Infrastructure woes hurting the industry: Kiran Mazumdar-Shaw

Kiran Mazumdar-Shaw, Chairman and Managing Director of Biocon Ltd, and the face of India's flowering biotechnology industry, pulls no punches in this exclusive interview with Govindraj Ethiraj on the show Bottomline, aired on Headlines Today.

Q. There is a certain amount of gloom across the country. Has this gloom penetrated the electronics city in Bangalore or biotechnology companies like Biocon as well?
A. The pharmaceutical sector actually is not in a state of gloom. In fact there are great opportunities for Indian pharmaceutical and bio-pharmaceutical sectors. I say that is because the global health care scenario is very challenged in term of spiraling health-care costs and the need for affordable drugs and affordable health-care. I think Indian companies actually have a very big opportunity to make a play at such a time. India is the lowest cost producer for generics and today generics account for 30 per cent of the $900 billion dollar pharmaceutical market. Today even in the US 75 per cent of prescriptions are generics, and it is very interesting that Indian generics actually account for almost 70 per cent of the generics market.

Q. So things are looking generally good for your sector?
A. Our sector looks good but I think in general the mood is not upbeat. I think there is a lack of investor confidence. There is a serious concern about whether India has really lost the profile it had in terms of being one of the most interesting and exciting investment destinations. There is concern even among domestic players and new projects are actually shifting out of the country. We are putting up a new facility in Malaysia. This is an expansion of our existing facilities. We could have done this in India but we believe that it is a risk for us. We believe that as a growing global bio-pharmaceutical company we need to de-risk by having a different geographic location.

Q. Why is it a risk?
A. The biggest risk I see is that our infrastructure is failing us. We have a huge infrastructure deficit. We have a huge power deficit; we have a huge deficit in terms of roads and many other aspects of the industrial infrastructure ecosystem. If we don't fix that we could become a very unattractive investment option.

Q. For companies here?
A. It is very unattractive for others as well because there are other parts of the world which are competing with India for investments such as Malaysia, such as Indonesia.

Q. Infrastructure may be a problem, but people have always been our strong point. We always had access to talent and skills. Isn't that our strength to counterbalance other negatives?
A. You are talking about different aspects of business. If I just were to do research I would probably do it in India. But if I want to manufacture a product I would not do it in India. It depends on what part of your business and what kind of business you are talking about. When you talk about skills, well, there are a number of sectors challenged with skill shortage because we don't have enough high quality engineers or scientists that are needed by industries to take them to next level. Yes, we could do a very basic level kind of business, but when you want to operate in a value added way then I think there is a skill shortage.

Q. India has a gap when it comes to health-care sector, in terms of the number of people who can access quality health-care. Even for those who can, often their life savings get wiped out. Why is that not an opportunity for the private sector?
A. Well private sector has created a very large opportunity. Today 80 per cent of health-care infrastructure is in the private sector and if you look at the fact that India today is a fairly large pharmaceutical market, even the domestic market is a pretty large market today. It is a $12 million market and is growing and it is expected to be a $50 million market by 2025. So it is a growing business and it is a great opportunity for Indian companies and for overseas companies to look at India. I think that is not the issue, the issue is the government has not done its bit. Today for instance we only spend one per cent of our GDP on health-care and this is the lowest in the world. Of course the good news is the next five year plan has indicated that this will treble and there is some emerging hope that things are going to go in the right direction. For instance, there has been no concept of a national health-care system but today the government is talking about taking bold steps to correct that. The first step it is taking is to freely distribute essential drugs and that's a very important essential move, and the way it is going to do it is also quite impressive because what it plans to do is to get into an E-procurement mode, and actually base this whole distribution of essential drugs on an IT platform in a very E-enabled way. So I think that's good news. The government has announced that it will allocate $5 billion for this particular project.

And then they have also indicated they will start a reimbursement model for hospital care through accredited hospitals and nursing homes and other medical centres including diagnostic centres, where they will have pre agreed arrangements with these various accredited institutions.

But this also comes at the same time when companies like yours are going overseas for either research or manufacturing or expansion. So how does this square with the Indian opportunity?

I must also say that we are also investing a lot in making sure that India is a strong focus for us. Our own branded formulations and generics business is very focused on India.

Q. Branded formulations are your fastest growing business…
A. Yes, because India is such a fast growing market and because the opportunities are opening up. We are certainly focused and investing in this particular segment of our business.

Q. How you define Biocon?
A. Well Biocon is a bio-pharmaceutical company where we have identified very clear growth verticals. We are not the typical Indian generics pharma company and I think that is why people struggle to understand what our business is. We have clearly identified five growth verticals. One of them is active pharmaceutical ingredients, which has been our historic bread and butter business, based on statins and immune-suppressants and we are adding to that list of active ingredients. We are actually moving up the value chain into branded formulations. So formulations have now become a very important part of our business which right now is focused on domestic market but very soon we will be looking at other global opportunities. The third vertical that we are very strongly focused on is Bio-similars and here we are focused on our insulin portfolio and bio-similar monoclone antibodies and then we have our novel programmes where we have a very interesting pipeline of novel products that we are developing for global markets. Finally we have a very important growth vertical which is our research service growth vertical which is also another very rapidly growing business for us.

Q. What are the opportunities ahead?
A. Well, we have these growth verticals. Every one of them has a very strong growth potential which we are trying to deliver on. If you look at the bio-similars vertical, if you look at insulins per se, insulin is a global opportunity for us and it is a very large global opportunity considering that diabetes is now a global pandemic. Our country is one of the global epicenters for diabetes. I think we are poised to be a very significant player in diabetes and in Insulins. We have a good portfolio of insulins which we are developing and we already enjoy a very good global market share with our existing insulins. Coming to cancer, as you know cancer is going to be in the next 10 years the number one disease of the world and cancer drugs are certainly are going to be the key in addressing this challenge. Diabetes and cancer have really been the two focus areas for us. So, I just spoke about diabetes and the insulins portfolio and when it comes to cancer, antibodies are going to play a very important role going forward. One of the big challenges that immune-therapy or antibody therapy has today globally is the cost of treatment. Biologics are extremely expensive.

Q. Biologics and bio-similars are similar, right?
A. No. In a very lay persons' term, bio-similars are generic versions of biologics. If you look at biologics today, these are very expensive treatments. This is a business that is predicted to be a $200 billion business by 2015 and it is estimated that only $2.5 billion of this will be on bio-similars because the regulatory will only open or the pattern gates will only open in 2015. It is going to be very early and nascent for bio-similars by that time. About 50 per cent of that business is going to come from emerging markets. It is very clear that bio-similars are going to be the next big bonus of growth for the pharmaceutical industry. That is why you see a number of companies pursuing bio-similars as the next growth strategy and Biocon is one of the frontrunners.

Q. You talked about the Indian opportunity. Let us take insulins as an example. If there is an opportunity and the market is growing, why should there be frustration or a sense of disappointment?
A. No. I am not frustrated. I am not complaining. I think insulin is a big opportunity.

Q. In general I am saying this.
A. I think India is a great opportunity.  I think, in our sector, nobody is complaining about the growth opportunities, either in India nor globally. I think the bigger challenge for us in our country is the regulatory challenge. We don't have the optimal regulatory structure to move things faster. We have been talking about implementing the Mashelkar committee report for over six years. We still have not implemented it and we still keep on talking about having a drug authority which is autonomous. We are constantly talking about revamping the whole regulatory system. It is all there in the Mashelkar Committee report and we are very slow in taking important decisions. That is why we have such a huge deficit in power, in infrastructure, in reforms. I think we cannot wait if we want to be the kind of growing economy and the kind of BRIC economy that we keep talking about. We have take decisions and we have got to implement them. We have got to make things happen. That's not happening and that is what our concern is.

Q. But there is a huge deficit. The government has failed to a large extent to deliver even quality primary health centers. It is an opportunity but it also means somewhere the system is crumbling.
A. See health-care is one sector where, because of this very skewed statistic which I just gave - that 80 per cent of health infrastructure is with the private sector and 80 per cent of health-care spend is out of pocket today, it has to be a PPP model where the government has to partner with the private sector to deliver affordable health-care. That is beginning to happen. Also, accredited hospitals are getting into bulk procurement, getting into tendering. All this is going to drive down cost of health-care system.

Q. The public perception is that the Indian pharmaceutical industry has not managed to bring down prices as it should, and therefore the government had to step in through drug price control orders…
A. That is absolutely untrue. I will counter that argument by saying that if you actually look at what drugs constitute as a percentage of total health-care spend, its only 15 per cent.  Drugs are a soft target, what about the rest of health-care system? There is no control on what hospitals charge. There is no control on what doctors charge as fees. Do you know that the logistics component of health-care is whopping 20 per cent? So if you work on logistics you can see how much saving you can get. Why are logistics so expensive? Because our infrastructure is so appalling.

Q. What does this mean for Biocon again? What do you see in terms of hope or optimism on the horizon?
A. Biocon actually has multiple opportunities. I am very optimistic about Biocon's future because I see a lot of growth opportunities ahead of us. India is a big growth opportunity and globally I see huge opportunities. Emerging markets are big opportunities for us. In fact 50 per cent of our present day revenues come from emerging markets. So I think as a company our global opportunities are really exciting.

As a country I think we have huge opportunities but we need to be unshackled. Today because of the lack of strong leadership and more importantly, because of a near-slowdown of decision making, we are seeing a slowdown of economic growth. Today's levels of GDP growth are just not sustainable for an economy like ours. We talk about inclusive economic development right now but with a 5.5 per cent GDP growth we can't hope to do that. In fact we are going to have a huge economic challenge ahead because we will not be able to lift the poor along in terms of economic development. Then you are going to have a huge backlash from the Maoists and other under privileged parts of society.