Amid Harsh Pre­scrip­tion, Get-Well Card from US Drug Reg­u­la­tor

De­spite all the noise about rap on desi firms, an­nual re­port from US FDA’s Of­fice of Generic Drugs shows In­dian cos won key ap­provals in 2015

The Economic Times - - Front Page - Di­vya.Rajagopal@ times­

Mum­bai: While In­dian com­pa­nies have been get­ting the rough end of the stick from the US Food & Drug Ad­min­is­tra­tion (FDA) with a plethora of in­spec­tions and warn­ing let­ters, the run of bad news may have drowned out some of the more pos­i­tive de­vel­op­ments.

The an­nual re­port re­leased by the FDA’s Of­fice of Generic Drugs (OGD) shows In­dian com­pa­nies have won some key ap­provals in the world’s big­gest phar­ma­ceu­ti­cals mar­ket.

Out of 90 first-time generic drug ap­provals in 2015, as many as 14 were won by In­dian drug com­pa­nies, most of which be­longed to spe­cialised treat­ments. Com­pa­nies such as Glen­mark, Sun Pharma, Tor­rent, Het­ero and Lupin are some of the com­pa­nies that are in the list of “no­table ap­provals”. “Generic drugs now ac­count for 88% of pre­scrip­tions dis­pensed in the US, and saved the US health sys­tem $1.68 tril­lion from 2005 to 2015,” OGD Di­rec­tor Kath­leen Cook wrote in an April 13 blog post. She said 2015 was a record year for ap­provals and ten­ta­tive ap­provals by her of­fice — a to­tal of 700.

Some of the high-value ap­provals that In­dian firms re­ceived were for generic ver­sions of Ot­suka’s Abil­ify (arip­ipra­zole), used for treat­ing schizophre­nia; Vig­amox (mox­i­floxacin), a con­junc­tivi­tis drug made by No­var­tis com­pany Al­con; Ze­tia (eze­tim­ibe), a drug pre­scribed for treat­ing hy­per­ten­sion made by MSD; and anti-can­cer drug Gleevec (ima­tinib) made by No­var­tis.

The faster turn­around of ap­provals is also the re­sult of the Generic Drug User Fee Act (GDUFA), ac­cord­ing to FDA, which has helped it to clear al­most 90% of the ap­provals back­log. Un­der GDUFA, the in­dus­try agreed to pay ap­prox­i­mately $300 mil­lion in fees for each year of the five-year pro­gramme, said Cook in her note. Tor­rent

The US mar­ket is crit­i­cal for In­dian drug firms as it ac­counts for al­most half their rev­enue

Alem­bic Het­ero Orchid Health­care Glen­mark Sun Pharma Macleods Alkem USV Lupin

“In­cre­ments have largely been capped at 10%, bar­ring some tech­nol­ogy teams where it is driven by vari­able tar­gets,” said one per­son.

At the same time, clear sales and cus­tomer ex­pe­ri­ence tar­gets — to be met by Septem­ber 2016 — have been set for all cat­e­gory heads as the Tiger Glob­al­backed com­pany closely eval­u­ates the long-term po­ten­tial of each busi­ness unit. “The next six months will see new de­vel­op­ments, in­clud­ing some cat­e­gories be­ing shut down,” said an­other source. A Flip­kart rep­re­sen­ta­tive de­clined to com­ment for this story.

This ag­gres­sive drive to­wards prof­itabil­ity, which con­trasts with the ear­lier model of ex­pan­sion at any cost, comes at a time when money is be­com­ing scarce for In­dia’s top ven­ture-backed on­line re­tail com­pa­nies — Flip­kart, Snapdeal, Paytm and Shopclues — which have soaked up about $5 bil­lion in risk cap­i­tal since 2014.

The on­line re­tail mar­ket, Gold­man Sachs es­ti­mates, will be worth $36 bil­lion by fis­cal 2017.

Val­ued at about $15.2 bil­lion in its last round of fund-rais­ing in July 2015, Flip­kart has been quickly re­duc­ing its burn rate this year, helped along by the lean sea­son for re­tail sales. Peo­ple aware of the de­tails told ET that cur­rently Flip­kart has an es­ti­mated burn rate of about $50 mil­lion a month now, down from about $ 80 mil­lion in the last quar­ter of 2015. “The idea is to bring down the burn rate by an­other $10 mil­lion a month,” said a source, adding that by Septem­ber the com­pany should be at a $40 mil­lion monthly burn rate.

Flip­kart’s two main en­ti­ties — Flip­kart In­dia and Flip­kart In­ter­net — re­ported a com­bined a loss of .₹ 2,000 crore in FY15. The com­pany last year told ET that it ex­pects to close FY16 by sell­ing goods worth $10-12 bil­lion.

All cat­e­gory heads have been given di­rec­tions to fo­cus on get­ting on board “best qual­ity prod­ucts at low­est cost” with Binny Bansal spend­ing ma­jor­ity of his time with the com­merce unit since be­com­ing the CEO. At present, fash­ion, elec­tron­ics and large ap­pli­ances are the top-sell­ing cat­e­gories but Flip­kart has also been mak­ing a push to­wards new ones like fur­ni­ture and au­to­mo­biles.

While most large on­line re­tail com­pa­nies have re­duced their de­pen­dence on dis­counts as a growth strat­egy over the last few months, fixed costs at th­ese com­pa­nies re­main high, es­pe­cially em­ployee costs. Flip­kart has a to­tal head­count of 35,000, out of which around 15,000 are em­ployed by the lo­gis­tics unit EKart as de­liv­ery per­son­nel.

“It is a much-needed move. A lot of the in­vestors in Flip­kart are con­cerned by the amount of money the com­pany is bleed­ing and ev­ery­one is seek­ing a path to be­ing break-even pos­i­tive. Flip­kart’s re­cent val­u­a­tion mark­downs re­flect both the mar­gin is­sues and com­pet­i­tive pres­sure,” said Kar­tik Hosana­gar, a pro­fes­sor of ecom­merce at the Whar­ton Busi­ness School, re­fer­ring to a 27% mark­down in the value of Flip­kart’s shares by a mu­tual fund man­aged by Mor­gan Stan­ley.

A source aware of the de­tails said that the com­pany still has over $1 bil­lion in the bank, which means that Flip­kart does not need fresh cap­i­tal im­me­di­ately. But shoring up cap­i­tal re­serves fur­ther will be nec­es­sary be­fore the fes­tive sea­son as it looks to de­fend its mar­ket lead­er­ship against Ama­zon and po­ten­tial new en­trants, like Alibaba and Rakuten.

In all, Flip­kart, which counts DST Global, Naspers, and Tiger Global as in­vestors, has raised about $3.4 bil­lion.

The process of eval­u­at­ing and clos­ing cat­e­gories has al­ready started at Flip­kart over the last four months, with di­vi­sions like e-books and gro­cery de­liv­ery be­ing shut­tered. “Ev­ery cat­e­gory has to stay within the guard-rails that have been set in terms of consumer ex­pe­ri­ence, prof­itabil­ity,” said one of the sources.

Af­ter re­plac­ing co­founder Sachin Bansal as CEO in Jan­uary, Binny Bansal has un­der­taken a man­age­ment over­haul at the Ben­galuru-based com­pany and has­tened the process of turn­ing the lo­gis­tics busi­ness Ekart into an in­de­pen­dent unit, in search of greater cash flows.

“This is much needed for Flip­kart as its abil­ity to raise more money from ei­ther the pub­lic mar­kets or from pri­vate equity de­pends on Flip­kart’s abil­ity to show sus­tain­abil­ity,” Whar­ton’s Hosana­gar said.


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