Shasun Chem shelves expansion plans

Chennai: It's back to basics at the Rs 180-crore turnover Shasun Chemicals and Drugs, Chennai. Suffering from lower realisations from its main products — Ibuprofen (anti-inflammatory bulk drug) and Ranitidine (anti-ulcerant bulk) — the company has shelved its plans to venture into the formulations segment. Now Shasun is adopting a three-pronged growth strategy.

The first strategy is to focus on high-value, low-volume bulk drugs like Nizatidine and Ibuprofen derivatives. Having created global-scale facilities for Ibuprofen and Ranitidine, Shasun is intensifying its activities to expand its global market share for these bulk drugs. And finally, Shasun is getting into contract research and manufacturing in a major way to climb up in the pharma-value curve.

Explaining the strategies, finance director S Vimal Kumar says: "We are building a dedicated plant at Cuddalore to manufacture Nizatidine at an outlay of Rs 15 crore. The plant is expected to go on stream next month." The anti-ulcerant Nizatidine is currently under Eli Lilly's patent in the US and the brand Axid generates around $1 billion turnover. The drug is soon to go off-patent in the US.

Zenith Goldlines has validated the bulk drug samples from Shasun for sourcing. The American company has filed the necessary Abbreviated New Drug Application (ANDA) with relevant authorities. Already Shasun has started exporting Nizatidine to the Canadian company Apotex as the drug has gone off-patent there.

As it happened with Ranitidine where Shasun Chemicals is selling to Glaxo Wellcome, the inventor, and others, the Chennai company hopes to sell Nizatidine to Eli Lilly though Kumar is reluctant to give further details.

In the meantime, affected by lower realisations from Ranitidine Form I, Shasun is eagerly waiting for Ranitidine Form II to go off-patent for increasing its revenue. Presently Glaxo Wellcome owns the patent for the drug and the patent period for Ranitidine Form I, also owned by Glaxo Wellcome, got over some time back.

Both the forms are similar as far as their chemical properties/ultimate purpose is concerned. The difference lies in their molecular/physical structure. And to preempt competition, Glaxo Wellcome patented both the forms.

"We supply Ranitidine Form II in the direct compressible (DC) grade to Glaxo Wellcome, Singapore," says Kumar. "The DC grade is the penultimate stage of a tablet and Glaxo Wellcome can directly make its Zinetac drug without mixing any non-active additives/ingredients. The DC grade fetches us a 15 per cent premium than plain bulk sales."

Speaking about the market situation for Ranitidine Form I, he says tough competition has forced the company to supply at a cheaper rate. "We are supplying Form I at Form II prices. And the making of Form II involves cheaper process and hence it is less costly."

Similarly oversupply and competition dog the company's Ibuprofen sales. "The domestic market for this bulk has registered a negative growth. This is mainly due to competition from Nimuslide," he says. As a result, domestic consumption of Ibuprofen went down to 1,300 tpa from 2,000 tpa, while the price per kg is hovering around Rs 340 per kg. Even overseas prices have come down to $9 from $13.5 that prevailed sometime back.

Expanding its capacity to 3,600 tpa to become world's largest manufacturer of Ibuprofen at an outlay of Rs 16 crore, Shasun got hit by the buyers' market. "We wanted to displace others in the US market and increase our share to 15 per cent from 7 per cent," says Kumar about the expansion. "The US is the largest market for Ibuprofen, consuming around 7,000 tpa."

Operating its Pondicherry plant at a 92 per cent capacity where this bulk is produced, Shasun, as a way out, decided to get into Ibuprofen derivatives like S+ Ibuprofen (international price $45 per kg), Ibuprofen Sodium ($15 per kg), Ibuprofen S+Lysinate and Ibuprofen Lysinate. These high-margin products are expected to net Rs 15 crore for the company this year.

Entry into biotech research

Though the company's manufacturing focus is primarily on its bulk drugs, Shasun does have ideas of going up the pharma value-curve. Part of that strategy is undertaking contract research and manufacturing.

Global pharma major Eli Lilly has selected five of Shasun's scientists to work on its projects. "Such a practice, known as 'full-time equivalents,' is popular in Europe. We have ideas to exploit this business by recruiting another 30 scientists," Kumar says. "We have signed a technology agreement with the Jawaharlal Nehru University to conduct research on protein-related area and the process of setting up a biotech R&D centre with nine fermentation plants is already on."

On the contract manufacturing side, the company is producing hydroxypropylmethyl cellulose phthalate (HPMCP) for the $5 billion Eastman Chemicals Company. Shasun is also working on 10 active pharmaceutical ingredients (API) given by Austin Chemicals, US, on behalf of other overseas pharmaceutical companies. Two products are nearing commercial prospects. "Necessary drug master files (DMFs) have been filed and production will be under a buyback arrangement," says Kumar.

Earlier Shasun Chemicals had entered into a partnership with Austin Chemicals for undertaking contract research and manufacturing for multinational pharmaceutical companies.

Going by the current price trends for its bulk drugs and its sale of niche products, Shasun hopes to close this fiscal with a turnover of Rs 200 crore and a profit of Rs 10.5 crore. On the bourses the scrip is changing hands for Rs 64, giving no cheer to investors. The likely supply of Nizatidine to the US market is what is expected to attract  investors' attention.

"But that can happen only when the US Food and Drug Administration gives its approval for our Cuddalore plant. We are sure to get the same soon as necessary inspections are over," sums up Kumar.