Cutbacks Rise As Indian Pharma Tightens Control On Costs
Executive Summary
Leading Indian pharma firms are rationalizing operations and work forces to rein in costs and improve efficiency and profitability in a tough overall operating environment. Sun Pharma, which has declared an 'unwavering focus' on cost control, recently ended operations at two Indian clinical pharmacology units.
Front-line Indian pharma firms have unleashed a range of cost control measures including streamlining manufacturing operations and rationalizing facilities and work forces, amid sustained competitive pressure in key markets like the US and a slowdown on home turf.
In one such move, Sun Pharmaceutical Industries Ltd. has now discontinued operations at its clinical pharmacology units (CPUs) in Tandalja and Akota, both in the western Indian state of Gujarat, as the country’s top-ranked drug firm seeks to ensure “optimal utilization” of such operations. The CPUs essentially conduct bioequivalence studies.
“While we continue to make investments in our R&D operations, we also constantly evaluate our resources and future capacity requirements to bring in efficiencies in cost and processes,” Sun told Scrip. The bioequivalence studies from these centers will now be transferred to Sun’s other facilities.
Around 80 employees at the shuttered units have been made redundant, though the indications are that some of them have been absorbed by other parts of the company.
Sun has also dismissed as baseless speculation around the use of alleged strong-arm tactics at the discontinued operations. “We are offering full support to the affected employees and helping them with out-placement services. We are intimating all regulatory authorities and ensuring that we comply with all regulations,” the company stressed.
Releasing Resources For Specialty Business
Sun has been pruning expenses and chiseling its operations as part of broader efforts to manage its overall cost structure and stay competitive in the market. Last year, Sun combined operations at two US sites - New Brunswick and Cranbury - and in 2016 it sold two US oral solid dosage manufacturing facilities located in Philadelphia, PA and Aurora, IL, along with 15 related pharmaceutical products, to Frontida BioPharm as part of efforts to consolidate manufacturing there. (Also see "Sun To Trim US Manufacturing, Over 90 Jobs At Stake" - Scrip, 29 Nov, 2018.))
Sun’s founder and managing director Dilip Shanghvi has underscored the firm’s “unwavering focus” on cost control across operations encompassing generic R&D projects, rationalization of manufacturing footprint and other areas. These efforts will release resources which can be deployed in the specialty business, Sun’s chief said in the firm’s latest annual report.
The major Indian firm is betting big on its specialty business, which includes novel products like Ilumya (tildrakizumab) for psoriasis, to drive sustainable growth and cash flow over the long term.
US Profitability Hit, India Slowdown
Shanghvi also noted that business profitability in the US generics market had suffered significantly over the past three years, and though there are early indications of price stabilization for some products, the overall US generics pricing scenario continues to be competitive. Sun’s top management has reiterated at recent earnings calls that the company continues to critically evaluate generic R&D spending to ensure a reasonable return on investment.
Tough market conditions in India have only added to the overall industry pressures to rein in costs. Growth of the Indian pharma market dipped sharply in May to 7% year-on-year, lower than in the past 15 months, data from the pharma market research organization AIOCD AWACS show. The data also revealed that for the first time all the chronic care segments, including diabetes and CNS, had slowed down to single digits.
In an 11 June update, Jefferies analysts noted that the growth moderation in May was led entirely by volumes, which declined YoY (-0.1%). “More than half of the companies saw a YoY decline in volumes. Pricing contribution to growth remained steady at 5%. New product contribution to growth also moderated to 2%,” Jefferies said, adding that it expects growth to remain below 10% going forward.
June 2019 data from AIOCD AWACS showed further slippage, with the Indian market growing at 6.6%.
Cost Control Efforts Across Firms
Tighter cost control measures are being deployed across the Indian pharmaceutical industry, with other companies such as Cipla Ltd., Dr. Reddy's Laboratories Ltd. and Lupin Ltd. all trimming or re-calibrating operations significantly over the recent past.
Among other initiatives, Cipla recently undertook a rationalization of the workforce at its Pithampur facility in the Indore SEZ (Special Economic Zone) in India, as it keeps a sharp eye on cost efficiencies and operational excellence at its manufacturing sites. (Also see "Cipla Trims Staff At Indian Plant As It Eyes Costs " - Scrip, 13 Jun, 2019.)
Earlier, the Mumbai-headquartered firm had realigned resources and investments in its biosimilars business given its resource intensity, preferring a business development and in-licensing-based model rather than one pivoted on “organic development and manufacturing.” (Also see "Cipla Cuts Down In-House Biosimilars Plans" - Scrip, 26 May, 2017.) (Also see "Cipla-Alvotech Prime Emerging Markets Push With Humira Biosimilar Deal" - Scrip, 29 Jul, 2019.)
Dr Reddy’s too has been streamlining manufacturing operations and optimizing its cost structure. (Also see "Big Cost Cuts At Dr Reddy’s, US Big Ticket Launch Progress Is Key" - Scrip, 27 Jul, 2018.) In October last year, the company sold its antibiotic manufacturing facility and related assets in Bristol, TN in the US to Neopharma Inc, a subsidiary of the UAE’s largest pharmaceutical manufacturer headquartered in Abu Dhabi.
It also sold its active pharmaceutical ingredient manufacturing business unit in Jeedimetla, Hyderabad to Therapiva Private Ltd, a joint venture of Neopharma arm Omnicare Drugs India Private Limited and Laxai Life Sciences Private Ltd. The Hyderabad-based firm has also divested certain non-core assets over the recent past.
Others like Lupin have underscored their intent to focus on cost optimization to improve profitability. In an investor presentation in May this year, Lupin’s top executives emphasized that the company’s near-term priorities included delivering on “identified” cost-saving measures and also a sharp focus on resource allocation. Improving R&D productivity, supply chain agility and "aligning the organization structure to future strategic direction" were among the areas highlighted.
For markets like Japan, Lupin has been “back-ending products” into India to improve its margins, and has also “right-sized” its infrastructure there. In 2017, Lupin recalibrated its R&D thrust, scaling down its discovery research activities in India as it builds on its pipeline in areas like complex generics and specialty products. The revamp resulted in a cutback of over 50 employees at the time. (Also see "Lupin Reviews R&D Thrust, Biosimilars Plan On Course" - Scrip, 14 Sep, 2017.)