See double-digit sales growth across markets in FY17: Wockhardt

While declining to comment on the recent issues raised by USFDA against Indian pharmaceutical companies, Khorakiwala says he believes that ultimately such regulatory actions helps raise the bar for companies in terms of maintaining requisite records and puts them on a strong footing for the future.Below is the transcript of Habil F Khorakiwala’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18.Ekta: Wanted to start with everything ex of the regulatory issues. Let us start talking about your revenue. That was down around 22 percent in Q3. For nine months it is up only around 2-3 odd percent. What is taking place in all of you markets? For example, India slowed down, we had emerging markets which were up 13 odd percent for Q3. Can you tell us what is taking place in all of your key markets right now and your guidance on the same?A: As far as our revenue is concerned over the last nine months, last year, we had an exceptional item which was a one off item and that has significantly reduced in the first nine months results. And it is not there in the last quarter results. So, if you remove this exceptional item for the last quarter, we have from the existing business a growth of roughly 10 percent. So, from that context, as a company, overall we are doing quite alright. And we believe that the existing level of sales and profitability which has come in the recent quarter should be considered as an indicator for things to come. Across the India emerging market, UK market, overall, we will continue to grow at mid double digit level even in the next 6-12 months.Ekta: How is the company placed on sales in FY17? You will close this year, I am assuming with another Rs 1,100-1,200 crore in Q4 so Rs 4,500-4,600 crore in terms of total FY16 revenues. For FY17, how are you placed in terms of total percentage growth and what would the US contribution be?A: There are two things. First we generally do not give a future guidance. But as I mentioned, FY17 we will continue to grow even if the existing situation is unchanged, vis-à-vis US at something like double digit plus growth. So, that is definitely there and as and when the US issue gets resolved, that would be an additional sales and revenue coming to us.Anuj: Before I discuss some more fundamental issues, I want to discuss one basic aspect, I am sure you would have looked at what has happened to your stock price over the last two or three months. Do you have a reason to believe that there is a bear cartel operating in Wockhardt? Is this something that you have discussed internally or have discussed with SEBI, because that is something that I first want to know from you?Anuj: Before I discuss some more fundamental issues, I want to discuss one basic aspect, I am sure you would have looked at what has happened to your stock price over the last two or three months. Do you have a reason to believe that there is a bear cartel operating in Wockhardt? Is this something that you have discussed internally or have discussed with SEBI, because that is something that I first want to know from you?A: I cannot comment on the stock market and how people respond and what is happening, but we were also surprised with the level of our stock price reduction. And there is nothing changed really, in the last 2-4 months as far as the company is concerned. So, I cannot comment more than that why our stock price is where it is.Anuj: Now, let us move on. The big trigger that the market is waiting for is on the US Food and Drug Administration (FDA) front. In terms of your meetings with US FDA, if you could tell the market what I the progress on that front and what kind of contribution would US make going forward in terms of your revenues.A: As far as the US FDA is concerned, three of our facilities, mainly our L1 and Waluj facility, internally we believe that we are more or less in compliant position. In fact, L1 facility has been approved by Medicines and Healthcare products Regulatory (MHRA) and I think FDA requires some more information because our last 2-3 years we have supplied them a large number of information. So, probably what they are looking for is to summarise all we have taken into a single document and probably we may have request another meeting with them to resolve the issue and clear the understanding they have of our compliant position because they have all the information as far as good manufacturing practices (GMP) compliance is concerned. In fact, as far as our Waluj facility is concerned, we had a voluntary action report given to us. So, we do hope that soon enough, we should be able to resolve this issue, but I cannot give you a definite timeline for that, because it is not in our hand.Ekta: Then let us talk about the regulatory issues a little more. We do understand that you had a meeting in the past two to three weeks with the US FDA and correct me if I am wrong, what might it have resulted in? What did it consist of in terms of your interaction with the US FDA, was it maybe a resolution for all three plants that you might be looking at cumulatively?A: What I have just communicated to you is based on our understanding of what has happened so far is our discussion and communication with US FDA. I have nothing more to add to that.Ekta: For your Waluj plant, like you mentioned, you received an establishment inspection report from the US FDA, but we do not have the import alert which is lifted as yet, am I correct in assuming that? And if so, why is that?A: That is correct. Ekta: So, you are not supplying to the US from Waluj? When do you expect that import alert to be possibly lifted?A: No, we are supplying one product from Waluj throughout the period to the US, that is enalapril. We have been supplying right from the beginning. So, that is one product US FDA has allowed because obviously, we have a large market share and non-availability would have caused shortages in the US.Ekta: Coming to Shendra, have you replied back to the US FDA with regards to those nine observations?A: Yes, I believe we would have replied by now.Ekta: Just wanted to revisit those nine observations because we managed to get the copy of the Form 483 as well and there are some brokerage reports which have cited it saying that there was some concerns which the Form 483 rose and there was some similarities to even Waluj and Chikalthana, in terms of the issues that had risen. Have you revisited the observations that were brought up for Shendra post our last conversation and do you now feel that maybe the timeline of the resolution of those observations might be greater than what you thought earlier?A: We do not believe so. The observation was based on our new IT system which we had placed. And in one or two equipment, there were issues not in terms of data integrity, but it was an issue of the accessibility issue and that has been resolved immediately.Ekta: Then let us talk about the regulatory issues a little more. We do understand that you had a meeting in the past two to three weeks with the US FDA and correct me if I am wrong, what might it have resulted in? What did it consist of in terms of your interaction with the US FDA, was it maybe a resolution for all three plants that you might be looking at cumulatively?A: What I have just communicated to you is based on our understanding of what has happened so far is our discussion and communication with US FDA. I have nothing more to add to that.Ekta: For your Waluj plant, like you mentioned, you received an establishment inspection report from the US FDA, but we do not have the import alert which is lifted as yet, am I correct in assuming that? And if so, why is that?A: That is correct. Ekta: So, you are not supplying to the US from Waluj? When do you expect that import alert to be possibly lifted?A: No, we are supplying one product from Waluj throughout the period to the US, that is enalapril. We have been supplying right from the beginning. So, that is one product US FDA has allowed because obviously, we have a large market share and non-availability would have caused shortages in the US.Ekta: Coming to Shendra, have you replied back to the US FDA with regards to those nine observations?A: Yes, I believe we would have replied by now.Ekta: Just wanted to revisit those nine observations because we managed to get the copy of the Form 483 as well and there are some brokerage reports which have cited it saying that there was some concerns which the Form 483 rose and there was some similarities to even Waluj and Chikalthana, in terms of the issues that had risen. Have you revisited the observations that were brought up for Shendra post our last conversation and do you now feel that maybe the timeline of the resolution of those observations might be greater than what you thought earlier?A: We do not believe so. The observation was based on our new IT system which we had placed. And in one or two equipment, there were issues not in terms of data integrity, but it was an issue of the accessibility issue and that has been resolved immediately.Anuj: Let us get back to the business outlook then. From UK in particular where you had some one-offs in the last two or three quarters, what kind of revenue contribution can we expect from UK and what kind of earnings before interest, taxes, depreciation and amortisation (EBITDA) contribution?A: Our UK normal business will grow at double digit plus. We should be expecting of the order of about 120 pound business which is our norm with a growth which we will expect annually. So, that will be our business and we have a healthy EBITDA, corporate EBITDA of 30 percent or so.Ekta: Coming to your research and development (R&D) expenditure, that is around 14 percent of your current sales and if I am not mistaken, around USD 370-400 million just in the past couple of years, what is your pipeline for R&D right now and which markets are you catering to? When do we see it fructify?A: There are three areas we spend on research. One is our pharmaceutical areas where we are dealing with high technology and big ticket items. The second area we are doing in our biological that is insulin product, we believe that we have a very significant market coming out of this from an emerging market in short-term to medium-term. And the pharmaceutical, also we have taken our entire portfolio to emerging markets to we expect that business to come also in next 12-18 months. Additionally, we are also working on our drug discovery programme on antibiotics. And as we have informed to you, we have received five qualified infectious disease product (QIDP) states for our various antibiotic by US FDA and these are really a breakthrough drug. Globally we are the only company receiving five breakthrough drug status from US FDA. And we believe in the next three and a half years or so, we should be filing for some of these products to USA and maybe afterwards to Europe.Anuj: As an industry veteran, I want your comment on the US FDA action on India pharmaceuticals for the last 12 months or so, it has been unusually tougher for compared to the historical evidence that we have. Any comment that you have to offer because there is one quarter which believes that there is targeting of Indian pharmaceuticals going on right now by US FDA. That could be wrong, but your comments on that?A: It would not be fair for me to comment on US FDA’s approach on Indian companies, because I think they are really concerned, because we supply about 20-30 percent of medicine in the US and from a long distance, so they want to be doubly sure. But, what is happening to our industry as a whole n the process is we are easing our standard to a very high level and we are getting into a large part of automation of quality system, complete recording system of manufacturing and other things. And that will put Indian companies in a much stronger position in days to come.Ekta: If you could throw some light in terms of what the US business might look like for you in FY17? Right now, which would be the facilities you assume would start contributing or even ex of the facilities that the current status quo that you have in your business, what might the US business look like and are you undertaking any site transfers?A: Let me put it to you this way. If even in the current status, we have a number of products which we are getting manufactured from the third party, that will contribute to our US business overall. We expect compared to current year, we will at least have 20 percent growth in the US business. Ekta: And what about site transfers? How many can we expect?A: No, including all that, this would be roughly the numbers which will be there. I do not have specific details of how many products and which site transfer – there are some new products also which we are doing through third party which will come into play.