The Hindu Business Line : `Ind-Swift Labs on threshold of entering US, Europe'

IN the Indian pharmaceutical industry where companies have crossed the $1-billion revenue mark, the Chandigarh-based Ind-Swift Laboratories Ltd (ISLL) may seem a fledgling. But in time, it too aims to become a big player in the active pharmaceutical ingredient (API) business by expanding into the regulated markets of US and Europe.

The company's Joint Managing Director, Mr V.K. Mehta, elaborated on its growth plans that include partnering with leading global generic drug manufacturers and innovator companies for contract research and manufacturing services (CRAMS) and drug discovery. He also talked about the company's domestic prospects under its second entity, Ind-Swift Ltd.

Could you elaborate on your business model and existing product portfolio?

Ind-Swift Labs is present only in the API segment and not in the formulations business. Currently, we have a strong product range and an equally good product pipeline. We concentrate on molecules which are complex to manufacture and have a good market share. In fact, the company's eight APIs are among the top 20 blockbuster drugs, with a global market size of $25 billion. Globally, the company is the second-largest producer of four APIs, with a $15-billion market. These include two forms of Clarithromycin, used for respiratory tract infection, Atorvastatin (lipid-lowering drug) and Fexofenadine (anti-histamine).

What does your future product line look like?

The products driving our future growth include Ezetimibe (anti-hyperlipidemic), Rosuvastatin, Montelukast (anti-asthmatic) and Pioglitazone, an anti-diabetic drug. We expect to generate revenues of over Rs 40 crore from these products by 2007. We also have approval for Nitazoxanide, an anti-diarrhoeal drug, and will be the first company to launch it in India and the second globally. We have a co-marketing agreement with Lupin Ltd for this.

What is your strategy for the international market?

Currently, we are present in non-regulated and soft-regulated markets. We are on the threshold of entering regulated markets. In fact, a US subsidiary has been set up to capitalise on the $84-billion drugs going off-patent by 2008-10. Our strategy is clear. We will supply APIs to top generic/innovator companies with a non-competing commitment. We will not compete with our own formulations and restrict ourselves to being an API supplier.

We are already present in parts of Europe, the Middle East and are shortly entering the Japanese market. We have not been very aggressive in Latin America, but with the currency stabilising, we will renew our interest there.

ISLL is also looking at providing contract research and manufacturing services (CRAMS). We have tied up with two European companies for providing pharmaceutical services for drugs worth $7.5 billion. We expect revenues of $3 million-$3.5 million in the next three years.

Is ISLL going in for major capacity expansion?

We already have five plants that follow Good Manufacturing Practices (GMP) and are USFDA-compliant. We expect our first plant to get FDA approval early next year. In addition, three plants are under construction and these will be used to manufacture statins, anti-histamines and another high-value molecule. These three new plants are expected to be commissioned by mid-2005, with revenues coming in by 2005-06.

On account of increased market demand, we are expanding our capacity for statins by 500 per cent, anti-histamines by almost 300 per cent and anti-infectives by 80 per cent. By doing so we are able to service our existing markets.

How are the margins in the international market looking like?

The margins for APIs in the international market are much higher than in the domestic. During the last quarter our operating margins went up 50 per cent due to increased exports. Our exports have gone up by 80 per cent, which have translated to higher profits. In the future we feel that even if the margins come down slightly, our company will manage to grow more than the industry average growth rates. Every year, we are adding more clients and this keeps us on the upward curve.

What do you expect from the domestic market?

We are in a leadership position in four molecules and have been supplying to big companies such as Cipla, Ranbaxy, Lupin and others for several years. These are all leading companies that have a huge captive consumption. We do not foresee major problems in the post-2005 product patent regime.

Could you elaborate on your Research and Development (R&D) plans?

ISLL will be focusing on drug discovery and clinical studies. We are expanding our R&D base. Currently, 80 people are employed and we have already invested Rs 20 crore. We will invest another Rs 50 crore in three years, half of which will be next year itself when we plan to add 70 more people.

The company recently raised capital through a preferential issue. How are these funds going to be utilised?

Our preferential issue has attracted foreign investors and two FIIs, Swiss Finance Corporation (Mauritius) Ltd and Aeneas Portfolio Company LP, have proposed to subscribe to the shares. These funds have invested based on the revenue potential. We had decided to raise about Rs 50 crore through this issue. The capital will be used for expanding our manufacturing, R&D facilities and meeting our working capital requirements.

The promoters own two companies: Ind-Swift Ltd and ISLL. Is there any plan to merge the two?

The two companies cater to different markets. The former focuses on the domestic business, while the latter on the international business. ISLL was promoted in 1995 in partnership with the Punjab State Industrial Development Corporation. In 2003, according to the MoU, the Punjab government exited the business and the promoters bought back the 26 per cent held by it.

Under the current scenario, we feel that a merger of these two companies is not beneficial even though the management is the same. We do not see any such possibility in the next three years. The board may revisit this after three years.

Would you consider overseas listing for ISLL?

The interest among foreign funds to pick up stake in the company is growing. We may consider an overseas listing at a later stage.

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