Corporate Front: Strategy, Will R&D Prescribe Success For Sun Pharma?

CORPORATE FRONT: STRATEGY
Will R&D Prescribe Success For Sun Pharma?

While its M&A drive was focused on acquiring research-intensive companies, drug-discovery will prove a risky venture.

By Radhika Dhawan

Dalip Shanghvi Over the past three years, Dilip Shanghvi, the 44-year-old Managing Director of Sun Pharmaceuticals (Sun) has been quietly following a personal agenda during his trips abroad. Without fail, he spends a couple of days touring research labs--independent ones, as well as those of pharmaceutical companies--in Europe and the US. Shanghvi has notched up 25 lab visits over the last 3 years. Says he: "Innovation is an important part of any pharma company. I need to understand how these companies manage the creativity process and adhere to timelines."

Now, in what is Shanghvi's most ambitious move, he's trying to implement some of these practices at the acquisition-driven Sun. Albeit a bit late in the day, the company is setting off in search of the Holy Grail of pharmaceutical R&D through a drug-discovery programme. The two-pronged strategy is ambitious, but risky. It also pits Sun against companies like Ranbaxy Laboratories and Dr Reddy's Laboratories (DRL), which have at least a four-year headstart--and patented molecules to boot.

To start with, the company is focusing on innovative dosage formulations in the cardiovascular and central nervous system therapeutic segments. Targeting the regulated markets of the US and Europe, Sun will bring out innovative tablet-forms and time-release formulations for existing drugs, and new generic drugs going off patent. Since the $6-billion generic market is extremely competitive, Shanghvi wants total control over the manufacturing value chain. Says Shanghvi: "Backward integration will allow us to control costs and also manufacture speciality products for which bulk activities may not be easily available globally, since the market for them might be small."

This is where two of Sun's key acquisitions fit in. Sun has been targeting companies with certified manufacturing facilities abroad, essential to break into the developed markets. MJ Pharmaceuticals, which Sun snapped up in January, 1997, holds regulatory approvals from the UK-based Medicines Control Agency for all its manufacturing lines, and from the US-based Food & Drug Administration (FDA) for cephalosporin capsules. Then there's the Detroit-based Caraco Pharma Laboratories (Caraco), which Sun acquired in August, 1997, which has FDA approval for 2 generic formulations, while 4 more are in the pipeline.

Its export-led strategy will generate funds for Sun's drug-discovery programme. The company, which has already started recruiting, should have a team in place by mid-next year in 7 diverse scientific groups, such as chemistry and bio-chemistry and toxicology. Sun says it will file its first patent in 2000. But it is not as ambitious in its areas of specialisation. "We will work within definable models available," says Raja Mannar, 35, Head (Chemistry Group), Sun. In short, Sun will concentrate on the areas of alimentary (gastro-enterology), respiratory, and central nervous systems. Research shows that inflammatory properties are fairly easy to predict and relatively well documented.

Yet, the risks are immense--in terms of time and cost. A molecule has to be taken through various phases of animal and human trials before the drug is ready for commercialisation. The process could take anything from 8 to 10 years, and there is a danger of the molecule failing at any stage of the tests. The funds requirement is huge. Points out Visalakshi Chandramouli, 29, Analyst, Prime Securities: "Drug-discovery is not for the faint-hearted. It requires both a strength of purpose and a focus to succeed." In fact, Sun may have to go DRL's way and license out the molecule for co-development.

Explains a senior manager in Ranbaxy Laboratories: "Co-development might be essential since speed is important, and huge funds are required for clinical trials." Sun, meanwhile, is increasing its annual R&D spend, now at Rs 14 crore, to Rs 35 to Rs 40 crore over the next couple of years. Asserts Shanghvi: "These funds will be generated internally through growth and profitability." Within Sun, Shanghvi is trying to instil a culture that encourages the juggling of various scientific disciplines, a pre-requisite for any nuts-and-bolts drug-discovery programme. Says Dilip Shah, 57, ceo, Vision Consulting: "The business is attractive because if you make it, the returns are huge." But what illness will failure bring?

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