Food services logistics company Radhakrishna Foodland is training its guns on a new business segment. The company, which runs the supply chain for clients such as McDonald’s, is wooing medicine manufacturers to transport life savings drugs under controlled temperature conditions across the country.
It has already signed up marquee clients such as Glaxosmithkline, Abbott Pharma, Panacea Bio-tech and Biological E., among others, as customers.
“We have tied up with half a dozen pharmaceutical companies for whom we handle transportation/ warehousing activities under ambient temperature-controlled conditions to ensure that the efficacy of the medication is maintained. We see this as a major business segment that could prove as scalable an opportunity as food logistics,” said Raju Shete, chairman, Radhakrishna group.
Industry experts say that pharmaceuticals cargo tends to be relatively low-volume, high-value cargo in relation to food clients that Radhakrishna Foodland is known for.
The company, in which Warburg Pincus had invested $50 million (around Rs 250 crore) for a 26 per cent stake in 2003, is focusing on consolidating its position as a food logistics provider to retailers, food service operators, hoteliers, restaurateurs and institutions, on a regional basis rather than expanding nationally, before economic cargo volumes are available to run its fleet of temperature-controlled trucks and vehicles.
In the food segment, the company has clients such as Godrej Agrovet, Mother Dairy, Innovative Foods, Venky’s, Supreme Suguna, Vista Foods, Zydus Cadila, Sterling Agro, ITC, and Al-Kabeer. “We are now targeting retailers and have signed up with Metro Cash & Carry and Bharti Wal-Mart. By signing up with retailers who are going to scale up and catering to the pharma business, we can deal with the seasonal peaks and troughs of demand in the food logistics business,” says Shete.
Falling prices of real estate will also help the company set up distribution and warehousing centres as it expands its network pan India to service clients such as frozen foods maker Al-Kabeer or Godrej Chicken and Mother Dairy ice cream. The company is banking on the passage of the proposed Food Safety Act that seeks to impose criminal liability for not storing and transporting food. “We will be conscious of keeping growth expectations in line with external environment rather than being ten steps ahead of the market development,” said Shete.
The company is also shifting to a more asset light model where it gets clients to foot part or whole of the costs of infrastructure such as buying the land to put up a warehouse or the cost of building a distribution center on leased land. In turn, Radhakrishna Foodland will enter an agreement with the client to manage the facilities to agreed service standards on a turnkey basis.
“There is now a 80,000 sq ft distribution center at Banur near Chandigarh in Punjab and a similar sized facility at Ranjangaon in Maharashtra and in Panvel near Mumbai that we manage on behalf of our clients under this model,” said Shete.
Teva Pharma – A Safe Prescription?
Hit by a triple whammy of pipeline woes, an onslaught of blockbuster patent expiries, and regulatory stringency, the once-invincible branded-drugs giants are engulfed in a fog of uncertainty. While the upcoming spate of patent expirations spells trouble for the branded-drugs companies, it creates a big opportunity for generic drug makers.
Of late, there has been a remarkable transformation in the landscape of generic drug companies following a spike in consolidation among them. The relative 'might' of generic drug companies may further be strengthened by President Obama's proposed 2010 budget plan. The President's budget proposal supports a regulatory pathway for bio-generics, and seeks to put an end to "evergreening" by which branded drugs companies reformulate their drugs with minor changes to renew or extend the patent life of the drugs.
Let's take a look at generic drug maker Teva Pharmaceutical Industries Ltd. (TEVA: News ), which has continued to outperform the broad market index every single year, blazing a trail.
Based in Israel, Teva, which was incorporated in 1944, develops generic and branded drugs as well as active pharmaceutical ingredients, or APIs. Shares of Teva are listed on the Tel Aviv Stock Exchange and on the Nasdaq. Teva, which closed first day of trading on the Nasdaq at 61 cents on March 26, 1990, has now topped $45. The company's operations are spread across North America, Europe, Latin America, Asia and Israel. The company generates 58% of its revenue from the U.S.
Earnings – Gleaming… And Still Growing
Teva is not a pure-play on generic drugs and as previously mentioned, has three lines of business – generic pharmaceuticals, branded pharmaceuticals and API. In 2008, generic drugs accounted for 73% of the company's revenues, while branded drugs and API made up a modest 22% and 5% of revenue, respectively.
Over the past ten years, Teva's revenue has never shown a year-over-year drop. Barring three years — 2004, 2006 and 2008, net earnings have increased in each of the years from 1999 through 2008.
Teva's fiscal year ends in December. Net income in 2008 declined to $635 million or $0.78 per share from $1.95 billion or $2.38 per share a year before, hurt by charges primarily related to the acquisition of Barr Pharmaceuticals. However, excluding items, net earnings in 2008 were $2.37 billion and per share earnings were $2.86, reflecting increases of 22% and 20%, respectively. Net sales improved 18% to $11.1 billion in 2008.