The Hindu Business Line : Focus on basics pays for Orchid Chem

Chennai, Nov. 27 Orchid Chemicals and Pharmaceuticals has followed a model of putting all the basics in place, even at the cost of taking time to do so, and then shooting products into the market as and when the patents expire.

This model, according to Orchid’s Managing Director, Mr K. Raghavendra Rao, is now paying off — the company expects to add $100 million (Rs 400 crore) to its topline each year for the next four years.

Current year’s turnover is expected to cross $300 million (Rs 1,200 crore, against Rs 934 crore last year).

‘Harvest time’

“It is harvest time for us,” he told Business Line. For much part of the last decade, Orchid Chemicals spent time and money on building manufacturing facilities and getting them approved (mainly) by the US FDA, got products approved by the US administrator and put marketing tie-ups in place.

This done, the company only had to wait for products to go off-patent to put them into the market. Thus, year after year, two or three drugs of the cephalosporin family of antibiotics would go off-patent and Orchid would be ready to move in.

“Having invested in the facilities and getting all the approvals ahead of patent expiry, we have the ability to time our launches right,” says Mr Rao.

This has helped Orchid to secure a near-monopoly in the high-margin US market in several of the products, such as Cefazolin, Cefoxitin and Cefepime. Over time, as other players move in, Orchid’s market share would come down. But by then the company would have a couple of more new products in the market and would have moved into newer markets — mainly Europe and Japan.

Mr Rao notes that Orchid has invested in four “buckets” of products — cephalosporins, penicillins, carbopenams and non antibiotic. The company has so far milked only the cephalosporins, and that too, not fully. The introduction of the penicillin product —Tazobactum Pipercallin — will happen next year. (It was to have been launched this year, but has suffered a delay, because the innovator of the drug, Wyeth, has sought extension of the patent. Mr Rao feels Wyeth is attempting to ‘evergreen’ the patent. Orchid is contesting Wyeth’s claim for patent extension.)

After 2009-10 a range of carbopenams will go off-patent and Orchid would be ready to move in.

Re impact

Mr Rao said that the appreciation of the rupee has not impacted the company as yet, because company has foreign currency debt. This, however, comprises convertible bonds and as and when they become equity shares, Orchid’s stock of foreign currency debt will go down. Any rise in the rupee will hurt then.

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