Clean cut from the past

Unlike the other biotech entrepreneur on the previous page, Kiran Mazumdar-Shaw's journey did not begin with pure biotech at all. In fact, when she launched Biocon nearly three decades ago, among the first products her start-up churned out was an enzyme from papaya for tenderising meat and collagen from tropical fish that helps in fermentation of beer. Therefore, on June 18 when the Bangalore-based biotech major announced that it was selling off its enzymes business to Danish firm Novozymes for $115 million (Rs 471.5 crore), Mazumdar-Shaw must have felt a bit nostalgic. After all, it was enzymes that allowed Biocon to diversify into biotechnology and rack up Rs 863 crore in revenue and Rs 158 crore in bottom line last financial year.

But as the lady, often called India's Biotech Baroness, knows only too well, businesses don't run on emotions. Over the years, enzymes (which include stuff like industrial enzymes, food additives and processing aids) have become less and less significant in Biocon's scheme of things. From close to 90 per cent in the early 90s, enzymes' share in the topline had dropped to 11 per cent last year. In fact, while Biocon grew 23 per cent in the first quarter of 2007-08, the enzymes business shrunk 5 per cent to fetch just Rs 21 crore. What's eating the enzymes business? Globally, the industry is estimated to be worth $3.4 billion and Rs 250 crore in India, but competition is intense and profit margins wafer thin. Since Biocon does not break up profit figures business-wise, it's hard to tell how much the enzymes division earned, but it is safe to assume that it was low enough to prompt the division's sale.

Mazumdar-Shaw says the decision was both difficult and easy. "This allows us to concentrate completely on bio-pharma. Besides, the valuation was good and we decided to sell it," she says. The Danish firm will pay $97 million upfront and $5 million on meeting certain targets, while an additional $13 million will be paid in service fees and lease payments over a 10-year period. Biocon will put some of the money into R&D and some for acquisitions.

In its update following the first quarter results of Biocon, brokerage firm Merrill Lynch declared that the sale of the enzyme business was a positive move and was a lucrative deal given that the firm got 4.8x valuation. "The interim profit impact will be more than offset by income from the proceeds," the report noted.

Biocon's exit from the low margin and low growth enzyme business is expected to allow the company to focus on its bio-pharma business as well as contract research and clinical trials operations under Syngene and Clinigene, respectively.

Mazumdar-Shaw has been pointing out that the investments made by the company, in both oncological and diabetic care-related drugs, have started to pay off. "We are already seeing tremendous traction in the insulin business and we expect further progress during the course of the year," she says.

On June 19 the company announced that it had entered into an agreement with Abraxis Bioscience, wherein it will license the right to develop a bio-similar version of a drug that will help bone marrow produce more white blood cells. Says Mazumdar-Shaw: "Such licensing arrangements give us good income as we get upfront licensing fee as well as royalties over a period of time."

The company has also filed for an Invesitigational Medical product Dossier for oral insulin, which is a keenly awaited drug. But first it must clear trials.

With the cash in its kitty, Biocon will target selective, niche acquisitions. "Yes, we will look at acquisitions provided it can add value to our existing business or help us into new markets. However, the price and cultural fit have to be right," says Mazumdar-Shaw.