Dinesh Dua, CEO of Nectar Lifesciences expects Rs 100 crore from the new formulation facility started in Baddi. He expects topline of Rs 1100  crore FY09 and sees margins at 13-14% this year. According to him, disruption in supply from China has helped pricing. Nectar Lifesciences is a major player in third and fourth generation cephalosporins, which have USD 1 billion plus market.

Excerpts from CNBC-TV's exclusive interview with Dinesh Dua:

Q: Can you give us an update on the entire business currently? We believe that 60% of your business comes from the Active Pharmaceutical Ingredient (API) space and Cephalosporins, which have been launched here in a big way are going to be launched in a regulated market in a coming few years. So what is the outlook then and what sort of launch trajectory are you looking at going forward?

A: We have been a very major player in the Cephalosporin space of 3rd and 4th generation, which are non-commoditized. If you see Cephalosporin; it is divided into five generations — 1st, 2nd, 3rd and 4th. We are primarily concentrating on 3rd and 4th generation, which is high-end, technically very superior products and we have taken global leadership in all the molecules in 3rd and 4th generation. In Cefixime, we are number one in the world with a very significant market share and we are continuing on that trajectory.

Then you have Axetil and Proxetil, which are other major molecules, most of these are blockbusters in the regulated markets upwards of USD 1 billion. So we have taken global position of 1, 2 and 3 in these molecules and that will continue to add to the growth in addition to the sterile molecules like Ceftriaxone, Cefotaxime and so on.

The most significant part of the growth story is yet to be unveiled from Nectar and that would be the formulation space. We have set up a very big large US-FDA approval, European approvable facility in Baddi and that is going to be contributing very significantly this year — to the tune of about Rs 100 crore this year, with a very significant contribution to the bottomline.

Q: APIs would be good space considering prices have been increased by anywhere between 20% and 100% over the last six months. We  have been facing a bit of import restrictions from China. So what sort of price increases have you seen on your front?

A: It’s a good question. Thanks to the Olympics which are currently in China; more than 2500 units have been closed there,  majority of which happens to be in the pharma and the API space. With that there has been a sharp surge in the prices of API; and cephalosporins is no exceptionl. At the cost of sounding repetitive, I would like to say that we are in high technology 3rd and 4th generation cephalosporins and China is not able to produce that kind of a quality, which we in India can and Nectar can.

The China factor in terms of debasement of prices is now a thing of the past because units have been closed. Now they will have to pay for ATP, they will have to pay for utilities which is power and steam (which constitutes about 40% of the total cost of APIs.) Secondly,  We all know about the revaluation of the Yuan or Renminbi to the dollar.

I think all these things have helped us to take the pricing significantly higher.  So the current year seems to be very promising in view of these factors.

Q: What would that mean in terms of margins in each one of your segments for FY09?

A: Typically, margins post taxes have been of the order of 11-12%. We expect this year to at least log in about 13-14% if not more.

Q: Have your USD 100 million found a suitable acquisition target in Europe or the US?

A: We are working in that space as it is difficult to find a standalone Cephalosporin formulation plant. So we are concentrating on certain other very high growth therapeutic areas like oncology, dermatology and ophthalmology. We could also look at very high growth area like cardiovascular and diabetology as India is the capital of diabetes in the world with 30 million reported cases. So these are areas we would concentrate on in case we don’t chance upon anything in cephalosporin and we could piggyback on these to get our cephalosporins into the regulated space of US, Europe and Japan going forward.

Q: Could you update us on the outlook of Phytochemicals space because I believe it accounts for a significant proportion of your revenues? And what kind of growth you would see coming in from the CRAMs segment? 

A: We have significantly scaled up the menthol business. We are the largest in the world in menthol, which is pharma centric for pharmaceutical applications. We have done Rs 365 crore last year. There is a significant shift that we are bringing about in our strategy for menthol. We are the only company in the world which has filed a US drug master file in July. Our approach to Phytochemicals or menthol is going to be purely pharma centric, which is not the case with anybody else. It is a very fragmented industry.

Q: Could you update us on the outlook of Phytochemicals space because I believe it accounts for a significant proportion of your revenues? And what kind of growth you would see coming in from the CRAMs segment? 

A: We have significantly scaled up the menthol business. We are the largest in the world in menthol, which is pharma centric for pharmaceutical applications. We have done Rs 365 crore last year. There is a significant shift that we are bringing about in our strategy for menthol. We are the only company in the world which has filed a US drug master file in July. Our approach to Phytochemicals or menthol is going to be purely pharma centric, which is not the case with anybody else. It is a very fragmented industry.