Story Of Lupin, How Desh Bandhu Gupta Turned 5000 Rs. into 900000000000(Ninety Thousand Crore), Source: Business Today (www.businesstoday.com)

At 71, Lupin Ltd Chairman Desh Bandhu Gupta still defers to his wife Manju when it comes to business decisions that involve both the mind and the soul.

Having been the eldest among five siblings, Gupta—a chemistry professor —had never managed to save up any money till 1968. This was when he borrowed Rs 5,000 from his wife to start out on his own—and went on to build India's fourth-largest pharma company over the next 40 years.

Five years ago, when Lupin's anti-TB drug business (a mainstay of the company in the past; 36 per cent of sales in 2001)—turned unprofitable, Gupta turned to his wife for guidance.

Lupin was the largest manufacturer of the anti-TB drugs in the world, and stopping production would have affected the global anti-TB efforts. Gupta recalls what his wife said: "Hamari roti humhe mil rahi hai na? (Aren't we earning enough otherwise to be able to sustain these losses?)" He adds: "There was no looking back and we are still the largest producer of anti-TB drugs in the world." Anti-TB bulk drugs contribute less than three per cent of sales today.

Indeed, family has always been paramount for Gupta—and on the business front too. Daughter Vinita Gupta (41) and only son Nilesh Gupta (36) are the two of the five children of DBG (as he is known within Lupin) who are with the company. Vinita, married and settled in the US, spearheaded the company's push in that country, and is currently Group President & CEO Lupin Pharmaceuticals Inc.

Nilesh, also Group President & Executive Director, has handled the research and development and supply chain out of India. He led the process of upgrading Lupin's production processes when the US FDA issued strictures against the company's Mandideep facility near Bhopal, Madhya Pradesh (in 2008-09). "We improved our systems and replicated them across the company," he says.

Family matters, but professionals are considered family too in Lupin. And that's manifest by the presence of Managing Director Kamal K. Sharma, (61), who took over at the helm in his second stint at Lupin seven years ago. That family-professional mix is working well in creating value for shareholders. In 2009-10, the scrip has jumped by 140 per cent, from Rs 675 to Rs 1,625, compared to the Bombay Stock Exchange's health care index that increased 85 per cent.

After the company announced its annual results for 2009-10, with sales of Rs 4,740 crore and a net profit up 36 per cent to Rs 681 crore on the figure for the previous year, the Lupin scrip closed at Rs 1,820.30 on May 5. Such value creation is no flash in the pan. A Boston Consulting Group study on annualised shareholder returns by global generics companies had put Lupin at the top of the heap globally with returns of 29.9 per cent for August 2006-July 2009, ahead of the world's largest generics player Teva (18.45 per cent) of Israel and India's Glenmark (18 per cent).

Today, Lupin is threatening to catch up with industry leaders like Ranbaxy (now owned by Daiichi Sankyo), Dr Reddy's Laboratories, and Cipla. "Their US branded business is unique. Companies like Glenmark or Ranbaxy tried but failed to establish a brand there. Only Lupin has solid revenues (40 per cent of US sales) coming out of brands," says Raghavendra Kumar, a pharma analyst at ICICI Securities.

"Lupin is trying the same strategy in Europe. They have cracked the $68-billion Japanese market (where the government is trying to popularise affordable generics) through an acquisition, which none of the Indian players have," he adds.

Lupin has also moved up the value chain, too. Bulk drugs, or ingredients that go into making medicines—what the company began with—accounted for only 16 per cent of revenues in 2009-10 against 55 per cent in 2004.

As much as 49 per cent of Lupin's sales come from developed markets— the US, Europe and Japan. ICICI Securities expects Lupin's US revenues to double in two years. And formulations, the finished medicines, accounting for 84 per cent of the business, have 58 per cent of sales taking place in advanced markets. The branded part is significant as analysts value that portion at five times sales against three times sales for unbranded generics in the US.

As Lupin emerges as a fullyintegrated drug manufacturer with a strong formulations presence, it is also gaining size and scale. Lupin, which was seventh by sales in 2004, is now fourth based on 2009-10 results. By 2013, DBG wants Lupin to be a $3-billion company—or three times its current size. By 2018, he wants Lupin to be counted among the top pharma MNCs globally and wants a new-chemical entity to be licensed out by Lupin every year from 2013 onwards.

The ambitions are based on strategy. Over the past two years Lupin acquired six companies across the world, the largest being Kyowa in Japan for $100 million, and is now present in Japan, Australia and Europe. It has focussed on pediatric care, dermatology and ophthalmology. "Japan is the world's second-largest market, and is opening up to generics only now," Sharma, Lupin's MD, says.

The big breakthrough, though, has been in the US. Lupin has filed 105 ANDAs (abbreviated new drug applications) in the last five years for launching new generic drugs in the US. Of these, 35 applications have been approved (Lupin is still behind its peers in sheer numbers).

Lupin is present in 25 segments in the US, of which it is #1 in 12, and among the top three in the rest, save one. It has identified another niche area—oral contraceptives—and filed 12 ANDAs in this category. As a follow-up, Lupin wants to acquire a company in South America as Brazil is the second-largest market for oral contraceptives after the US.

"In a regulated market like the US, it will be very difficult to replicate Lupin's success with brands. For an Indian company it will take decades, unless it buys a brand, which is again expensive," says Sujay Shetty, head of the pharmaceuticals practice at PricewaterhouseCoopers.

Lupin has been able to get its US act right with a judicious mix of patent challenges and buyouts. For instance, in 2004, when Wyeth pulled out Suprax, its brand of cefixime, an antiinfective (antibiotic), from the US market, Vinita and her team were contemplating a generic launch of the product.

Instead, they decided to buy the licence for the brand, and relaunch Suprax. Reason for the shift: "It is difficult to make the bulk drug for Suprax, and we have ring-fenced the brand to protect our revenues," says Vinita. Today, it has a 170-stong sales team to push its brands (for generics it has a team of just four!).

Similarly, Lupin had challenged the patent to the brand Antara, a cholesterol drug, owned by Oscient Pharma. It was seeking a 180-day exclusivity period, which, if successful, would have allowed the company to make hay for six months. However, Lupin saw an even more lucrative opportunity unfolding—Oscient went bankrupt, and the Guptas were able to buy the drug at a firesale price of just half its annual sales last year.

In the midst of such nippy decision- making, where does the 71-year-old patriarch fit? DBG, for his part, is not ready to talk succession yet. "While the responsibilities of both Vinita and Nilesh will increase, there will still be enough to handle for Kamal (Sharma)," he says.

"There is a great deal of comfort between DBG and Sharma and I see no reason to change that," adds Nilesh. Both Vinita and Nilesh have been given board seats now. DBG still starts and ends his days with a swim. While he needs help from his personal assistants to button up his bandh-gala coat, the mind of this former professor of chemistry from Rajasthan is doing laps across the globe, plotting the contours of the next acquisition.

Source: Business Today (www.businesstoday.com)