When Less Is More

VC Nannapaneni, Chairman and Managing Director of Natco Pharma, prefers to stay in the background and lets his son and the Vice Chairman and CEO, Rajeev Nannapaneni, to take charge while he mentors, urging all to singularly focus on product development. He sees no reason to worry thereafter.

This is partly because Rajeev Nannapaneni is not only well-regarded within the company for his business acumen but also known for zeroing in on the right business opportunities.

Ask Rajeev Nannapaneni on what stood out about the last 12 months and he says: "The past 12 months saw sustained earnings on launches in previous years, coupled with the domestic oncology portfolio doing well. Also, our focus on certain global markets like Brazil and Canada worked well." He also gives credit to the "strategy of focussing on a limited number of niche generics instead of trying to do everything. This seems to have worked in a very competitive scenario in generics, especially in the US.'' He says integral to Natco's strategy is its focus on unique generics where there is limited competition. "Two or three smart launches can pay for everything. We typically tend to focus on seven-eight filings in the US in a year, as against, say, 25 to 40 that some prefer. We feel it is a good strategy for our size (Rs  2,242 crore consolidated revenue and Rs  2,131 crore standalone revenue for 2017/18).''

The focus, he says, is on technology, unique products, therapeutic areas and unique markets. For this, he says, "We have a good R&D set-up and people who tend to choose products that are hard to make.''

In the last 12 months, while the company had no new and big product launches in the US, it built on its launches from the previous year. Significant among them was the launch of the generic version of Teva's drug Copaxone in the US in the second half of 2017 for multiple sclerosis with its partner Mylan apart from Doxorubicin Hydrochloride Liposome injection, a generic version of Janssens brand Doxil, an oncology product. This is in partnership with Dr Reddy's.

"While the upside of limited products is that you contain costs and are more focussed, the downside is that you have nothing to fall back upon for a period if you are wrong,'' says Rajeev Nannapaneni. Analysts say one reason behind Natco's better performance is that not many players had eaten into its market. The aim, says Nannapaneni, is to come up with newer products. For instance, he is upbeat about the launch of the generic version of Revlimid, expected to be launched in March 2022 in the US. The innovator product has an estimated market size of close to $6 billion in the US. It is expected to be perhaps higher by 2022. Then, the company is also excited about the generic version of Ibrutinib tablets.

The company hopes to diversify beyond the US and nearly double the revenue over the next three years from the domestic market and from markets other than the US and India. In fact, just last month, Natco initiated work on greenfield manufacturing facilities for producing niche agrichemical products in Andhra Pradesh with a total capital expenditure of Rs  100 crores. The India revenue was close to Rs  800 crore last year (2017/18).

The revenue split varies each year, depending on product launches, but tends to be around 40 per cent each for the US and India. VC Nannapaneni, who was just 36 in 1981 when he set up Natco, has seen several challenging phases. That he mentors leaders in the company is reason to believe that the focus on product development will remain the cornerstone of the company's future.

@EKumarSharma