Bloomberg News

Advil Ingredient Maker Sees Patent Expiry Boom: Corporate India

November 11, 2012

Advil Ingredient Maker Sees Patent Expiry Boom: Corporate India

Advil pain relief. Photographer: Karen Bleier/AFP via Getty Images

Shasun Pharmaceuticals Ltd. (SAPH), an Indian supplier of the main ingredient in Pfizer (PFE:US) Inc.’s Advil pain medicine, expects sales to double in three years on increasing demand from its generic drugmaker customers.

Revenue may climb to 20 billion rupees ($366 million) by March 2015, from 10.6 billion rupees in the year ended March 31, Managing Director S. Abhaya Kumar said in an interview at the company’s headquarters in Chennai in southern India. The growth would largely be driven by sales of ingredients of drugs that lose patent protection in the next two years, he said.

Shasun, whose stock has more than tripled this year, expects to be the sole supplier of the key ingredients in Sanofi’s Renvela and Daiichi Sankyo Co.’s Welchol, when patents on the drugs expire starting 2013, according to Kumar. Shasun may get more than 2.5 billion rupees in sales catering to the demand for these two medicines, according to First Global Securities Ltd. (GLBS)

“Right now, it looks like we are the only player other than Sanofi” with the regulatory filings to produce the drug ingredients, Kumar said. “We see a huge growth coming from there.”

Generic drugmakers introducing their products after patents expire, typically source ingredients from other companies that already have the manufacturing expertise and regulatory approvals in place.

‘Quite Strong’

“The company’s overall growth prospects remain quite strong,” Devina Mehra, an analyst with First Global in Mumbai, wrote in an Oct. 12 note to clients. Mehra cited Shasun’s “strong order book position, robust” new drug and active pharmaceutical ingredient pipelines among the reasons for rating the stock moderate outperform.

Shasun, backed by OrbiMed Advisors LLC, will sign long-term contracts with drugmakers and expects to start exports of the ingredients by June 2013, Kumar said.

Sanofi (SAN)’s Genzyme unit has had sales of $653 million so far this year from Renvela and the related drug Renagel, which are used to control phosphorous levels in patients undergoing kidney dialysis, according to data compiled by Bloomberg Industries. Daiichi Sankyo’s Welchol cholesterol treatment for diabetics had sales of 26.9 billion yen ($340 million) in the 12 months to March 31, according to data compiled by Bloomberg.

The Indian drugmaker, which began operations in 1976 as a supplier of the anti-inflammatory drug ibuprofen, has sought to diversify and get a greater share of its sales from finished medicines and contract manufacturing operations. Ibuprofen, the key ingredient in Pfizer’s Advil, contributed about 25 percent of sales last year, versus about 50 percent in fiscal 2006, Mehra wrote in the report.

Drug Outsourcing

This diversification comes as the number of medicines losing patent protection is set to drop after peaking in 2012, according to IMS Health Inc. Four drugs with sales exceeding $500 million will lose patent protection in the U.S. in 2016, compared with 10 this year, IMS said in July.

The company’s foray into drug outsourcing came with its acquisition of two factories in England and Scotland from a unit of France’s Rhodia SA in April 2006. That division counts biotech firms and big pharmaceutical companies like Johnson & Johnson (JNJ:US) and Pfizer as its clients, and produces ingredients for experimental treatments that are undergoing clinical trials.

The drugmaker currently gets almost half its income from this business, and plans to invest 4 billion rupees in expanding plants in southern India and the U.K., Kumar said.

Shasun is the best-performing health-care stock this year of the 500 companies on the National Stock Exchange’s S&P CNX 500 Index. The shares rose 1 percent to 145.05 rupees as of 9:54 a.m. in Mumbai trading.

Regulatory Risk

Still, Shasun’s increased focus on contract research and manufacturing is not without uncertainty, according to Surya Narayan Patra, an analyst at Systematix Shares & Stocks Ltd. The drug outsourcing business lends itself to greater risk when suppliers invest in research and build-up capacity, even before a drug is approved by regulatory authorities, Patra said.

“If for some reason it doesn’t succeed in the clinical trials, they will lose out,” Mumbai-based Patra said in an interview. “The predictability of these products is under question, because there could be delays in the FDA approvals.”

In the last five years, the company has spent 5.4 billion rupees for acquisitions and factory expansions, according to First Global’s Mehra. Shasun’s free cash flows, which have been negative for the last nine years according to data compiled by Bloomberg, are likely to turn positive from April, Mehra wrote.

“The company should begin reaping the benefits of these investments in the next few years,” Patra said.

To contact the reporters on this story: Ganesh Nagarajan in Chennai at gnagarajan1@bloomberg.net; Adi Narayan in Mumbai at anarayan8@bloomberg.net

To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net


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Companies Mentioned

  • PFE
    (Pfizer Inc)
    • $29.95 USD
    • 0.11
    • 0.37%
  • JNJ
    (Johnson & Johnson)
    • $107.78 USD
    • 0.74
    • 0.69%
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