Sharvil Patel, the new chief of Cadila Healthcare, part of Ahmedabad-based drug maker Zydus Cadila group, said his vision is to build a research-based pharmaceutical company, while maintaining the best standards in terms of quality and compliance in the industry, in an exclusive interview to CNBC-TV18.
Sharvil Patel took over as Managing Director of Cadila Healthcare, after his father Pankaj Patel stepped down from the role yesterday to hand over mantle of the company to his son. Pankaj Patel will continue as Chairman of the company largely taking up the mentoring role.
Pankaj Patel aspired to transform Cadila Healthcare from a largely copycat generics company to a research-driven one by developing a pipeline of novel molecules, biosimilars and vaccines.
“We have moved a lot of products from the bench to clinic and we need to make sure that we successfully complete our clinical trials and make sure that these products are ready for the global launches,” said Sharvil Patel.
“We are going to be strongly driven to make sure that this product portfolio comes to the market, which will be value accretive for us,” Sharvil Patel added.
Sharvil Patel said the company will be spending 6-8 percent of its sales on research and development going ahead.
For the year ended March 2017, Cadila Healthcare had a turnover of Rs 9,753.9 crore. The Patel family holds 74.79 percent stake in the company.
Sharvil Patel, who spearheaded company’s efforts to successfully resolve the warning letter issued by US FDA in record time, said the company has done a lot of initiatives at its facilities like automation, simplification of operating procedures, bringing in accountability and ownership at the facility level and developing a thorough review mechanism in terms of compliance and quality metrics at all its facilities.
“We are very happy that we had a very successful audit this year. But I think we are as good as our last (US) FDA audit and we need to continuously improve,” Sharvil Patel said.
Moraiya facility, critical to Cadila’s US business, got a warning letter in December 2015, blocking new approvals. The facility was re-audited after Cadila initiated remedial measures from February 6 to 15 this year with zero observations. The company now expects 30 approvals from Moriaya in FY18 out of the 40 filed. So far things are looking bright for Cadila run-rate of 5-6 approvals every week including limited competition anti-inflammatory generic drug Lialda. The other big approvals include generic Namenda, phentermine hydrochloride tablets, generic Zetia, and levofloxaxin injection among others.
Sharvil said the company plans to file for 40-50 abbreviated new drug applications (ANDAs) a year with a healthy pipeline of approvals.
Below is the verbatim transcript of the interview.
Ekta: You have only been in the company for two decades, but now, you are going to start day to day operations. What do you think is the biggest challenge and the biggest opportunity for Cadila Health?
Sharvil Patel: The biggest opportunity for our company is the research pipeline that we have been working very hard at for the last two decades. Ever since 2000, we have been working on our new chemical entity (NCE) pipeline, our biologics and biosimilars product portfolio and our new emerging vaccines portfolio.
And we are seeing tremendous opportunity going forward for all of these three portfolios as the clear differentiators for ourselves in both India, emerging markets and also some of the developed markets. So I and my team are very excited about this opportunity that we might be poised to deliver on in the next five years.
Ekta: One of the things which really stood out to me when we spoke to Mr Pankaj Patel earlier was that you were at the helm of the Moraya facility clearance and it is a big achievement for the company considering you had a warning letter in December, 2015 and you managed to successfully get zero observations from the US Food and Drug Administration. What is your biggest challenge when it comes to regulatory issues especially with the Moraya plant? What can we expect from Cadila and what is the kind of focus that you have when it comes to the US FDA?
Sharvil Patel: The regulatory and compliance is an ongoing journey. We have done well this year in terms of our audit, but I think it is a continuous journey that we have embarked upon in terms of enhancing our standards and going beyond compliance. We have done a lot of initiatives in our facilities all the way from automation, simplification to making sure that there is good accountability and ownership at the facility levels. We have a very thorough review mechanism for all our facilities in terms of both compliance and quality metrics.
We are following the FDA's quality guidelines and metrics and trying to make sure that we are on top of it in terms of what the FDA and the other regulators expect out of our facilities. It is an ongoing journey. We have taken the initial steps. We keep an eye out for all the observations that are made and make sure that we are able to keep up to date with those observations and make sure that we are able to adhere to the changes in the FDA and the improvements in the FDA guidelines.
So it is a journey that we have embarked upon. We are very happy that we have had a successful audit this year, but I think we are as good as our last audit and we need to continuously improve.
Latha: That is a good point, but these are day-to-day matters. You are now at the helm. You have to give the company the vision. How are you different from your father?
Sharvil Patel: I do not see myself very different from my father in terms our vision. We are very well aligned. Ever since I joined the business, my vision was also similar to what he has aspired to build which is to build a research based pharmaceutical company.
My endeavour is to make sure that our innovation portfolio becomes very strong. We have moved a lot of products from the bench to the clinic and we need to make sure that we successfully complete our clinical trials and make sure we are ready for these products for the global launches. So we are going to be strongly driven to make sure that this portfolio comes to this market which is very value additive and enhanced for us.
So all, when I t comes to NCE, biologics and vaccines, I want to work very hard with the team to make sure that what we have envisaged and what we have planned for comes to fruition in the next five years. So that is something that is going to be very important going forward. Then finally, compliance and quality has to be as the benchmark for the industry and we want to work very hard to make sure that we keep applying ourselves to make sure we have the best standards in terms of quality and compliance.
Latha: What is that one dream which you could perhaps, not complete and you want Sharvil to do it for you?
Pankaj Patel: My dream was to make a complete research based pharmaceutical company which is still a work in progress and I am happy that Sharvil also has a similar idea and dream to actually make it happen. And that is what I want to see that world knows India as an innovative pharmaceutical company from India and also world knows that India can innovate and contribute to the overall healthcare of the world.
Prashant: I just want to stick to that point, Research and Development (R&D). One of the things one hears from investors is that beyond FY19, what is the visibility that you have in terms of growth and one of the push-backs in a way which is that Cadila is compared to other pharma majors is not spending that much on R&D as a percentage of sales. Could you throw some colour and light in terms of how you think about this and if you have any specific numbers in mind in terms of increasing that?
Sharvil Patel: I personally do not agree with spending as a benchmark of true R&D. Most of the innovative or differentiation of breakthrough developments across the world have not happened by just spending a lot of money. So what we truly believe in is to make sure that we work on the right therapy targets, we work on differentiated targets, we work on first-in-class targets where the barrier of entry is higher but the rewards and recognitions are also higher.
And if you look at some of our programmes, they are poised to be the breakthrough therapies. So I think that the spending is dependent upon the kind of products and portfolio you select. What I think I have significantly learned from our Chairman and seen in the last 15 years is that we have been able to do a lot of this effort in-house, we have built all this core capabilities all the way from pre-clinical to clinical in-house in terms of what our scientists are able to do and that helps us to maintain our costs lower because we are able to not only execute faster, but also maintain our costs.
So that has been a differentiator for us compared to many of our peers that we have focused strongly on building core capabilities inside the organisation and not outsource these capabilities and that has helped us both in terms of time and efficiency and we are able to deliver more projects in a similar amount of money. So I feel going forward, we should be around the same range-bound effort in terms of R&D spends which is between 7-8 percent. Once we reach our phase-III programmes and if we need to invest more, we will look at that, but currently we are able to manage our biologics, our vaccines, our NCE pipelines in the current R&D spends we are managing.
Ekta: You take over the company as the Managing Director in the same year that Trump is chosen as president in the US as well. Nobody can stop talking about how exactly drug prices are probably going to see new levels or new lows in the US markets. On the other hand we also have India where there is that generic prescriptions which could probably become a reality soon. If you had to talk about how you are going to combat the challenges in the US on one hand as well as India where both, in terms of commonality is drug pricing pressure, how would you do it?
Sharvil Patel: These are more external factors and I do not think we can control external factors. What we need to do and what we have decided is that when there will be pressures on pricing, we have to make sure our operational efficiency improves significantly in order for us to maintain our margins. So our endeavour has been to continuously improve the efficiency both in terms of operational efficiency as well as cost. We have been working for the last five years. It is not something that we just started to do, on different initiatives where we are able to optimise our costs and remain competitive both when it comes to the domestic business as well as the international business.
The external indicators will affect each and every company in the same way, so what we need to be is just agile and make sure that we are competitive when it comes to our positioning in terms of efficiency as well as costs.
Latha: On that issue, is there a danger, a negative point that you want Sharvil to avoid? Probably a mistake you made which you want him to avoid or an opportunity you missed. What would be your advice in what he should avoid as red flags?
Pankaj Patel: I would always tell Sharvil not to just do a merger and acquisition (M&A) for the sake of increasing topline, but be very focused on value addition on any merger, any acquisition. He also should actually focus on remaining on top of the cost of operations to make sure that we are always competitive. We are a generic industry. By name or nature of the industry, it is going to be always hyper competitive and could be very important that efficiency at all levels are continuously achieved to ensure that we are successfully competing in the world and maintaining our market shares and markets.
Latha: Would you look at inorganic moves a little more aggressively than your father did?
Sharvil Patel: My view is also very similar. I know we do not want to do M&A just for the revenue recognition point of view. Unless it is very strategic and value additive in the next three years of the transaction we do not want to be spending our resources behind that. We have a lot of development and R&D portfolios that we have for ourselves. We would rather adhere to making sure we invest behind research and the pipeline that we want to create.
But as geographical expansion happens, as opportunities come up both from brands point of view or speciality business point of view, we will keenly explore those opportunities and if we are able to give a good payback to our shareholders, we will definitely go ahead and do M&A, but we are not going out of bound in terms of going crazy on M&A.
Ekta: Would it be a company or would it be say, specific assets like for example, one active pharmaceutical ingredient (API) plant of an ex-company, etc?
Sharvil Patel: It will depend on the geography and market specific ideas. In India mostly it could be brand specific. In the US, it could be a mix of brand as a company. But, I would say it is different for different geographies.
Ekta: What is the plan with the US pipeline? I know it is a little more operational, my question, but if you have to talk about the pending abbreviated new drug applications (ANDA) or US filings that you have at this point in time, what can we expect in terms of say, the launch pipeline for the US as well as maybe what is happening with Lialda?
Sharvil Patel: We have been getting steady approvals in the last two months, almost 5-6 approvals in a week. We have a healthy pipeline. We have been able to file between 40-50 ANDAs a year, so our pipeline will continue to deliver over the next three years in terms of filing. We have a pending portfolio of more than 170 ANDAs and we hope for steady approvals to come to with the expedited reviews happening at the FDA. We see a good stream of products coming through.
The challenge to the team is to be capable enough to launch a large number of approvals and we are geared towards that. We have planned for the next 15 months in terms of what should be prepared in terms of launches. And we are on track to do that, both in terms of capital investments which has been made and people in place.
Latha: Your father made big inroads into the US markets. Would you eye other markets now?
Sharvil Patel: Yes, we are looking at emerging markets as a third pillar of growth for our organisation. We are happy in terms of the geographies we are present in. there are a few gaps, not significant, but a few gaps in terms of some geographies which we are keen to pursue, so we will continue to look at that. We have a very healthy pipeline of portfolio for these markets, so they would come up in the next couple of years. And also, we want to have a good play in the biosimilars and vaccines in these markets and we have seen a significant value addition happening for these two portfolios in the emerging markets.
Latha: You are not much in the European Union (EU).
Sharvil Patel: In Eu, we have a presence in France and Spain. We cover about 67 percent of the portfolio when it comes to the coverage. So we have a decent coverage. We do have an issue of scale, but we are managing the cost by cost efficiency and having the right products launched and through out-licencing we are able to manage and grow the business, but we do not have significantly more plans in terms of expanding our Europe presence.
Ekta: What about the transdermal opportunity in the US?
Sharvil Patel: We have been working actively for the many years. Transdermal has a strong regulatory hurdle in terms of the kind of work we need to do. We are hoping that we will be getting approvals starting from end of this year and following onto next year. Many of our complete response letters (CRL) have been closed and we are looking forward to approvals coming through this year.
Latha: It appears that the next big challenge that not just Cadila, the entire Indian pharmaceutical space and basically, pharmaceutical countries anywhere will face will be the digital challenge, the digitisation and the extent of ability to use analytical tools. Do you see that as very big? Is that where you would want Cadila to concentrate?
Sharvil Patel: What you said is very true. If you look at it from our manufacturing operations and quality operations, we have done a lot of effort on information technology and digitalisation as well as automation. That has helped us significantly not only in our last audits, but also will help us going forward in operational efficiencies. When it comes to front end presence which is the marketing and sales, a lot has not been done there. We are actively working on a few projects to work on the digital and IT platform to enable us in terms of big data analytics to be able to make the right decisions when it comes to the market place.
We are initiating a few projects this year with renowned consultants and hopefully if they succeed we will roll it out on a larger platform, but it is still work in progress. A lot of teething trouble and a lot of effort we will need to make to make sure we get the model right, the algorithms right and get good data for us to make the right judgements. But we are actively pursuing the digitalisation aspect of the front end of the business.
Ekta: If you had to focus on one particular parameter to grow in the next three years if it is your topline, if it is your margins or if it is your bottomline, which one would it be?
Sharvil Patel: Operational efficiency would be the most important aspect of what we need to do in the next couple of years. We know there are going to be pricing pressures. We have large capital investments made. Now we need to make sure we have good operational efficiency coming out of all our facilities, maintain costs and manage costs in an efficient manner. So that is going to be the need of the hour and we are working very hard to make sure that we are on top of it.
Latha: There are the other lucrative pharma attached areas which are doing exceptionally well now. Hospital business for one, wellness. Bigger over the counter (OTC), lifestyle drugs. Will you want to branch out into any of these as well, not losing your core competence?
Sharvil Patel: We have focused, we do have our OTC consumer goods business which is poised for good growth. We had a few challenges in the last couple of years, but if you see now, it has started to do very well with the realignment of the distribution as well as the promotional metrics that we have done and we significantly hope to enhance that side of the business both in the OTC as well as the consumer goods space.
Latha: Not hospitals or diagnostics?
Sharvil Patel: No, currently hospitals and diagnostics is not something that I am focusing on right now, but definitely consumer goods and OTC side is something that I will focus on.
Ekta: Can we expect much more initiatives on that front? Larger healthcare initiatives and what your plan would be considering that you might have a little more time on your hands now?
Pankaj Patel: Surely, that is another area as a family we decided that we should create some kind of what is not available in the state of Gujarat and become a Gujarat based hospital chain to offer people in Gujarat the best in class medical care along with all what is possible anywhere else in the world brought in into Gujarat. So my focus of course is going to be, I am going to spend some time on that to make sure that that dream of the family comes true.
[Courtesy: http://www.moneycontrol.com/news/business/companies/cadilas-new-md-sharvil-patel-says-his-vision-is-to-build-research-based-pharma-company-2324981.html]