Piramal Healthcare Company Analysis Report

Piramal Healthcare Company Analysis Report

Summary

• Piramal Healthcare is one of the largest pharmaceutical manufacturers in India, and has a diverse portfolio of products spanning around 17 therapeutic categories. It is also recognized as a major contract manufacturing organizations with a global footprint of assets across North America, Asia, and Europe.
• The company operates in two key divisions: Healthcare Solutions and Pharma Solutions, of which Pharma Solutions is considered as its contract manufacturing business. Its Pharma Solutions segment gained a significant scale of operations and recognition among its clients, following the acquisition of Pfizer's Morpeth (UK) manufacturing facility in August 2008.
• Piramal Healthcare's business model is unique among its peers. In addition to its CRAMS operations, the company is also a major player in India's pharmaceutical market.
• The Healthcare Solutions is the flagship segment of the company with revenue contribution of around 54.5% followed by Pharma Solutions (24.1%), Critical care operation (8.9%), and Diagnostic services (5.6%).
• Piramal's Healthcare Solutions business recorded the highest sales for the company registering $422m at a y-o-y growth of 20.6% in FY 2010. However, its Pharma Solutions segment, which provides CRAM services such as clinical stage API synthesis, formulation development, and finished dosage supply, recorded $187m sales at a y-o-y decline of 19.2% in the same year.

Company overview

Table 14: Piramal Healthcare snapshot
Headquartered:	Mumbai, India
Established:	1988 (as Nicholas Piramal India Ltd.)
Consolidated revenue (FY 2010):	$775m
Segmental revenue (FY 2010):	$187m*
Employees (as of March 2010):	7,311
*Pharma Solutions (Custom manufacturing business).Note: FY = Fiscal Year (April 01 to March 31)

Source: Company information

Piramal Healthcare is one of the largest pharmaceutical manufacturers in India. The company has a presence in broad spectrum of industries including healthcare, contract manufacturing, diagnostics, drug discovery, glass manufacturing, real estate. The company has a diverse portfolio of products spanning around 17 therapeutic categories. It is also recognized as one of the major contract manufacturing organizations with a global footprint of assets across North America, Asia, and Europe. The company operates in two key divisions: Healthcare Solutions and Pharma Solutions, of which Pharma Solutions is considered as its custom manufacturing business. Although Piramal Healthcare is one of the leading contract manufacturers in India, its custom manufacturing operation accounted for only about 24.1% of its total sales in FY 2010.

Its Pharma Solutions segment gained a significant scale of operations and recognition among its clients, following the acquisition of Pfizer's Morpeth (UK) manufacturing facility in August 2008. The Morpeth site is an integrated API and finished dosage site with over 300 finished dosage manufacturing capacity. Moreover, this supply agreement with Pfizer is active till November 2011 with potential cumulative revenues of over $350m.

In terms of recent activities, in May 2010, Abbott have signed an agreement to acquire Piramal Healthcare's domestic finished dose forms business for an up-front payment of around $2.1bn and additional annual payments of $400m for four years starting 2011. The other major deal includes the divestment of its diagnostic arm to Super Religare Laboratories (SRL) in July 2010. Piramal Healthcare has divested its pathology and radiology diagnostic services subsidiary to SRL for around $128.3m.

Business segmentation

Piramal Healthcare's business model is unique among its peers. In addition to its CRAMS operations, the company is also a major player in India's pharmaceutical market. The Healthcare Solutions is the flagship segment of the company with revenue contribution of around 54.5% followed by Pharma Solutions (24.1%), Critical care operation (8.9%), and diagnostic services (5.6%).

R&D focus

Pharma Solutions of Piramal Healthcare has been at the forefront in R&D of cutting edge pharmaceutical technologies including a chiral technology toolkit for asymmetric synthesis of chiral molecules. A large number of researchers in India and UK are also engaged in commercialization of a number of technologies such as CATHy (Catalytic Hydrogenation), SCRAM (racemization of unwanted enantiomers).

Moreover, the Pharma Solutions division is very strong in providing clinical active pharmaceutical ingredients (API) services to companies all over the globe. This group has a large number of process development labs, kilo labs and pilot plants across a network of sites in India, North America and UK. The Group also works with a number of biotechs and virtual pharmaceutical companies to supply API from Pre-clinical studies to commercial launch including clinical API.

Piramal Healthcare's R&D is mainly concentrated in the following areas:

• Development of cost-effective and eco-friendly process for commercial manufacturing of APIs and their intermediates;
• Formulation development and clinical manufacturing of clinical and preclinical API and dose forms;
• Process optimization for early stage trials from external clients;
• Development of conventional and novel dosage products across all the major therapeutic areas for the domestic market.

Financial performance

Piramal's Healthcare Solutions business recorded the highest sales for the company registering $422m at a y-o-y growth of 20.6% in FY 2010. The Pharma Solutions segment, which provides CRAM services such as clinical stage API synthesis, formulation development, finished dosage supply, recorded $187m sales at a y-o-y decline of 19.2% in the same year.

Table 15: Piramal Healthcare financial performance by segment ($m), FY 2010
Division	Sales FY 2010 ($m)	Sales growth FY 2009–10 (%)	Share of revenues FY 2010 (%)
Healthcare Solutions business	422	20.6	54.5
Pharma Solutions (Custom Manufacturing)*	187	-19.2	24.1
Piramal Critical Care	69	141.0	8.9
Piramal Diagnostic Services Limited	44	18.2	5.6
Others	53	-22.6	6.9
Total	775	8.3	100
*Includes assets from both India and outside India.Note: all numbers were converted into $m considering an average exchange rate for the fiscal year (i.e. in FY 2009, INR1 = $0.0218; in FY 2010, INR1 = $0.0211). FY = Fiscal Year (April 01 to March 31)

Source: Company reports

The sales decline of Pharma Solutions division in FY 2010 was mainly due to the closure of a manufacturing facility at Huddersfield, UK and after effect of 2008/09 economic downturn. However, increasing activities in the global and Asian CMO sector will boost its revenues in coming years. Moreover, in the last two years, Piramal Healthcare has built a robust clinical trial packaging and formulation development business which now contributes to around 15% of Morpeth revenues (Pfizer's manufacturing facility, which was acquired by Piramal Healthcare in August 2008).

Growth strategies

Strong distribution and marketing infrastructure in India

Indian contract manufacturing market has become increasingly attractive for multinational pharma biotech players as it aggressively pursues growth opportunities in the emerging markets. Due to the reduction in inventory level across many pharma companies, the contract manufacturing industry struggled to grow for most parts of FY 2010. However, towards the end of the year, there was a definite recovery in the business environment. Piramal Healthcare has created a unique portfolio over the past several years through a combination of organic and acquisition-led growth model. A large part of Piramal's CRAMS (contract research and manufacturing services) operation is contract manufacturing. Although, its Pharma Solution operation from international base (mainly UK and Canada) was hardly hit from global slowdown but the custom manufacturing business from Indian base delivered steady growth in recent quarters. Moreover, the renewal of manufacturing contract with Pfizer at Morpeth site (till November 2011) which was due to expire in FY 2010 also expanded its volume from this site.

Rationalization of international contract manufacturing unit to increase its efficiency

In April 2009, Piramal Healthcare closed its facility in Huddersfield, UK, as a part of an effort to consolidate its manufacturing assets globally. Alongside, it has downsized its work force in its Morpeth facility from around 185 in FY 2009 to 135 in FY 2010. Hence, it is believed that Piramal Healthcare's international contract manufacturing operation will see steady growth during 2010/11, with improved earning efficiency led by the restructuring at its strained overseas contract manufacturing operation and renewal of Pfizer contract at Morpeth. Moreover, in early 2009, Piramal Solutions also started a state-of-the-art formulation development centre in Ahmedabad, India, focusing on solid dose development. The centre is equipped with equipment to support formulation development, and GMP supply to support clinical trials up to Phase II stage.