The Hindu Business Line : `We are planning to unveil 25 new products in next 2 years'

STARTED three decades ago on a modest scale by Mr G.C. Surana, Micro Labs Ltd has today grown into a Rs 477-crore enterprise counted among the top 20 fastest growing domestic pharma companies. Now at the head of pharma companies in Karnataka, Micro wields a broad spectrum of products in almost all therapeutic lines from psychiatry, cardiovascular and anti-diabetic drugs to anti-infectives and nutritional supplements, among them well-known brands such as Anxit and Dolo. In an interview to Business Line, the Micro Labs Managing Director, Mr Dilip Surana, maps out his company's ambitious growth path that includes an IPO in a year. Excerpts:

Of late, there have been a lot of activities at Micro Labs - consolidation of four of your group companies, new investments and plans to go after the developed markets. Could you elaborate?

Our major focus has been on domestic marketing, which we have continued to strengthen. Micro also has operations in the CIS, South East Asia and Africa. Soon we will be getting into the regulated markets. This year, we should be entering the UK and Germany. In the last year and a half, we made a total investment of Rs 100 crore and set up four new plants. Last year, we bought over Eros Pharma (Bangalore-based dental range player; for Rs 18 crore), added new products and made its operations all-India.

We have added a new neurology division Syncro to the existing psychiatry division Synapse. (After the restructuring and consolidation in April) We now have 10 divisions - two in cardiology, two in psychiatry, besides the flagship Micro Labs; Micro Nova for women and child health; Micro Vision for ophthalmology and dermatology and a total managerial and field staff strength of 2,350.

There is also a Diabetology Task Force created for select products in our main division Micro Labs, to increase the focus on diabetes.

How do you plan to go about your foray into the regulated markets?

Well, the regulated markets are huge. Their value runs into a few billions of dollars. The new plant for tablets and capsules at Hosur (near Bangalore) is targeted at Europe. It has undergone audit for the UK MCA approval - which should be coming any time now. It is also due to get the South African Ministry of Health approval. We are in talks with companies in Germany too. The new plant at Veerasandra is dedicated for amoxicillin and will have an UK audit in September. We have invested Rs 22 crore at Hosur and Rs 15 crore in the Veerasandra plant.

The third plant at Bommasandra will make cephalosporin in all forms. We already have a good domestic sale of cephalosporin and the Rs 29-crore investment is for the regulated markets. The cephalosporin plant can be eventually US FDA-compliant.

The newest plant was started in Goa in April for tablets and capsules. We have invested Rs 25 crore in this and are readying it for the USFDA. Where is this all leading?

The plan is to come out with 25 new products from various divisions in the next two years. We expect to touch a turnover of Rs 1,000 crore by 2009 on the domestic side. This is currently Rs 375 crore.

On the exports side, the business of Rs 120 crore has been mainly from non-regulatory markets such as Africa, CIS and South-East Asia. We plan to take it to at least Rs 500-600 crore by 2008-09. That should take our total revenue to around Rs 1,600 crore.

This year, apart from the UK and Germany, we intend to go aggressively after Brazil and Mexico.

Micro has now climbed up to No. 13 (ORG-IMS) among domestic pharma companies and has an annual growth rate of 26 per cent or three times the industry growth rate.

What about your proposed IPO?

Yes, we are looking at getting listed in about a year's time, sometime during 2005-06.

Does it all entail a change in your market strategies?

Our focus in select countries has shifted from absolute generics to branded generics. We have started a brand establishment exercise for branded generics in Singapore, Malaysia, Thailand, Vietnam, Myanmar, CIS and African countries - something similar to what we have here and in Sri Lanka. After all, you get 30-40 per cent higher in terms of profitability.

We had a plant in South Africa as a 50:50 venture (Micro Healthcare) with a local partner. Micro and (associate Bangalore company) Bal Pharma have bought out the partner's share fully and we are now submitting dossiers for many new molecules for that market. The company already had some 70 dossiers and was doing business of Rs 30 crore there. Once our registrations there are through - which takes two years there - the business potential should be really good. We have filed four product registrations and intend to take it to 20 totally.

Acquisitions seem to be the order of the day for Indian pharma companies. Since you bought Eros, what are your moves in that direction?

Yes, acquisitions would be a good bet, we are open to that. We are trying to identify suitable candidate companies in the UK and Germany. We are initially looking at (acquiring) any medium-sized company in tablets and capsules for $ 10-20 million in any of these countries. Actually this kind of a thing would take at least a year.

On the bulk drugs side, we are right now not in it, but we have identified two companies in Hyderabad.

Pharma companies cannot do any more without some R&D of their own. What would your strategy be?

Our R&D focus will be on formulations and not bulk drugs. We have now started working on various products for European approvals for which patents will be expiring in 2005, '06 and '07. This is what I feel we have missed out on a little bit: three years' headstart on plant and R&D.

For the domestic market, joint ventures, collaborations and licensing in of molecules will form our strategy to ensure steady flow of new products post-2005.

There are a lot of mid-sized companies in Spain, Germany, France, even conservative Japan, which do not operate here but have some niche molecules like dermatology, gynaecology and various segments. We intend to tie up with at least 4-5 companies and bring in their molecules here. This way you could take up a molecule that is not yet in India and develop it into a Rs 4-5-crore product initially. Right now we are working on 22 such products. The first of them was Eurodrug of Holland (for Spasmopriv and Metodoxil.)

What would you say about the post-2005 pharma scenario, the challenges and prospects for Indian companies?

The post-2005 scene when product patents would rule should bring in opportunities to look at the bigger picture of global markets, tie-ups, investments in R&D and honing of marketing skills. The challenges would obviously be in terms of managing growth despite restrictions in new product introductions.

Actually, I don't see any major change until 2008-09. Later the treatment cost would be very high. The cost of biotechnology products (that are in the pipeline today) also will be high.

Most of the blockbusters (of MNCs) have already been launched in India. The developments that are on top of them are not significant and without much advantage. Now if you compare the products launched by Indian companies with (similar products in) any other country, the cost of Indian products is at least 6-10 times cheaper. Unless something significantly better comes up and at an affordable cost the market will be restricted to a select population. 95 per cent of the market would still continue with those products that are already there, at least for 4-5 years.

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