Alkem Laboratories, India’s fifth largest drugmaker by domestic sales, is planning its initial public offer (IPO) after 42 years of its founding in 1973.
The company, which filed its draft red herring prospectus (DRHP) to the market watchdog Securities Exchange Board of India (Sebi) recently, will offer 10.75 per cent of its equity (up to 12,853,442 equity shares) to public and list the company at leading stock exchanges.
One of the oldest generic drug companies in the country, Alkem Lab never explored fund raising through equity market as the founders Samprada Singh and Basudeo Narayan Singh — doyens of Indian pharmaceuticals industry — didn’t want to go public and there weren’t any compelling reasons to raise money from public.
The company, which established its first drug manufacturing unit in Taloja near Mumbai in 1978, focused strongly on anti-infective segment as it was one of the key requirements in the domestic market.
This segment remained its core strength even today in the local market and most of its brands in this therapeutic area are still top selling products in India’s anti-infection drug market.
"We didn’t want to raise public money, so never thought of an IPO or listing. Most of our growth through organic as well as inorganic opportunities were funded by internal accruals," promoter and executive chairman B.N. Singh told BW Businessworld in an exclusive interview.
Alkem is a fully integrated pharmaceutical organisation with presence in active ingredients or API, drug formulations in both generic and branded generic group and the new generation neutraceuticals, with one of the biggest marketing networks across India and selected international markets including the US.
The company has about 6,000 people in the field force in India and operates full-fledged marketing and distribution arms in the US, Australia and other countries.
"The equity market seems quite vibrant now and we feel it’s the right time to unlock the value that we have created over the period by offering a small percentage of the equity," Singh added.
According to pharma market researchers, Alkem was the fifth largest pharmaceutical company in India in terms of domestic sales in 2014-15. It also had the largest number of brands (at least five) in the top 50 brands of the Indian pharmaceutical industry for the same year in terms of domestic sales.
In the export markets, the Mumbai-based Alkem’s key focus has been the high value US market, which is the second largest revenue contributor for the company after India, although its products are currently sold in some 56 countries.
"We have expanded internationally through both organic growth and certain strategic acquisitions in the United States, which remained our key focus market," Singh said.
Alkem, which is still largely focused on the fast growing domestic market, however made a series international acquisitions during the last six years. It made its first overseas acquisition in 2009 by purchasing the Australian generic drug maker Pharmacor Pty Ltd.
Shortly after this foreign buyout, Alkem acquired Ascend Laboratories, a generic drug marketing company in the US in 2010.
This acquisition provided Alkem the commercial platform in the world’s most valued pharmaceutical market to sell its portfolio of generic products there. Ascend had relationships with major pharmacy chains, wholesalers, managed care companies, distributors, food and grocery stores and pharmaceutical retailers in the US.
In December 2012, the Indian company also acquired a manufacturing facility from NORAC Inc in the US. This production unit focused primarily on manufacturing specialty APIs and providing contract research and manufacturing services for major pharma clients. And, the recent (June 2015) deal in the US to buy a drug formulation facility of Long Pharmaceuticals Llc helped Alkem to consolidate its production base in that market for finished medicines including semi-solid, liquid and nasal medicines.
While Alkem currently enjoys a dominant position in the domestic market with its strong brand positioning and market share in the acute therapy segment (infection, pain, gastric diseases among others), the higher risk for the company would be the growing competition and declining value proposition in this category and the market shift towards chronic therapies such as diabetes, cardiovascular, oncology etc., according to industry analysts. Increasing dependency on domestic market is another risk for Alkem, which earns almost 75 per cent of its revenue from India.
Alkem, which had a net revenue of around Rs 4,000 crore in fiscal year 2015, currently spend around 4.5 per cent of this on research and development.
Out of the total of 16 manufacturing facilities including 14 in India and two in the US, five of them are approved by international regulatory agencies including US Food and Drug Administration, the company said in its issue prospectus.
BW Reporters
Unnikrishnan is currently Senior Associate Editor with BW Businessworld at its Mumbai Bureau. During his two decades long journalistic career, he has received several media awards and recognitions. His articles on healthcare, life sciences and intellectual property rights (IPR) have been republished by several international blogs and journals.
