Orchid Chemicals and Pharmaceuticals Ltd, a Rs 700-crore plus pharma giant from Chennai, suffered a setback during the first quarter ended June 2004. Its net profit declined sharply by 38 per cent to Rs 4.69 crore from Rs 7.57 crore in the corresponding period of last year mainly due to lower than expected sales, higher interest burden and staff cost. The basic earning per share nosedived to Rs 1.48 from Rs 2.34.
The increased scale of operations and the investments required for the regulated markets have resulted in a higher quantum of borrowings and interest charges. Apart from taking product-market actions, the company plans to raise long-term resources, which would help moderate the borrowings and interest costs, besides funding product diversification and drug discovery programmes.
The company's operating income improved marginally to Rs 173.86 crore from Rs 172.92 crore in the similar period of preceding year. The sales of bulk drug division declined to Rs 150.54 crore from Rs 153.03 crore and that of formulation also came down to Rs 24.82 crore from Rs 27.82 crore.
The company's operating profit before interest, depreciation and taxation improved to Rs 37.24 crore from Rs 33.09 crore. The interest burden went up 52 per cent to Rs 16.86 crore from Rs 11.09 crore and depreciation provision increased to Rs 15.29 crore from Rs 13.80 crore in the corresponding period of last year. Due higher provisions for interest and depreciation, its profit before tax declined to Rs 5.09 crore from Rs 8.20 crore.
Commenting on the Q1 results, Raghavendra Rao, managing director, Orchid Chemicals & Pharmaceuticals Ltd. said that there has been a recent softening in prices of a few mature cephalosporin API products sold in large quantities in certain less-regulated markets. This has arisen because of the decline in prices of key inputs such as Pen-G. However, a new value-building product-market strategy has helped the company counter the impact of the price falls of such cephalosporin API's. Apart from responding quickly with a significant increase in volume of production and sales, the company re-jigged the product and market portfolio to counter the trends adequately. Several new international markets such as Brazil, Japan, Middle East and Latin America among others have been opened up. These initiatives will have a more beneficial impact on a full year basis.
"Over the last few quarters, we have maintained a healthy growth rate despite price pressures prevailing in the global markets. We have been simultaneously creating infrastructure to tap the more lucrative regulated markets with a keen focus on the generics markets of US and Europe. In this direction, our pace of regulatory filings and approvals has indeed accelerated and we are confident that we will make a strong and significant shift from the less-regulated markets to the advanced markets thereby deriving stronger margins and revenues from 2005-'06. Our joint venture in China is now fully operational and we are confident of revenues to the tune of USD 20 million from this venture this fiscal," added Rao.
The company is now poised to make a strong entry into the generics space from 2005. As of date, Orchid has filed 12 Drug Master Files and 4 Abbreviated New Drug Applications (ANDAs) with the US FDA as well as 18 Drug Master Files with regulatory authorities in various European countries and 9 Certificates of Suitability (CoS) dossiers with the European Directorate for the Quality of Medicines (EDQM).
In order to enrich the product pipeline and to enhance long-term market opportunities, Orchid has formulated strategies to enter diverse high-growth therapeutic areas like CNS and CVS among others. The company has drawn plans to set up dedicated US FDA compliant infrastructure covering research and manufacturing facilities both for APIs and formulations. These new facilities will be modular and will support an end-to-end robust business model going forward.