The Pain Controller

Premchand Godha, Chairman and MD of Mumbai-based IPCA Laboratories was amused to hear US President Donald Trump term Hydroxychloroquine (HCQ) - a drug Trump claimed was helping him ward off Covid-19 - as an anti-malarial medicine. The observation was outdated. HCQ, the drug Trump referred to, has not been sold anywhere in the world as an anti-malarial medicine for decades. It was introduced as a medicine for malaria 70 years ago, but is now used to treat rheumatoid arthritis.

Trump's endorsement of HCQ gave a shot in the arm to IPCA, one of the leading global manufacturers of the time-tested, patent-expired drug. IPCA saw demand soar globally for a month or two. As Covid-19 was pulling down earnings of businesses in the first quarter of FY21, IPCA's business and margin growth was rising, driven by the opportunities on account of chloroquine and hydroxychloroquine API (active pharmaceutical ingredient or bulk drug) and formulations. IPCA increased its HCQ production from 17-18 million tonnes pre-Covid-19 to 25 million tonnes. In an earnings call in August, A.K. Jain, Joint MD, IPCA said overall sales of hydroxychloroquine and chloroquine in relation to Covid-19 in the April-June quarter was around Rs 259 crore and that contributed significantly to the margins of the company.

At the helm since 1975, Godha has built IPCA as a generic pharmaceutical company that focusses on established products such as HCQ. It has no risky patent litigation, no expensive new drug discovery. IPCA follows a business model with minimum risks, with predictable sales volumes and profits. As a result, the company has been growing steadily, year after year, with "margins that continue to surprise positively", as Emkay Research observes in its February 2020 IPCA financial results update.

When the current management took over IPCA, turnover was Rs 54 lakh. Today, as a fully integrated pharma company that manufactures 350 formulations and 80 APIs, annual turnover has risen to Rs 4,422 crore, with three-year compounded annual growth rate (CAGR) of 11.87 per cent. During the three-year period, profit after tax (PAT) grew 51.32 per cent. The companys market cap grew 71.16 per cent during October 2019-September 2020. It was its time-tested business model, which delivered this performance.

"Litigation is not part of our company policy. We are doing old, gold standard products. We don't do any new product research. We have a completely different R&D set up meant to develop new generic products - intermediates, API s and formulations. Five years ago, we started research on biosimilars, too, and expect some products to be ready in the next five years," says Godha.

IPCA's focus area is pain management. "In India we are leaders in anti-malarial and rheumatoid arthritis drugs. In the anti-malarial segment, we are world leaders in one product called chroloquine phosphate," adds Godha. "Anti-malarial has been our focus right from the beginning, while pain management became key over the last 20 years."

The company's strategy has been the same for at least a decade now. "Our results are good because we are very well integrated. We are clear where we want to have the leadership and where we want to move, so by design we have done backward integration and intermediate production for such products. So when we produce API, we produce intermediates and hence better profitability in the generic market. We have been following that strategy for the last 10 years. It helped in the past, it is helping now, and it will help in the future also," says Godha.

He doesn't consider China as a competitor. "Either we are dependent on them or not. Where we make our API, we know we will have to compete with China short term, medium term and long term. Our strategy is that unless we are technologically good, it is better not to make. We have several products where we don't have to depend on China at all," says Godha.

IPCA has four broad business segments. One is domestic branded formulations, the other is global sales. Here, there are two sides - one targeting emerging markets like CIS countries, Russia, West Asia, Africa, South America and Asia, and the other developed countries such as the US, Australia and South Africa. In emerging markets, the company sells branded formulations like they do in India. In developed markets, they sell pure generics, both formulations and APIs. The fourth is a separate business unit for global tenders, mainly generics. Revenues from the domestic business is normally more than the earnings from the international business, though that will not be the case this year.

With over 50 per cent of the domestic business revenues coming from pain management, the company's therapeutic focus is also clear. "Nobody can say I can live without pain," Godha explains. Over 90 per cent of pharmaceutical companies will have a pain management product. It is a high volume, low-value segment. However, despite competition Godha says the segment remains promising. "You can even manage with one product. I can keep continuing this company if it is left to me for 100 years with one product. I have a brand called Zerodol. There are several combinations under this brand, which has already achieved the Rs 500-crore sales landmark. We have given a target to make it Rs 1,000 crore. Even if I sell all other products and retain only Zerodol, it can become a Rs 2,000-crore brand in India alone," he explains.

Godha's management mantra is complete delegation of power. No presidents report to him. "Everyone reports to the three directors, two of whom are my sons. One is a deputy MD. They coordinate with me for guidance," he says.

In fact, Godha claims that in the last 45 years, he has never met a single doctor to write his company's product. "My policy is that if you are hired for that work, you do it. I believe in you," he says. As testimony of the success of this strategy he points out is the number of people who have continued with IPCA for 30, 40 years. "Our joint MD joined us as accountant 40 years ago. My company secretary, as well as several presidents are associated with me for 20, 30, 40 years. I have faith in people," he says.

Godha hardly thinks of divesting his business. "I tell the next generation that it is a beautiful business to enjoy. One product goes for 30 to 40 years. You cannot sell one model car for five years."

@joecmathew