One giant leap for Mankind

Mankind Pharma made it big in small towns, but can its magic help it conquer the bigger markets?

Vishal Koul

Although we can’t organically become the next Sun Pharma in five years’ time, we can definitely surpass Cipla or Abbott,” avers Mankind director Arjun Juneja when asked how his company will get to the next level without making any notable acquisitions. Several of the country’s pharma players have taken the inorganic route to fuel growth, but Mankind stands out as a rebel that has bucked this trend. Painstakingly built by Arjun’s father RC Juneja in the dusty hinterland of north India, Mankind has been acknowledged as a success story that used the bottom-up strategy to its advantage. According to a November 2015 research report, the 20-year-old company is in fourth spot in the market, after Sun, Abbott and Cipla (in that order) in terms of both sales and market share. This ranking was certainly playing on Arjun’s mind when he made his statement about Mankind’s future. But after a realistic rethink, he offers a relatively more staid claim, focusing instead on the difference between Mankind and the 80-year-old Cipla. “The company has a 5.5% market share, while ours is 4%. We should be able to cover that gap in two years.” While we will deal with this 1.5% deficit later in the story, the point to ponder here would be: what gives the company the confidence to make such claims?

Arjun Juneja, director, Mankind PharmaFounder RC Juneja, who toiled as a medical representative (MR) for Lupin in western UP in the late ’80s and early ’90s, certainly has the advantage of history to back up Arjun’s claims. His stint in these small towns convinced him that the market needed a pharma company that could keep costs low through contract manufacturing, thus selling drugs at a fraction of the prices charged by MNCs. Founded in 1995, his company followed this strategy religiously for the next 20 years, going from Rs.3 crore in sales to raking in Rs.350 crore by 2005. But Mankind’s biggest leap has come in the past decade. By FY15, the company had jumped to Rs.3,500 crore in sales, with a November 2015 IMS Health reflection report pegging its moving annual total revenue at Rs.3,674 crore. But what makes Mankind stand out from the crowd is its consistent high growth, upwards of 20%. The low-cost, low-price, small-town ethos was further bolstered by the efforts of an aggressive field force, which included even the company’s MD (and R C Juneja’s nephew) Sheetal Arora at one point of time. “While I was finishing my graduation, I was simultaneously working as an MR for the company. For seven years, I used to just head out with a bag, before moving up the ladder to the manager’s post,” he says. That the company’s top management has put in long hours as part of its field force speaks volumes about the extent of its insights into the market. Today, its field workforce is 13,000-strong, formidable in comparison with Cipla’s 9,400 and Sun Pharma’s 9,000+ for India.

Force field
And all the hard work by its ground staff seems to be paying off — Mankind currently rules the roost in terms of prescriptions. “This proves the company’s acceptance among doctors,” points out Kewal Handa, ex-managing director, Pfizer India and now promoter-director of Salus Lifecare. While it is clear that small-town doctors have pushed the company’s tablets so far, Mankind is already hard at work to get the approval of doctors in big cities and metros. “Initially, we were a GP-based company in Tier II and III cities, but we have been doing well in the metros over the past three years. We have begun targeting hospitals across the top 10 cities as well,” says Arora. While many pharma cos have been doing business worth millions with big hospitals in the metros, Mankind was largely absent from this space. And in targeting these aggressively, its old strategy of bombarding potential clients with its field force continues. “Over the past two years, we have stationed full-time MRs at key hospitals in all the metros. For example, there are three guys posted exclusively at AIIMS. From morning till evening, their task is to only chase doctors at that hospital.” As for revenue figures, all Arora reveals is that revenue has increased but “it will take some time for us to build strong relations with clients”. 

Sheetal Arora, MD, Mankind PharmaHaving sold its drugs at a reasonable price throughout its existence, analysts say it is likely that Mankind might find it difficult to rid itself of the ‘cheap variant’ tag. Besides, its competitors have the added experience of being focused on big-city markets all this while. “All the big companies — the GSKs, Mercks and Abbotts of the world — have a stronghold in the metros. Their products are well entrenched in these places. So, for any generics player, it will be a tough task displacing them,” says Monica Gangwani, executive director and head, Ipsos Healthcare India. Arora understands these limitations and says that in addition to an increase in marketing, the MRs in big cities are especially trained to make shorter, crisper pitches, since they don’t have very long to convince doctors. He adds that the government’s recent drug control policy has also helped the company. “With the government drug price control order (DPCO) in place, most MNCs had to reduce their prices, and doctors finally understood that these companies were taking more margins and overcharging their patients. That has also helped Mankind find success with a new set of doctors.” In the DPCO issued in July 2014, 39 drugs to treat diseases such as diabetes, infections, digestive disorders and pain, among others, were brought under price control. The corresponding medicines were being sold by MNCs such as Abbott and GlaxoSmithKline, as well as domestic firms such as Lupin, Cadila Healthcare and Sun Pharma.

Monica Gangwani Executive director and head, Ipsos Healthcare IndiaMankind also claims to have revolutionised the rules of MR engagement in the country. When the company started expanding within Delhi in 2007, most pharmas had 25-30 MRs; instead, it kicked things off with 60 persons on the field, raising the number to 100 gradually. Taking advantage of the deep trade discounts in the hinterland, the company also offered discounts and freebies of up to 20%, compared with the 2-3% being offered by competitors. Arora says the company plans to maintain that aggression even in the new territories it is targeting. And the company’s MRs, whose support he is banking on for these markets, have also benefited equally, earning up to Rs.10 lakh in incentives. However, there’s more to this trend, explains Gangwani. “Generally, Indian pharma company reps tend to be more aggressive. Unlike those from MNCs, they normally don’t have research and trial data points to back their pitch to doctors, so they try to capitalise on their relationships with doctors or try to lower the prices or offer discounts.” The company’s revenue from Tier I cities increased from Rs.1,083 crore in FY14 to Rs.1,344 crore in FY16, and Arora claims that the company is hitting 40% growth in these centres. 

Course correction
Of course, the company’s had its share of slip-ups, too. A year back, oncology was being considered as a key growth driver for the future. In fact, Mankind created a buzz in the newspapers by claiming that it would launch cheaper cancer drugs and repeat the success it had found in the acute diseases category in the past. However, that strategy has since been shunned. “The government has enforced a strict cap on oncology drugs. In the light of that, profitability will be hard to achieve in this space. The oncology R&D itself is an expensive process. So, we might not follow through with that strategy and focus on cosmetology instead,” says Arora. He adds that bigger competitors, who were already selling cancer drugs at a big premium, might be able to better absorb these shocks instead. A case in point: three years ago, German MNC Bayer was selling its kidney and liver cancer drug Nexavar at Rs.2.8 lakh for 120 tablets, until the Indian Patent Office granted a compulsory license to Natco, which launched it at Rs.8,800 for a month for the same dosage. 

But this continued lack of sufficient research backing is what has often led to Mankind being called a marketing success rather than a pharmaceutical one.  “In India, if you have the capability to launch non-patented, generic products faster than the competition, you are seen as innovative,” rues Handa. Mankind has lagged behind even in this. So, how long can Mankind survive just on marketing strength? 

Well, the company is in no mood to change. Mankind’s current strategy still revolves around marketing, with the addition of some product-based innovation and a focus on certain segments. “Marketing will always drive Mankind: that is our core strength and we can’t turn away from it. We will continue to invest in that,” says Arjun. He lists some of the things that actually have changed. “From the past couple of years, we have started launching newer molecules, which we never used to do in the past. Recently, we introduced Dynaglip, which is by far the cheapest gliptin available in the market to treat diabetes. We were one of the first to do that. The response has been good so far and we are selling nearly 15 lakh tablets a month, which we expect will go up to 50 lakh tablets in the next six months.” In fact, the spotlight on diabetes drugs ties in with the company’s strategy of focusing on the chronic segment now more than ever. In the past, it gained its market share by focusing on economical acute disease medicines, and so wants to catch up on the chronic front. With experts pointing out that India has the largest diabetic population in the world, there is more than enough scope for growth in this segment. While in 2013, the chronic segment’s contribution to revenue was 13%, it had gone up to 20% by 2015. 

And diabetes is not the only segment the company has an eye on. Mankind created a niche brand called Health OK in 2013 and sells multivitamins and supplements under its umbrella. Arora emphatically declared it a success. “Health OK is targeted towards urban consumers and the best doctors. It has already become a Rs.50-crore brand,” he says. Among other success stories is Cilaheart, a cardiology chronic medicine that was launched in 2012 and which today is a Rs.16-crore brand. Another opportunity that the company wants to tap is cosmetology. It is busy putting up a division together for the same, with the products being targeted towards metros and semi-metro territories. The plan is to launch an encapsulated sunscreen that will immediately be absorbed into the skin, while also creating a protective layer. “This will be the result of new technology; it’s not very common,” claims Arora. The other products being lined up include a fairness cream, hair regain and maintenance therapy and oral supplements. Arora says that these products will be available with “some dermatologists and cosmetologists. These will not be placed with FMCG retailers”.

Mankind has also built a vibrant OTC portfolio around sexual health products such as condoms (Manforce), pregnancy detection kits (Prega News) and morning-after pills (Unwanted 72). Manforce, which was launched in 2007, is a leading product in its category. This portfolio has been painfully put together after burning massive amounts of cash for years and only recently has it started churning out profits. But for all this hard work, the OTC/FMCG portfolio stands at Rs.350 crore today and contributed barely 7.6% to Mankind’s kitty in FY15. What, then, explains the company’s insistence about sticking it out in this category? Arjun feels that these products have drastically changed the company’s brand image. “Except for doctors and chemists, no one knew about Mankind until the OTC range was launched. After the launch, we have become a household name.” Arjun insists that the push into sexual health, however, was entirely incidental, adding that the company tasted success with the condoms it started giving out as freebies with its erectile dysfunction tablets called Manforce. It then decided to launch condoms and the rest, as they say, is history. That brand alone is worth Rs.130 crore today. Arjun adds that the company will continue to invest in the OTC space since the portfolio is currently growing at 35%. It also toyed with a launch in the pure FMCG territory by introducing the Adiction brand of deodorants in 2010, which is worth Rs.40 crore today. But, the strategy, now, is not to venture into the pure FMCG domain in future, insists Arora. “We have understood that we can’t compete with the might of the HULs and P&Gs of the world. Our forte is the chemist shop.” 

Greener pastures?
Going forward, Mankind wants to exploit the huge export opportunity that other India pharma players have been tapping. “In the next three years, we want to net Rs.200 crore from exports and our long-term objective is to make Rs.1,000 crore from the US market alone in 10 years,” says Arora. Mankind’s exports currently stand at an uninspiring Rs.30 crore, from regions such as Sri Lanka and southeast Asia. Says Juneja, “We are present in unregulated and semi-regulated countries and will enter the US market by June or July this year.” Although the US market offers better profits than any other geography, and that’s what has prompted most Indian companies to focus their attention there, the market is only getting tougher with regulations becoming increasingly stringent. “We know it is not an easy market and we might need to spend at least Rs.200 crore-300 crore to start off there. We will not hesitate to go for an acquisition if the opportunity presents itself.” 

Kewal Handa  Former MD, Pfizer IndiaIrrespective of how that strategy will pans out in the coming years, investors seem to be gun-ho about Mankind. In May 2014, ChrysCapital, which held an 11% stake in Mankind Pharma (bought in 2007 for $21 million) exited with 10x return when it sold its stake to Capital International for $200 million. The stake sale pegs Mankind’s valuation at a whopping Rs.13,000 crore. Media reports around that time indicated that ChrysCapital had quite a few offers at hand, including one from Warburg Pincus. 

So far, Mankind has succeeded with its high volumes-low margins strategy. While the industry standard has been between 20-30%, Mankind survives on an average margin of 10-15%. Now, as Mankind plans to grab a larger pie from bigger cities, could its competitors be eating its lunch? “We continue to remain focused on small towns and haven’t let competitors win easily. We keep visiting our doctors regularly. Most of the companies that have started focusing on smaller cities haven’t . been very successful. Sanofi, Dr Reddy’s and Torrent all launched rural initiatives but none of them were very successful. It is quite a big cultural shift for them. Because we started out from those towns, our culture is very different.” One player that is within striking range of Mankind is third-ranked, 80-year-old giant Cipla. “The company may or may not overtake Cipla in two years, given that the latter has a huge product portfolio to boast of, targeting every segment,” says Gangwani. Again, Cipla’s exposure to overseas market is upwards of 25% of total revenue. Gangwani sees a gap in terms of product range and maturity, too.

However, Arjun begs to differ. “I think 70% of ourproducts overlap; there isn’t much of a difference. Cipla is probably more active in oncology and biotechnology, but at the moment, we don’t see the need to get into such products. We are confident that our current lines can drive future growth,” he says. However, experts say Cipla doesn’t suffer from the kind of image issues that haunt Mankind. But Handa doesn’t think that is an insurmountable problem. “I wouldn’t say Mankind’s image is associated with cheap products; its image is tied in with low-price products. That’s not really a bad image to have, given that the doubts are not about quality,” he says. He also points to the inherent advantages of low-price positioning by comparing it with no-frills airlines. “Sometimes, Indigo’s fares are higher than Jet’s. In the same way, Mankind, too, has been selectively raising prices, but no one will notice that because of its image and positioning.” AddsArjun, “If the results of our medicines wouldn’t have been the same [as that of bigger brands], we wouldn’t have succeeded.” He doesn’t think that the company is going to walk away from its low-cost, low-price, high-volume, low-profit, aggressive field force strategy anytime soon. After all, the capsule might keep changing, but the medicine inside remains the same. And that is what Juneja and co are counting on.