himani.singh@icicidir ect.com Nicholas Piramal (NICPIR) Lucrative ...

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NPIL lost a huge turnover due to formulations portfolio disturbance events. Three major factors impacted domestic formulations business. Sales of Phensedyl, a leading brand of the company, were adversely affected during FY06 due to a controversy. As Phensedyl contains codeine derived from a narcotics origin, the Narcotics Control Bureau (NCB) initiated investigation into the sale of the product. In July 2005, the NCB initiated wide spread investigations of stockists and chemists across the country. This resulted in disruption of retail stocking and off-take of the brand. NPIL contested the action of NCB in the courts and was successful in establishing that Phensedyl is not a narcotic drug under the NDPS Act. Valdecoxib was globally advised to be withdrawn, including from India. NPIL had 2 nd ranking in Valdecoxib through Vah and Valto brands. Following this, the company discontinued the brands in July 05, which resulted in annual sales loss of Rs 11.40 crore in FY06. The third reason for sales loss was business restructuring. The company divested Carex division to a distributor. This division had two main product groups, Hospital products (annual sales: Rs 9.30 crore) and Inhalation Anesthetics (annual sales: Rs 6.10 crore). Hospital products were generating paper-thin margin and were not fitting into the business of the company. For Inhalation Anesthetics, NPIL has global model to sell through distributors. Diversified therapeutic exposure NPIL has one of the most diversified exposures among therapeutic segments in the domestic market. Its offerings are in the eight therapeutic segments, which accounts for 90% of the domestic market. This de-risks the company from any slowdown in any one therapeutic segment. Additionally, we believe that NPIL will be the biggest beneficiary of any market expansion in the domestic market. Exhibit 9: Diversified product portfolio Biotech 1% Nutritional 8% NSAID 5% Dermatology 4% others 13% GI 4% Anti-diabetic 6% Source: Company, ICICIdirect Research Ophthalmology - Allergan 4% CNS 12% Respiratory 18% CVS 12% Anti-infective 13% 6 | P age
In-licensing – an opportunity to grow in the domestic market We believe in-licensing presents NPIL a huge growth opportunity with pharms MNCs introducing new-patented products in the domestic markets. The company has decided to adhere to the strategy of respecting Intellectual Property Rights (IPR) and not to get into the generics business (patent challenges). Instead, it aspires to complement the businesses of MNC pharma companies by in licensing new products for the Indian markets and by providing the contract manufacturing services in addition to a robust sales channel. The company has already entered into alliance with Biogen Idec and Chiesi Farmaceutici, Italy for few products. With a large field force of over 3,000 and one of the deepest penetrations into the domestic markets, NPIL is a suitable candidate for medium-sized innovator companies looking to market their drugs in India through the out-licensing route. Strong discovery pipeline would fortify future cash flows NPIL has very strong pipeline in discovery research of 13 new chemical entities (NCEs) in the therapeutic segments of oncology, inflammation, diabetic/metabolic disorder and infectious diseases. Out of these, two molecules are in phases II and one in phase I/II of clinical trials in the therapeutic segments of oncology, inflammation and anti-infective. Exhibit 10: Discovery research pipeline Oncolog Oncolog Oncolog Oncolog Oncolog Inflamat Inflamat Inflamat Inflamat Inflamat Diabete Anti-infe Anti-infe Source: Source: Company In-licensing of pre-clinical candidates – a new paradigm in drug discovery NPIL signed a drug development agreement with Eli Lilly to develop a select group of Lilly’s pre-clinical drug candidates in multiple therapeutic areas. Under this agreement, NPIL will be responsible for the execution of the global clinical development program, including investigational new drug (IND-enabling) non-clinical studies and human clinical trials up to Phase III. NPIL would receive milestone payments up to US$100 million on completion of different phases of studies. In case of a call back, the company would receive the call back payment and the IPR related to the molecule will be held be NPIL. In addition, NPIL would receive royalties on sales upon successful launch of the first compound and may get certain geographic region to market the product. 7 | P age
Page 1 and 2: August 27, 2007 | Pharmaceuticals I
Page 3 and 4: INVESTMENT RATIONALE Emerging as a
Page 5: Major player in domestic market Do
Page 9 and 10: Strong margin expansion likely in e
Page 11 and 12: VALUATION We believe a robust growt
Page 13 and 14: Profit and Loss Statement (Rs crore
Page 15: RATING RATIONALE ICICIDirect endeav

himani.singh@icicidir ect.com Nicholas Piramal (NICPIR) Lucrative ...

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