The Hindu Business Line : Real growth will happen from 2007-08: Orchid

ORCHID Chemicals & Pharmaceuticals Ltd will see a "step function jump" in revenues this year, but due to a bunching of many favourable factors, the real growth will happen from 2007-08.

The company's Managing Director, Mr K. Raghavendra Rao, expects a 40 per cent growth in turnover this year, over last year's Rs 650 crore. But more significantly, revenues from the high-margin US market will account for a third of the turnover, as against less than a fifth last year. Mr Rao is confident that the company will demonstrate that its good show in the second quarter of the year was not an accident.

Mr K. Raghavendra Rao, Managing Director

However, the real growth story will begin from 2007-08. Not only the contribution from regulated markets will have grown further, but also two new business operations will kick-in — pencillin injectibles and 20-odd non-antibiotic formulations. These two will fetch in sales of Rs 270 crore and Rs 225 crore, respectively, taking the 2007-08 turnover across the Rs 1,800-crore mark.

Four-pronged strategy

When Orchid was set up (1992), it was designed to be a major player in the Cephalosporin range of antibiotics (chemicals that kill infection-causing micro organisms), but had two handicaps. First, it was only in bulk drugs, but the profits were in formulations. Second, it was almost entirely dependent upon China for sales.

Now, although Cephalosporin continues to be the thrust area, Orchid has morphed into a very different company that it was at its inception. It is today into formulations and sells more in "regulated markets", or developed countries, where margins are higher.

Three of its Cephalosporin-based formulations are selling in the US markets — Cefazolin, Cephalexin and Ceftriaxone. The latter two were launched in July and August, effect of which is reflected in the seven-fold increase in net profit for the second quarter of this year to Rs 27 crore. Two more are to be introduced shortly, once the approvals are got — Cefprozil, whose patent expires on December 23 and Cefoxitin, patent of which has expired. (All these are different molecular variants of the antibiotic meant for treating different kinds of infections.)

On the back of the "robust growth" of the Cephalosporins, will begin the second wave — the launch of pencillin injectibles, the Rs 45-crore manufacturing facility which was inaugurated by the President, Mr A.P.J. Abdul Kalam, last week. The patent for the products, Tazobactum and Piperacillin, will expire in February 2007.

Until then Orchid will produce these products to sell in regions where patents do not apply and open up the facility for inspection by the US and European authorities — a necessary prelude to selling there. All the Cephalosporins and pencillin injectibles will be marketed in the US by Apotex.

The third prong is another range of antibiotics, called the carbapenams. These fall under a category called `non-penicillin, non-cephalosporin' antibiotics. Orchid's plant at Alathur will produce the bulk drugs, but the formulations facility is under construction. A tie-up for marketing the product abroad — with Mayne Pharma of Australia — was firmed up earlier this year.

The carbopenams will again be patent-free in 2007-08. Mr Rao expects a Rs 360-crore business from these products.

The fourth prong is a 60-strong range of non-antibiotic formulations, a third of which will be introduced in 2007-08. Orchid has entered into pacts with three companies — Alpharma, Par and Stada — for selling these in the regulated markets.

Filing for approvals

In all, Orchid plans to have a range of 41 products in the regulated markets by 2007-08. These include the 21 antibiotics and the 20 non-antibiotic formulations.

At present, only three of them are in the market and that too only in the US. The company is in the process of filing for approvals from the UK authorities.

Once approved, the company's products can be sold anywhere in the European Union — `Mutual recognition agreements' among EU countries permit that.

Orchid sees no threat from authorised generics, companies that the drug innovator authorises to produce a copy after the patent expires.

The company manufactures a clutch of products, but the authorised generic would produce only one — that of the innovator.