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The Company grew revenues 33% and profit after tax 54% compounded in the five years ended 2017-18.
During the financial year under review, the Company reported profitable growth for the 15 year running: while revenues grew 85 times, profit after tax strengthened 645 times in the last 15 years.
What gives me pleasure is that our EBIDTA margin strengthened every single year in the last seven years - from 18% in 2012-13 to 38% in 2017-18. The same holds true for Return on Capital Employed, which stood at 64% during the year under review.
It would be simplistic to believe that this improvement in revenues, surpluses and margins were achieved on account of a linear growth in the market corresponded by a higher production at Caplin Point. The growth was essentially the result of our holistic value-creation focus: that whatever we did needed to benefit customers, community and company. We believe that this collaborative model translated into profitable and sustainable growth for the Company.
The fact that Caplin Point was guided more by courage than commerce was reflected in its decision to enter Africa and thereafter Latin America. These markets were extensively under-penetrated from a formulations perspective; the general assumption was that these markets were at a primary stage of growth marked by low volumes, were slow in receptivity to therapeutic development and that it would take intending participants years to recover their investments.
At Caplin Point, we took a differentiated perspective. We decided to deliver life essentials first, hence believed that commerce was secondary; if the markets needed therapeutic intervention, we would provide relevant products; if the markets required affordable low-priced products, we would focus on providing just what consumers needed and focus thereafter in widening our presence.
There was something else that we did in these markets that was completely contrarian. The Balance Sheet demanded that we address the apex of the pyramid within these relatively smaller markets as that appeared to be the only business strategy that would have helped us recoup our business building costs. Here, the social conscience of the Company was visibly demonstrated. The Company selected to address the broad sweep of the population in these markets, marked by a relatively low purchasing power. We did so because we believed that it was in the bottom of the economic pyramid in those countries where our presence would be most effectively addressed.
Caplin Point’s conviction that ‘empathy for the poor’ is the best business strategy to follow was validated in the next few years. Caplin Point emerged as a first-moving Indian pharmaceutical company in South and Central America. Even as the Indian pharmaceutical sector generated less than 5% of its revenues from South and Central America, Caplin Point generated 82% of its revenues from this geography. We not only entered a market where price-based competition was low; we widened our moat within this market to grow attractively and emerge as a leading player.
This extensive and intensive presence strengthened our cash flows. We generated RS. 163.63 crore in cash profit from this supposedly challenging market during the year under review.
The cash flows generated from this market - once dismissed as unattractive - made it possible for Caplin Point to explore the other end of the strategic spectrum. The Company had grown its presence, competitiveness and cash resources in relatively low income and low regulated markets. Caplin Point is currently selling its generic and branded generic products through channel partners in most countries in Latin America. Caplin Point’s strategy is to establish better control over the supply chain and increase the share of branded generics in revenues and reach the consumer directly. Instead of reinvesting exclusively within those and contiguous markets, Caplin Point is investing in the form of equity and debt in a step-down subsidiary in El Salvador upto a limit of USD 7 million through its wholly-owned subsidiary - Caplin Point Far East Limited with the objective to acquire the inventory and licenses from its current channel partners. The Company selected to invest in a state-of-the-art USFDA-approved plant to provide a product range presently in shortage (injectables) to address the growing needs of the largest pharmaceutical market in the world. This complement - stitching together our presence in relatively under-developed markets and investing in a business that will progressively address the most developed market - is a unique coming together of how our synergic business model addresses the collective interests of customer, community and company.
At Caplin Point, we believe that China represents an attractive pharmaceutical formulations opportunity for a number of reasons: the country is the most populous, making it the largest in the world by consumer size from day one. Besides, this market is relatively young when compared with European standards. China is strong in the manufacture of APIs without corresponding competencies in the area of formulations, an opportunity we intend to address. China is graduating to a scenario where it is encouraging the manufacture of value-added formulations driven by high process compliances. These realities indicate not only a growing progression towards superior lifestyles, an increase in lifestyle-induced ailments as well as a growing propensity to spend higher in medical interventions; they also indicate a national movement from a low cost cum low compliance environment to value-added productisation.
Caplin Point will address niche and growing spaces within China. It will consciously address the growing opportunities coming out of the cancer, stroke and diabetes segments, which are growing faster than the rest of the market. Besides, the Company intends to address this larger institutional market where the ability to get bidding capabilities right could translate into attractive growth in compressed time.
A Chinese movie named “Dying to Survive” is a true life story of a cancer patient, depicting a socially relevant, conscience-stirring theme - Big Pharma vs Small Citizens. It elicited an unusually strong response as few screenings ended to standing ovation, with the message spreading widely by word -of- mouth. This is food for thought for companies entering China catering to the bottom of the pyramid, which has been Caplin Point’s strategy in Latin America and can now be repeated in China.
In line with this, Caplin Point signed a co-operation agreement with Jointown Pharmaceuticals Group, a US$11 billion publicly-traded distribution company in China. Jointown was started by a village doctor who also addressed the bottom of the pyramid, with medicines supplied to far-flung mountainous villages on horseback. Jointown is today the fourth largest Pharmaceutical distribution company in China catering to over 90% of the hospitals and drugstores through strategic partnerships with over 2000 local pharmaceutical companies.
Caplin Point has had a differentiated presence in China since 2006 - when most companies were sourcing APIs from China, the Company sourced formulations, specifically Cephalosporin and Penicillins, through exclusive partnerships with large local manufacturers. By the virtue of engaging with Jointown, Caplin Point will capitalise on extensive insight into opportunities in China. The JV will focus on trading and manufacturing various Pharmaceutical products between China, India and South America, for sustainable growth in the short, medium and long-term.
Caplin Point will hold 39% stake in the JV which will comprise an initial Equity of USD2 Million. The entire business arising out of this entity will be routed through Caplin Point and/or its subsidiary.
Given this reality, the big question would be related to the suitability of our credentials in addressing this large market. One, we built our South American business model around quality formulation supplies sourced from the largest formulations manufacturing company in China. Two, by virtue of engaging with this company, we possess an extensive insight into opportunities. Three, exporting products to China from our USFDA-approved facility in Chennai can accelerate approvals, shrinking our time-to-market.
At Caplin Point, we believe that as countries become increasingly stringent in enforcing higher standards related to therapies, there will be a growing priority in insisting on bioequivalence studies for formulation providers.
Over the years, the Company invested its resources in the CP4 unit dedicated to the manufacture of injectables for the regulated US market. The Company invested ~RS. 350 crore in opex and capex through accruals to enter the US market, which could strengthen the Company’s sectoral respect and Competitiveness.
The Company believes that its positioning in the injectables segment is prudent; the price erosion in the US is less pronounced in this segment on account of a continuing shortage and there is indication of price stabilization in Oral Solid Dosages. Besides, the consolidation of GPOs and other purchasing organizations presents opportunities to work directly with US distribution companies, ensuring that margins and longer contracts remain intact.
At Caplin Point, we believe that the future belongs to companies that possess superior market data leading to informed decisionmaking. This access is likely to enhance their responsiveness to dynamic market realities, strengthening their overall business.
Over the years, the Company deepened its At Caplin Point, we are taking the proactive initiative in extending our business to clinical research. The Company will commence biostudies for Chile, Costa Rica and Colombia, demonstrating the integrity of our Caplin Point is addressing the US opportunity with an attractive pipeline of proprietary ANDAs while attracting CMO opportunities from MNCs. The Company filed two ANDAs in its own name and Target Action Dates were received. The Company intends to file seven more ANDAs in 2018-19 and an estimated pipeline of 10 to 12 ANDAs for 2019-20, comprising a mix of simple and complex injectables and ophthalmics.
In line with this research-led growth, the Company invested in corresponding capacity expansion. The Company expects to enhance production capacity to 48 million vials and 12 million ophthalmic units (Phase 1) by June 2019 from the present capacity of 18 million vials and 9 million ophthalmic units. The Company intends to commission work presence across South America. This footprint enhanced the Company’s interface with a variety of consumers buying a range of products. A number of transactions across retail stores were manual in nature. Over the years, the Company recognised the potential of transforming the sales record across these medical stores from the manual to products in matching the innovator’s product. Besides, we believe that the space is not crowded and opens up institutional business opportunities in larger geographies that are more voluminous than the private segment.
on Phase 2, involving significantly higher Lyophilization capacity and differentiated fills comprising premix bags and pre-filled syringes by 2020-21.
To sustain the pipeline of new product introduction, the Company completed its R&D expansion in a new space that was treble the erstwhile size coupled with a 30% increase in R&D manpower team to 180 professionals. These professionals directed their knowledge at new product developments for US and China, the two largest markets, both holding out attractive prospective opportunities.
The Company continues to seek strategic investors for this space to achieve its desired goal.
The automated; it also recognised the latent power of drawing on the automated data to analyse the nature, speed and location of offtake.
The provision of this service free to an addressable 6000 pharmacies across Central America would help strengthen their accounting, MIS and business understanding over a period of time and make it possible for Caplin Point to mine aggregate data to enhance its understanding of prescription trends, lifestyle disease trends in vulnerable geographies, inspiring proactive marketing.
We believe that this data analytics engagement is integral to our next round of business growth: deepening a customer relationship, strengthening market understanding, superior trend analysis, effective merchandising advice and superior product indenting leading to effective sales
At Caplin Point, we have been growing our presence in Latin America in a cautious and contiguous manner. This approach has helped us protect our risks during expansion mode and enhanced our logistical economies through available supply lines ready to replenish ongoing sales with product
At Caplin Point, we believe we are in business not just to profit from societies but to enrich them as well. In line with this commitment, the Company, through its technology partners, embarked on the creation of 10x Academy, which is positioned as an institution of higher learning (Diploma) in Basic Pharmacy and customer service in Gautemala. This initiative, directed at creating a new generation of pharmaceutical marketing professionals, will focus on four competencies:
Pharma Product Basics: To empower medical representatives with knowledge on what they sell fulfillment. This deeper engagement is expected to evolve Caplin Point from mere product marketing to enhancing systemic value.
Caplin Point also believes that just as pharmacies need to be automated and connected, the same reality applies to medical practitioners. We believe that doctors need to digitize their health records, making it possible to access patient records with the click of a button, resulting in efficient working and informed treatment approaches.
At our company, we believe that the portal’s sourcing.
During the last decade, the Company increased its Latin American footprint from two countries to 10 countries. The proportion of revenues derived from the complement of these countries has also increased.
Pharmacy Administration: To educate in pharmacy administration, sales, inventory and reporting
Customer Service: To strengthen customer relationship management Technology: To train individuals in computer fundamentals, MS Word, MS Excel, Windows Operating System and internet competence The Company is engaged with the following alliance partners: Galileo University, Farmacenter and 10x Farmacia. It will train through a multi-modal format: through computers and mobile phones through the employment of audio / visual methodologies, utility will be derived through its interactive engagement: not only mine data but also place orders through the portal and provide trade incentives, enhancing trade stickiness - an effective hedge in a space where we wish to widen our retail presence and deepen stocking.
The result is that we expect to leverage cutting-edge technologies, address systemic inefficiencies, enhance product availability, accessibility and affordability and, in doing so, strengthen our competitiveness.
At Caplin Point, we believe that growth would be derived through a progressively deeper vertical mining of these markets that makes it possible to reach the last mile. The other strategy will lie in a horizontal extension into the larger and more mature markets of Latin America, facilitate self-paced learning and make it possible to practice and submit tests online.
A small proportion of the fees will be sponsored by Caplin Point as scholarship, based on the individual’s eligibility. The Company will provide a national database of resources, supporting resource placements. The course will be designed to address freshers and experienced individuals.
Across the long-term, the engagement will encourage a larger and informed use of Caplin Point products besides attracting talent for marketing products in those territories.
At Caplin Point, we are focused on creating multiple business engines that broadbase our business model and reinforce our business sustainability. By making low-cost investments with enduring revenue potential, we have, created a platform for the second phase of our growth.
We believe that the result of this proactive investment will be a larger, progressively de-risked and more profitable company, enhancing value for all those who are associated with it.
C. C. Paarthipan,