Dilip Shanghvi plans comeback; Sun Pharma to develop its own medicines: Report

Shanghvi estimates that Sun Pharma has invested about $1 billion in its patented-drug programme so far. He says growth in the Indian generics business, a push into China, and new generic products in the US will generate cash that can be plowed into reinventing the company.

New Delhi: You'd be hard-pressed to find someone who's lost more during the recent upheaval in the generic drug business than Dilip Shanghvi: He forfeited $17 billion to be precise, plus the title of India's richest man.

After a four-year decline that erased 65 per cent from the value of Sun Pharmaceutical Industries, the drugmaker he founded, Shanghvi is preparing to bounce back. He's doing it by borrowing a page from Big Pharma's playbook: investing in higher-margin patented medicines rather than relying solely on copying drugs.

That won't be easy, especially when the multinationals that dominate the pharma business have already seen the payoffs from their massive research and development spending become more uncertain. Those giants are increasingly turning to acquisitions to fill out their pipelines, and that's where Shanghvi also sees an opening.

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Aided by an ability to move quickly because of Sun's relatively small size — it had only about $4 billion in sales in 2018, compared with Pfizer's $53.6 billion — and streamlined decision-making, Shanghvi thinks the company can eventually pick up enough early-stage innovations and key personnel to generate half its revenue from patented medicines. "It does require some additional skills beyond what a typical generic has," Shanghvi says, but those skills aren't impossible to acquire.

Revenue at the world's biggest generic drugmakers has been hit as the Donald Trump administration approves generic rivals at a record pace to increase competition. At the same time, the industry is under fire in a set of sweeping price-fixing lawsuits filed by US states that allege companies inflated prices on drugs.

Generics makers, including Mylan and Teva Pharmaceutical Industries, are following a path similar to Sun's. But Mylan's investments in patented products have contributed to a drag on its profitability, and the company is now conducting a strategic review of its entire business, as it has no obvious successor on the horizon for its blockbuster patented medical device, the EpiPen. Meanwhile, sales of Teva's lone success in innovative drugs, the multiple sclerosis treatment Copaxone, are dropping faster than expected.

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The two branded medicines the Israel-based firm had been counting on to replace Copaxone's billions of dollars in annual revenue produced only about $100 million in combined sales last quarter.

Shanghvi says he and Sun have a better chance of success. For one, he's proved adept at dealmaking. Shanghvi recognised the opportunity in generic dermatology products at an early stage, acquiring a controlling stake in distressed Israeli drug maker Taro Pharmaceutical Industries in 2010 and using price increases on its portfolio to help improve Sun's profitability. Sun is India's largest drugmaker, thanks in part to the 2015 acquisition of a troubled local rival, Ranbaxy Laboratories.

Shanghvi says the inspiration for his strategy is British drugmaker Shire, which largely eschewed R&D in favour of a "search and development" model: acquiring and licensing products created by others. The Shire was bought for $62 billion earlier this year by Japan's Takeda Pharmaceutical to bolster its own dwindling product pipeline.

Because he controls 55 per cent of Sun's shares, Shanghvi says, the company can pursue opportunities more nimbly than rivals weighed down by corporate bureaucracy. "The advantage is that I have an end-to-end understanding of all aspects of the business," he says. "It's easier for me to take decisions involving risk because I am able to assess risk from multiple dimensions. In a big company, they will need 8 or 10 people who have to look at it."

Investors are more sceptical. Sun's shares have fallen 6.8 per cent over the past year, while India's benchmark stock index has climbed 14 per cent. The industry price-fixing case is likely to add to the pressure.

More than a dozen top generic-drug makers, including Sun, have been sued in the US by more than 40 states, which accused them of inflating prices of at least 100 different drugs. "We believe the allegations made in these lawsuits are without merit, and we will continue to vigorously defend against them," a Sun spokesman says.

Many analysts are also doubtful about the company's plans to move beyond generics. "It's a different ballgame altogether," says Surajit Pal, an analyst with Prabhudas Lilladher, who has a reduce rating on Sun. "I don't have any data on any company, be it Indian or non-Indian generic majors, who have made an impact out of launching or selling new drugs."

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Shanghvi estimates that Sun Pharma has invested about $1 billion in its patented-drug programme so far. He says growth in the Indian generics business, a push into China, and new generic products in the US will generate cash that can be plowed into reinventing the company. "The performance of many large multinational Big Pharma companies has been mixed," says Shanghvi, whose personal fortune now stands at about

$7.8 billion, making him India's eighth-wealthiest person, according to the Bloomberg Billionaires Index. "I think one can learn from that."