Synopsis
The under-performing pharma company’s foray into a competitive services business like diagnostics may seem counter-intuitive, as Lupin has been facing many challenges in its US business, including pricing pressure, increased competitive intensity, compliance and drug settlement costs.
AgenciesET Intelligence Group: Last week,
announced its entry into the diagnostics business, adding one more corporate player to a fast-growing industry. Lupin plans to open 100 laboratories across India in the next three years and aims to be among the top five players in five years.
The under-performing pharma company’s foray into a competitive services business like diagnostics may seem counter-intuitive, as Lupin has been facing many challenges in its US business, including pricing pressure, increased competitive intensity, compliance and drug settlement costs.
It has been making changes to its business model – restructuring the specialty business, and rationalising R&D expenditure as well as its sales force – to improve profitability. Lupin may also spin off its new chemical entity and biosimilar segments.
At this juncture, getting into a new business line may spell trouble. However, it seems to be a calculated risk.
Lupin’s India business is strong and a step into diagnostics could be another strategy to strengthen its business in the country.
In its earnings call in October, the management had alluded to the launch as it is keen on pursuing businesses adjacent to drug prescription that can help create more touch points with doctors and consumers.
This is going to be a calibrated approach in which the capital is allocated, and the management will watch out for returns before it starts investing more, lest it becomes a drag on margins.
Globally, several pharma companies like Johnson & Johnson and Abbott Laboratories have developed diversified models consisting of drugs, diagnostic products and services, nutraceuticals, and health management. Swiss drug major Roche is present in pharmaceuticals as well as diagnostics. Such a diversified business model comes with its pros and cons though.
Moreover, it helps spread the risk across businesses, combat competition better and offer a holistic disease management from prevention to cure.
On the other hand, diversification requires investment in new facilities and manpower, a culture shift from providing products to delivering services and makes new demand on management bandwidth.
A diversification gone awry can also alienate investors.
For Lupin, venturing into diagnostic business is a low-capex proposition with low entry barriers.
This, along with its digital health initiatives, can provide the company runway to leverage its relationship with health care providers and patients. However, it is not the first pharma company in India to foray into diagnostics. Unlisted players Mankind Pharma and Reliance Life Sciences are already present in this area.
In the past, Ranbaxy had floated SRL Diagnostics, which is a strong player in the industry today. The competition is rife among existing pure-play diagnostic players that are aggressively scaling up.
Lupin has had to course correct on some of its earlier strategic moves, which have taken a toll on valuations. The Street would not like diagnostics to go down the same road.
(What’s moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)
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SynopsisThe under-performing pharma company’s foray into a competitive services business like diagnostics may seem counter-intuitive, as Lupin has been facing many challenges in its US business, including pricing pressure, increased competitive intensity, compliance and drug settlement costs.AgenciesMoreover, it helps spread the risk across businesses, combat competition better and offer a holistic disease management from prevention to cure.ET Intelligence Group: Last week, announced its entry into the diagnostics business, adding one more corporate player to a fast-growing industry. Lupin plans to open 100 laboratories across India in the next three years and aims to be among the top five players in five years. The under-performing pharma company’s foray into a competitive services business like diagnostics may seem counter-intuitive, as Lupin has been facing many challenges in its US business, including pricing pressure, increased competitive intensity, compliance and drug settlement costs. It has been making changes to its business model – restructuring the specialty business, and rationalising R&D expenditure as well as its sales force – to improve profitability. Lupin may also spin off its new chemical entity and biosimilar segments. At this juncture, getting into a new business line may spell trouble. However, it seems to be a calculated risk. Lupin’s India business is strong and a step into diagnostics could be another strategy to strengthen its business in the country. In its earnings call in October, the management had alluded to the launch as it is keen on pursuing businesses adjacent to drug prescription that can help create more touch points with doctors and consumers. This is going to be a calibrated approach in which the capital is allocated, and the management will watch out for returns before it starts investing more, lest it becomes a drag on margins. Globally, several pharma companies like Johnson & Johnson and Abbott Laboratories have developed diversified models consisting of drugs, diagnostic products and services, nutraceuticals, and health management. Swiss drug major Roche is present in pharmaceuticals as well as diagnostics. Such a diversified business model comes with its pros and cons though. Moreover, it helps spread the risk across businesses, combat competition better and offer a holistic disease management from prevention to cure. On the other hand, diversification requires investment in new facilities and manpower, a culture shift from providing products to delivering services and makes new demand on management bandwidth. A diversification gone awry can also alienate investors. For Lupin, venturing into diagnostic business is a low-capex proposition with low entry barriers. This, along with its digital health initiatives, can provide the company runway to leverage its relationship with health care providers and patients. However, it is not the first pharma company in India to foray into diagnostics. Unlisted players Mankind Pharma and Reliance Life Sciences are already present in this area. In the past, Ranbaxy had floated SRL Diagnostics, which is a strong player in the industry today. The competition is rife among existing pure-play diagnostic players that are aggressively scaling up. Lupin has had to course correct on some of its earlier strategic moves, which have taken a toll on valuations. The Street would not like diagnostics to go down the same road. (What’s moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.) Download The Economic Times News App to get Daily Market Updates & Live Business News….morelessPick the best stocks for yourself Powered by 5 mins read3 mins read3 mins read2 mins read2 mins read3 mins read4 mins read3 mins read