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Kiran Mazumdar-Shaw, CMD, Biocon Ltd
‘Biotech Is Not for Punters’
Biotechnology is the new hot investment opportunity–and all eyes are on Biocon, the first Indian biotechnology company to float an initial public offering. The Rs 300 crore issue, listed on the National Stock Exchange, opened with a listing price of Rs 425 a share (face value Rs 5). Set up in a garage in 1978, Biocon is today a Rs 549 crore bio-pharmaceuticals major. CMD, Kiran Mazumdar-Shaw, spoke to Archana Rai about Biocon’s prospects. Excerpts:

Why papain? How did enzyme manufacture come to attract your interest?

I graduated in malting and brewing from Melbourne University, following the tradition set by my father who was a brewmaster. There were issues around a woman entering the brewing industry, but brewing had always fascinated me, so I stuck it out. I knew about papain, a papaya extract that breaks down proteins and makes beer less hazy. But the challenge was to make a business out of it and other enzymes that facilitate fermentation. I started with a small set-up in the family’s garage, and things moved on from there.

Was the tie-up with Biocon Ireland a landmark point?

Yes, the arrangement with Biocon Ireland set the business on firm ground. I wouldn’t have survived without it. Remember, marketing is the big challenge in biotech. I thank my stars that I was not influenced by formal management education; my style has always been intuitive and unconventional. Even when our turnover was just Rs 20-30 lakh, we ploughed money into R&D. It worked. We won a patent in solid state fermentation technology. From then on, we moved from enzymes to biopharmaceuticals.

What prompted the product expansion?

Despite being a start-up, the focus at Biocon from day one has been global. After we came under the global Unilever umbrella after Unilever bought over my Irish partner, we were exposed to global best practices. In 1994, at the start of the software boom, we realised there was scope for custom research from India. So, we set up Syngene, our contract research organisation. That was a big mental shift. Till then, we had been doing contract R&D only for Unilever. Syngene proved that we could manage R&D services outside Unilever. We changed gears from enzymes to recombinant DNA. Frankly, I would have been bored making papain all my life.

Wasn’t moving away from a proven business model a risk?

Our philosophy has always been business-led science. And our growth has always been organic. We have never gone off-tangent. Making enzymes using fermentation technology was our core business. We thought: if we could make enzymes, why not leverage the same basic technology to make statins. Hence our entry into microbially engineered statins (anti-cholesterol drugs).

What was the turning point for Biocon?

Buying out Unilever’s stake in 1998. We couldn’t have got into biopharmaceutical manufacturing or bulk drugs otherwise. We knew we had the technology to make that move. The decision to get into manufacturing statins took us from Rs 50 crore in 1998 to over Rs 500 crore this year (See Profit Booster Dose, 31 March 2004). It gave us a head start in the market for biopharmaceuticals, for drugs manufactured by the fermentation process.

Prices for statins are expected to soften by 2005, as more global capacities come up. How will you deal with this?

We have a cyclical model that allows one group of new products to come in as another fades. So, I expect that in five-six years, statins, which now contribute to 54 per cent of revenue, will make way for products like immuno-suppressants. We have a nine-year, multi-million dollar contract with Bristol Myers Squibb for supply of human insulin. Then there’s the prospect of marketing our branded insulin in the domestic market. We’re also working on our own molecules. In collaboration with CIMAB, the Cuban institute, we are working on mammalian cell culture capabilities, aimed at developing monoclonal antibodies for cancer treatment. We go into clinical trials in 2005. That’s our billion-dollar opportunity. We are investing $25 million in a biologicals facility in our joint venture. Our arrangement with CIMAB is through a 51:49 per cent joint venture, in which CIMAB has brought in technology in exchange for equity.

You spoke of an intuitive style of management. But going public means quarterly reporting commitments. How will you adapt?

Well, sound business sense has always held precedence in decision making. I am glad that companies like Google are talking of doing away with quarterly reporting for publicly listed companies. Quarterly numbers will never give an adequate picture of a scientific research company. Developing our own molecules is a huge opportunity, but it all depends on clinical trials; I cannot forecast those results. Investors must understand that biotechnology is not a short-term punting opportunity. It’s for those interested in staying on for the long haul.

‘Money Is a Valuable Asset’

I am not embarrassed by the wealth I have created at Biocon. It’s the connotation of wealth that embarrasses me. I have no time for money’s frivolous aspects. I consider myself simple and balanced, and my values will never change. Yes, I have built a lovely home–but we bought the land when it was cheap. I drive a Mercedes, not because I think it is a status symbol but because I respect the engineering that makes it a fine car. Money is a valuable asset to have. If my success and that of other entrepreneurs in the city has meaning, it’s that you don’t need to be in Silicon Valley to build world class companies and create wealth. You can do it right here in Bangalore.

 

Clinical research is just 10 per cent of Biocon’s revenue; globally, it’s a $3.2 billion business. How big will your custom and clinical research businesses be in the long run?

This year, revenue from custom and clinical research has grown to Rs 38.8 crore from Rs 27 crore last fiscal. Clinigene, our clinical research arm, was set up in 2000 with investments of about Rs 4 crore. It made us an integrated biotech company, with huge value-addition for in-house research. Clinigene has launched a human pharmacology unit in Bangalore’s Apollo Hospital. Insulin trials have been run at the unit and trials of monoclonal antibodies will soon begin. From this fiscal on, we expect Clinigene to take on third-party projects as well. Overall, research services should account for 20 per cent of our total business.

 Branded products from India will be our goal but we will in-license technology that has been developed to a certain stage, then develop that into products and take it to the next level. I don’t see us investing in pure experimental research. For instance, look at the way we have approached the monoclonal antibodies project. We collaborated with an institute that has proven capabilities in mammalian cell culture and are now looking at a joint effort in taking it to the clinical trials stage. That is the method we will follow.

Biocon has the highest market capitalisation compared to some of its peers in the pharma sector. Will it be a challenge to meet shareholders’ expectations?

We will be announcing our first quarter results on July 14. Biocon has always been driven by the spirit of challenge and I am confident that we will deliver good value to our investors and shareholders. We are confident that our pipeline of products will consistently deliver returns in the short, medium and long term. In our current portfolio, that means returns in the short term will come from statins, in the medium term from insulin and immuno-suppressants, and in the long term from monoclonals. Syngene and Clinigene also have clear growth trajectories.


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