year ended Dec 2009.

We holds a 21.1% stake (worth Rs500mn when it was bought) in the AIM listed Company NutraHealth PLC. Primary interest in NutraHealth was the common thread Nutraceuticals which Elder specializes in the Indian market.

The cost of production for NutraHealth is fairly steep as it outsources most of its manufacturing from a Company SwissCaps in Switzerland.

We may leverage buffer capacity if available at the Langa Road facility for Contract Manufacturing for NutraHealth in order to bring down their cost of production. NutraHealth PLC recorded sales of 3,46,02,000 GBP in the financial year ended Dec 2009.

What is the current status of the Langa Road facility? What is the plant’s current utilization level?
The Langa Road facility in the excise free zone of Uttaranchal was operational throughout Q1 FY2011. Facility for Oral liquids and syrup is running at 50% utilization and tablets at 25% utilization. With regards to injectibles, validation batch has been successfully completed.

We have made some provisions for Dry Powder injectibles in this facility. We have also started manufacturing Cephalosporin brands from this facility because we have some benefits as far as our material costs are concerned as it is in the excise free zones. That has translated into improved EBITDA in Q1 FY2011. 

What are the utilization levels of the other plants?
Selaqui: - The plant was erected for production of Oral Solid Dosage (Tablets). Shelcal production at 100% utilization levels, General Tablets at 75% utilization levels.

Paonta Sahib: - This plant specializes in Ointments and Tropical Creams/Lotions. Contract Manufacturing is being carried out for Dr. Reddy’s Laboratories, Ranbaxy and Kaya. Utilization level stands at 50%.

Patalganga: - For production of API Clarithromycin, Diosmin and Lamotregene. Utilization levels stand at an average of 50% depending on the intensity of orders as well as fluctuations in global API prices. Also, trial batches for New Product Introduction are conducted here.

Pawane: - Used for production of Amoxy. Utilization levels at 100% as Amoxy demand as well as pricing scenario fluctuate.

Nerul: - The tablets unit is 100% utilized.

What is the promoter holding at present? Any plans to increase or sell stake?
Promoter holding at present is at 40.51% as on 30 June, 2010.

What is your capex plan?
We have a regular capex of Rs300mn to Rs400mn planned for FY2011.

What is your outlook for the coming year?
As we look ahead at the new fiscal, we do it with a sense of confidence that things are going to be even better. With the continued support and co-operation of our employees and stakeholders, who have been the backbone of our success odyssey so far, we are going to move on to newer and higher levels of achievement in every aspect of our business arena. It is with optimism and pleasure that I look forward to this new phase in our journey.