The success story of Sun Pharma
Shobhana
May 25, 2007
For a company that started in 1983 with just five people and five
products, it's no mean achievement that Sun Pharma today commands the
largest market capitalisation of Rs 21,271 crore (Rs 212.71 billion)
in the pharma universe.
Thanks to a strategy that focuses on niche segments such as psychiatry
and lifestyle drugs, the company has raced ahead, with its business
growing four-fold between 1999-2000 and now, with revenues of Rs 2,237
crore (Rs 22.37 billion).
The story goes that the reason chairman and managing director Dilip
Shanghvi decided to manufacture medicines for psychiatry, when he set
up his first unit at Vapi in Gujarat, was that the number of
psychiatrists was few and so it would be easier to reach out to them
rather than sell to a whole lot of general physicians, which would
require a large field force.
Whatever the reason, Sun, from the very beginning, has focussed on the
high-margin chronic care therapy products that have made the company
very profitable.
Together with a head for numbers, Shanghvi -- who started life as a
wholesaler of pharmaceutical products in Kolkata where his father ran
a business -- has a knack for turning around companies.
Most of his acquisitions have been of distressed assets. Known to be
extremely conservative, with his feet firmly on the ground,
51-year-old Shanghvi has desisted from overpaying for assets or
getting carried away by bids from peers, preferring instead to bide
his time.
That's possibly why Sun hasn't made any big acquistions since it first
bought into the Detroit-based Caraco Pharma in 1987 and took over,
over a period of time for $50 million. Initially, the Caraco takeover
seemed to be a wrong move -- it was in the red for several years --
and the Sun management perhaps miscalculated the timelines required to
sort out some of the US FDA issues that Caraco faced.
Shanghvi, however, persevered and finally Caraco is making money.
Industry watchers are convinced that Sun's more recent takeovers,
including Valeant and Able Pharma, too will soon turn profitable.
Sun Pharma's buyouts have been well thought out. In almost every
instance the company has managed to diversify into a new area. When it
acquired Tamil Nadu Dadha Pharma it gained entry into the oncology
space; with Milmet Labs it was able to acquire expertise in
ophthalmology, while with Valeant it penetrated the controlled
substances segment.
The story is much the same with its latest acquisition,the
Israel-based Taro, which Sun has bought for an enterprise value of
$454 million. The $300 million generics player, which has a subsidiary
in Canada, is a strong contender in the dermatology segment which
accounts for more than 50 per cent of its revenues.
Taro is strategically a good fit for Sun because, as the soft-spoken
and down to earth Shangvi says, it will help Sun tap into the former's
customer base in Canada, Europe and US and sell Caraco's existing
portfolio of products to them. Taro may not be in great shape
financially -- it made a loss in 2006 -- but then Shanghvi should not
have too much trouble turning it around.
When Sun Pharma first started selling its products on a national
scale, way back in 1987, it ranked a low 108 on the ORG list. Today,
with a domestic market share of 3.2 per cent, it is ranked number six.
The numbers tell the story: whether it's building a profitable
business or creating wealth for his shareholders, Shanghvi's done a
great job.
