Will make $10-20 mn annually on Brazil drug nod: Nectar

A: Our Company has just received the official confirmation of the approval by ANVISA from Brazil for selling our active pharmaceutical ingredients (APIs) in Brazilian market which is very significant and substantial.

Sumaira: The nod is for cephalosporin. It’s a USD 300 million market size in Brazil and given the fact that you have the largest capability for this drug, how much of that pie would you be targeting?

A: It is a conceded process. We just got the approval for the API. We earlier had the approval for the formulations. So it has now become a complete composite approval. This opens up the market significantly for us for two verticals - (1) contract manufacturing, which his a long hanging fruit, which means that the companies which are already making cephalosporin in Brazil can now take advantage of our cost effective manufacturing in the next quarter or two and get their products site transferred to both our API and formulation facility (2) an advantage we get is that wherever contract manufacturing, custom manufacturing is not possible, we can sell our APIs to the manufacturers in Brazil. It is very difficult to say initially in first two years as to how much opportunity would be possible for us to capitalise, but I can tell you that what we expect minimum is close to about USD 10-20 million in the next two years, which is the most pessimistic estimate and if all goes well, if things open up the way we have planned then it could multiple by another 2 or 3x as well.

Reema: USD 10-20 million per year for the next two years?

A: Yes.

Reema: What would be the margins that you would enjoy in supplying APIs for cephalosporin?

A: There is nothing fixed about it but I can tell you by sheer experience that if you are earning an EBITDA level of close to 18-20 percent in India and elsewhere then that’s the minimum that we expect in Brazil as well. It could easily be little more and above what we currently doing.

Reema: So most likely you will enjoy margins in excess of 20 percent?

A: Absolutely. Close to or in excess.

Sumaira: You have 11 manufacturing units in total in India. Are there any other units for which you are seeking these regulatory approvals whether in Brazil or elsewhere?

A: There are seven manufacturing units or plant for pharmaceuticals. The rest of these are either for phytochemicals or capsules and one or two here and there for diagnostics. So for these seven plants, we already have practically all the regulated markets approvals which includes US Food and Drug Administration (USFDA) for API and Korea, Japan. European approvals twice over and besides lot of other countries like south Africa, Japan, which is one of the most difficult, has already been done twice over as far as our API facility is concerned and the formulations. We have been successfully inspected by US FDA and we are expecting the approval to come any moment besides all other regulatory agencies like Europe, ANVISA, Korea etc to name a few.Reema: So you are expecting the USFDA approval for your Baddi facility for formulations anytime now?

A: To be precise we filed 15 ANDAs in United States and out of which eight have been reviewed and by virtue of that Baddi facility of formulations has been inspected successfully. When you have your own APIs coming in, the API unit also underwent the same inspection in relation to the formulation. So, we are expecting composite approval which is going to be the second approval.

Reema: So for API and formulations?

A: That is right.

Reema: From Baddi by the USFDA?

A: No, the API facility is in Dera Bassi in Punjab. It is a sprawling campus of 120 acres and Baddi is basically the formulation approval.

Sumaira: Post this approval now how much will the Brazil market contribute to your topline?

A: My guess is we do currently on the API space close to about Rs 1400 crore. As I said earlier that we expect in the first year close to about Rs 50-60 crore so to start with it will be a small contribution but as we go along, in the next five years, the minimum we would expect would be at least about Rs 150-200 crore.

Reema: While the Brazilian regulatory approval is also important, the more significant one will be when you do get the USFDA approval for your Punjab as well as for the Baddi facility. If it does come through say for both of them, for your API facility in Punjab as well as secondly for your formulations, what kind of an opportunity or incremental revenues can we expect for the company hypothetically?

A: The mother of them all is the USFDA approval. It is a very lucrative market as all of us know, the Indian pharmaceutical diaspora in terms of profitability basically hinges on that. Having said that, as and when the total size of the Cephalosporin market is USD 1.5 billion there and it is dominated by a few European countries and predominantly two Indian companies Lupin and Aurobindo Pharma to say; very respected competitors but we are the most vertically integrated company with the largest capacities which brings down my cost of production. So, I expect as and when we get the approval in the next five years we should possibly be looking at anything in excess of Rs 500-600 crore with an excellent EBITDA.

Reema: Incremental revenues of Rs 500-600 crore?

A: In five years.

Reema: What is the outlook looking for FY16? We know you have not come out with your Q4 earnings, I am not asking about that but generally for FY16 what is the targeted revenue growth that the company is hoping for?

A: Here I would like to differentiate that I am talking about the pharmaceutical revenues which in the current year, I am not talking about the composite revenues which include phytochemicals as well. However, if you were to include at the company level we would end this year at about Rs 1700 crore plus. It is just a forecast; I cannot give any directions but I can tell you minimum growth in pharma that we expect is 20 percent. Overall I think we should end up the next year if all our budgetary plans go well at about 15 percent on top of Rs 1700 crore plus for the previous financial year.