For Cadila Healthcare's Pankaj Patel, the pure generics game is a potential 'value destroyer'. Indian pharma companies must focus on developing their own patented drugs, he says
Pankaj Patel
Chairman and MD, Cadila Healthcare
Age: 61
Rank in the Rich List: 26
Net Worth: $3.2 billion
The Big Challenge Faced in the Last Year: Revamping Zydus Wellness and its distribution system
The Way Forward: Focus on building R&D capabilities to enhance drug discovery programmes; steering the company on the path to zero debt and crossing Rs 10,000 crore in revenues by 2015
Pankaj Patel won’t watch movies on a long flight. He would rather scribble on a piece of paper—number-crunch costs and timelines of his new projects.
Nor will he pause to soak in the views of a beautiful Ahmedabad skyline from his top-floor office. The chairman and managing director of Cadila Healthcare doesn’t have a moment to squander. Not since he took over the family business from his father in 1995.
Over the last two decades, Patel has built pharma brands and expanded either through joint ventures or strategic acquisitions of niche pharmaceutical companies across the globe. Today, with about 15 acquisitions, four joint ventures and 11 manufacturing plants, Patel’s Cadila Healthcare, which was a Rs 200-crore company in 1995, has revenues of Rs 7,224 crore (as of FY14) with net profits of Rs 820 crore. 2011 was a particularly defining year for the company as it crossed the billion-dollar mark in revenues.
With a market share of 4.25 percent, Cadila Healthcare has become the fourth-largest pharmaceutical company in India (after Abbott Labs, Sun Pharma and Cipla). But Pankajbhai, as his employees know him, wants more. He has set a revenue target of Rs 10,000 crore by 2015 for his son Sharvil, now the deputy managing director of the company, and for his chief executives. More significantly, he wants Cadila to become a research-driven and original drugs company by 2020. And this is the difficult task.
The pharmaceutical business model in India is largely a generics play—that is, producing cost-effective and quality drugs that go off-patent. This approach has created billion-dollar companies. But there’s a flipside: A pure generics business invariably leads to a price-point tussle, what Patel describes as a “value destroyer”. He believes having its own patented drugs accords the company a considerable pricing power and higher profit margins. It also helps it fund the next drug discovery programme and move out of the price battle, which has lately become a race to the bottom. (Consider how, unable to move to the next stage of original drug discovery, companies such as Ranbaxy Laboratories, Piramal Healthcare and Paras Pharmaceuticals have dropped out of the race and been bought out by multinational companies.)
For Cadila to survive the next decade of pharma wars, Patel says his company needs to discover and patent its own drugs. In pharma parlance, this is called discovering an NCE (new chemical entity). Cadila’s first—and so far only NCE—was launched in India in September 2013. Lipaglyn, which treats diabetic dyslipidemia (by controlling blood sugar and cholesterol levels), did well in India, and Patel now wants to take it to the American and European markets; he has already filed applications with the US Food and Drug Administration seeking approvals to conduct trials.
Lipaglyn was developed at a cost of about $250 million for over 12 years. But its success has given Cadila and its R&D team the confidence to attempt more such initiatives, and has convinced the management to allocate necessary funds for further drug discoveries. According to Patel, Lipaglyn would fetch the company Rs 100 crore in revenues over the next five years from India alone. The drug could rake in $500 million in global revenues once it receives the approval to sell abroad.
“I strongly believe we can discover drugs. Being a scientist [he holds a master’s degree in pharmaceutical sciences], I believe we can create a breakthrough,” says Patel. “People will come to recognise India as a drug discovery destination. It just has to happen once. Just one drug can change your fortune. But in drug discovery, you also have to be lucky. And I believe I am lucky, otherwise I wouldn’t be here talking to you.”
Luck has had a role to play in Patel’s journey: He has taken risks few companies are willing to. Remember, developing new drugs is not only cost-intensive, but the investment in time and money can often come to naught.
Risk-taking, however, is not new to the man.
Patel’s ambitions have taken him beyond pharma. He has established another set of businesses housed under Zydus Wellness. Consider brands like Sugar Free (a sweetener for diabetic patients), EverYuth (a skincare brand) and Nutralite (a healthy substitute for butter). The company, with revenues of Rs 403.64 crore in 2013-14, claimed 93 percent of the market in the category of sweeteners.
(This story appears in the 16 October, 2014 issue of Forbes India. To visit our Archives, click here.)