Interview

Presenting Neuland in a new avatar

From being a bulk drug and API manufacturer, Neuland is focusing on contract research and clinical research services to broad base its revenue stream. Saharsh R Davuluri, Vice President-Corporate Planning and Development, Neuland Laboratories, speaks to Aashruti Kak about how they plan to take the company to the next level

APIs being a highly competitive market, how did Neuland differentiate itself from competitors?

The initial struggle was to create a differentiation for Neuland's APIs in a market that was highly price-sensitive. Neuland addressed that challenge by moving to the tightly regulated markets of North America and Europe. Today, with several API companies competing in the regulated markets, Neuland is increasingly focusing on products where it can partner early with customers and where its past experience in the specific technology adds value.

Earlier, Neuland was competing with customers purely on price, although the company always had a significant advantage with respect to quality. Most of the competitors were domestic API producers. Today, Neuland competes with global API companies and differentiates itself based on its quality of product and reliability of service.

What challenges did Neuland face in its initial stages?

Neuland Laboratories started off with 40 employees. Dr D R Rao incorporated Neuland in 1984 for manufacturing salbutamol sulphate. In the year 1986, Neuland started its first commercial production of salbutamol sulphate. Since then it has grown to become a reliable API source for the pharma industry with the addition of more products over the course of years. The biggest challenge faced by Neuland during its early years was to compete on price in the price-sensitive domestic market. To overcome this challenge, Neuland focused on the quality-conscious regulated markets like North America and Europe where the barrier to entry was high and thereby, price sensitivity was low.

The production of Active Pharmaceutical Ingredients (APIs) has been one of Neuland's core competencies. Now, with total employee strength of over a 1,000, Neuland is a preferred supplier of APIs. Its customers include the top 30-pharma companies in Europe and USA. Neuland's team currently has approximately 100 scientists, 16 of whom are PhDs.

What was the rationale behind your recent JV with Cato? How will it benefit both companies?

Neuland entered into a JV with Cato Research to form Cato Research Neuland India to assist healthcare companies in efficiently bringing innovative drugs to market while using high quality and cost effective resources located in India.

Cato will provide business development, personnel training, senior management recruitment and implementation of Standard Operating Procedures (SOP) guidelines. In collaboration with Cato BioVentures, the venture capital affiliate of Cato, the company will also provide CRO services including clinical studies, data management activities, statistical analysis, as well as regulatory services.

The JV will further allow Cato to expand its international presence. The addition of India into Cato's international network will increase its ability to conduct multinational clinical trials and provide a wide range of CRO services in the international arena.

With Cato Research and Cato BioVentures we can accelerate development and commercialisation of several new innovative products. Our strategic interests are well aligned, as each party offers unique strengths to make this arrangement successful. This JV takes us one step closer towards our objective of becoming an end-to-end service provider for the pharmaceutical industry.

What factors influenced the choice of Cato as a partner?

Cato is a global full-service contract research and development organisation providing strategic and tactical support for clients in the pharmaceutical, biotechnology, medical device, and medical diagnostic industries. Cato's services range from design and management of preclinical and clinical studies to submission of regulatory documents required for marketing approval. Neuland and Cato share several similarities in terms of culture, age of the organisation, etc. There was an equally strong desire for each party to work with each other.

What is the share and investment made by both companies in each other? How and where do you plan to utilise the investment made?

Neuland has 70 percent stake and Cato has 30 percent stake. Together, the initial investment will be about $0.5 million in the JV. Depending on the project, Neuland is expected to conduct between 10 and 20 trials annually. The company would conduct only phase II and III trials. Most of the investments would be used as operating expenses for the new company. The operations are not expected to be very capital-intensive.

What projects will the collaboration be working on?

Although, the company would initially conduct only phase II and III trials, it will enter phase I and IV trials in a year or two. All these trials will be done for Cato's clients—some of the top pharmaceutical players in areas such as diabetes, cardiovascular diseases, dermatology, oncology and others.

What is the company's annual R&D investment and the turnover from core focus areas?

Investment into R&D has been increasing at a rapid pace over the last two years. The company recently inaugurated a state-of-the-art R&D centre in Hyderabad with an investment of approximately Rs 25 crore.

For the year 2006-07, Neuland had sales of over $50 million, with a growth rate of more than 25 percent over the last four years. Exports constitute a major chunk of the company's revenues.

Is Neuland up for any acquisitions, alliances or expansions? How do you plan to take the company at a new stage?

Currently we will focus on the JV with Cato. But as we grow we are open to other ventures, which bring value to the company and its stakeholders.

To capitalise on the opportunities that the company has created over the past several years, Neuland will work towards achieving two objectives—to increase its plant capacities for meeting business plan requirements and to develop capabilities in areas of contract research and clinical research.

From being a bulk drug and API manufacturer, Neuland is focusing on contract research to broad base its revenue stream. These are chemistry-based services, closely related to the API manufacturing business, which include medicinal chemistry (discovery support), process development, drug development support and analytical R&D. The company has recently inaugurated a 40,000 square feet R&D centre to support these activities and all facilities are housed in this centre. For this business, Neuland is looking at a diverse range of therapeutic areas (excluding oncology drugs), mostly for customers based in North America and Europe.

While the API business will remain key to our growth, contract research is likely to contribute around 30-35 percent of total sales after stabilisation. The contract research is a $20 billion industry and we are certainly looking at tapping this huge potential. We have also tied up with US based contract research organisation, Cato Research, to conduct contract research in India. To cater to the huge demand that exists we are planning to expand our capacity by 2000 tonnes of API per year. To diversify its export revenue base the company is also eyeing the $1.5 billion Japanese generic market.

The company will continue to invest in strengthening its API manufacture and contract research capabilities. Besides servicing the generic customers, the company will also increase focus on contract manufacture for discover-based companies. Neuland has earmarked a significant investment for these expansions.

aashruti.kak@expressindia.com