Biocon's new vistas

For almost the whole of July and August, Biocon Founder Kiran Mazumdar-Shaw has been on a trip— many trips, actually—racking up frequent-flier miles across the US and Europe to meet customers, partners and regulators. The trigger: Biocon's landmark deal signed June 29 with US generics major Mylan Inc.

The Mylan deal is a key component of her plan to turn India's best-known biotech firm into a global player, a research-based powerhouse turning out innovative drugs and biosimilars (the generics of the biotech world) and give Biocon a global footprint.

"I want Biocon to be a leading innovator from India," she said, back home after the last flight. In fact, Mazumdar-Shaw, who became India's richest woman when Biocon listed in 2004, has her eyes set on a place among the world's top 10 biotech firms.

Today, Biocon, which began as an enzymes maker, gets over 80 per cent of its revenues from traditional generics and biosimilars. According to market researcher Frost & Sullivan, biosimilars, which are "similar" to biopharmaceuticals but not the exact thing, could generate sales of around $16.4 billion (Rs 78,720 crore) globally by 2011, and account for 10-15 per cent of the overall pharma market.

With traditional generics under price pressures, Biocon figured it was time to get into innovations to combat cancer, arthritis, diabetes and Alzheimer's disease.

Mazumdar-Shaw wants Biocon to go places—first Russia, West Asia and parts of Europe, and then the bumper US market.

Bonding with the best...
Realising that it's a tough and expensive job getting biosimilars past regulators in the lucrative western markets, last year she acquired Germany's AxiCorp GmbH, a major importer. And this June's deal with Mylan will help her enter the US. "As a standalone Indian company, we don't understand many nuances of entering these markets," Mazumdar-Shaw says. "Mylan brings its generics clout and people with experience of entering and launching biosimilars in new markets."

Spotting opportunities is not new for Mazumdar-Shaw: Two years ago, she sold the original business of enzymes and turned to biopharma. Then followed a deal with US-based Abraxis BioScience Inc. to market a biotech drug for breast cancer in South and West Asia. Biocon also set up a venture with Abu Dhabi-based Neopharma to tap West Asia. Says Mazumdar-Shaw: "… as that market (enzymes) got commoditised we made a clean break from it and got into branded formulations and biosimilars. Now these biosimilars will support and fund a lot of our innovation initiatives."

Her boldest step, though, was the e30-million (Rs 207 crore) acquisition of AxiCorp, giving her a foothold in Germany, where regulators are not averse to biosimilars. "We have looked at various kinds of partnerships to get global footprint. Everyone sees biosimilars as a massive opportunity, but the reality is that you have to be able to adequately finance and market your products," she says.

"There is massive price erosion in the generics conventional market, but the generics market is much less crowded, since there are high entry barriers," says Arun Chandavarkar, COO, Biocon. But the AxiCorp deal's success depends on how soon Biocon can get EU approval for its insulin.

...was the easy part
Mazumdar-Shaw concedes that it could be years before Biocon can decide on the success or failure of this venture. Germany is a low-hanging fruit; to become a global player, Biocon will have to crack the lucrative markets of the US, UK and France. "Over the next 5-10 years we want to focus on innovation from Biocon. We want our new high-growth strategy to drive us to $1 billion in revenues in four-five years," says Mazumdar-Shaw.

That sounds ambitious. For one, the US Food & Drug Administration is wary of approving biosimilars because of safety and efficacy concerns. Then, the Senate has passed a bill giving 12-year exclusivity to US firms. As Sujay J. Shetty, Associate Director, Pharma Life Sciences Advisory, PricewaterhouseCoopers, says: "there is a fear of the unknown among regulators since the safety and efficacy of ‘similar' drugs needs to be proved."

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There are other challenges like the markets meltdown and the wild currency fluctuations. The markets collapsed just after Biocon sold its enzymes business and upset its plans to spin off and list Syngene, its contract research outfit. Also, currency fluctuations caused losses of over Rs 150 crore. "Our plans have been delayed by a couple of years, but we do plan to list Syngene and later work on spinning off Clinigene," says Mazumdar-Shaw, referring to the clinical trials firm.

In for the long haul
For the past few years, Biocon and others had been minting money with their cheaper, generic versions of cholesterol-busting statins patented by western multinationals. But, with a whole lot of players getting into the generic statins business, prices have plunged and Biocon has not been able to come up with a replacement category.

A Citigroup note says: "Biocon remains primarily an API (Active Pharma Ingredients) player with high exposure in the statins segment….The setbacks on pravastatin and simvastatin in the US… reflect the high sensitivity of Biocon's earnings to a delayed launch."

Biocon cannot expect biosimilars to plug the gaps in the short term, as the biosimilars business has been reporting flat revenues for the past 4-5 sequential quarters. Nor can it expect a boost from puny Syngene and Clinigene.

Biocon has to increase investment in R&D, too. Its Finance Head Murali Krishnan says this could go up from around Rs 60 crore or around 6 per cent of its top line last year to Rs 80-100 crore. The company has also begun consolidating its R&D resources into a single entity—Biocon Research—to give additional impetus to its research and to locate in an SEZ, for tax benefits.

According to Harish Iyer, Biocon's R&D Head, the firm has a strong pipeline in biosimilars, with oral insulin, BioMAB (monoclonal antibody) and EGFR (epidermal growth factor receptor) for treatment of head and neck cancer leading the way. Mazumdar-Shaw says: "We have IN105 (oral insulin) midway through phase 3 trials and other drugs such as BVX20 monoclonal antibody and IATRICa drugs are progressing on schedule, too."

On Discovery Channel
To fuel its R&D efforts, Biocon will continue with traditional generics. Biocon will also tap into the 20-30 per cent growth being reported by Syngene, which offers drug discovery services to big names like Merck and Bristol-Myers Squibb.

"We also want to evolve our business beyond the current fee-for-services operation," says Dr Goutam Das who started Syngene 15 years ago and in which Biocon has invested $75 million (Rs 360 crore). "We're talking to customers to consider a risk-milestone-reward possibility…," he adds. In other words, instead of going for the typical feefor-services model, Biocon is eyeing the more lucrative role of taking on drug-development risks for the partner.

Can Mazumdar-Shaw succeed in using this productsservices hybrid to funnel resources into her discovery pipeline? Analysts say Biocon's biosimilar projects are behind track on multiple programmes (especially among insulin and MABs). Not so, says coo Chandavarkar. "Analysts only see our R&D investments as an expense on the balance sheet …not as an investment in the future," he argues.

Even as the global economy struggles through the slowdown, two big-ticket deals are pointers to the future. In March, Swiss pharma giant Roche paid $46.8 billion (Rs 2,24,640 crore) for Genentech to get into biotech firmly. Closer home, Sanofi Aventis acquired Mérieux Alliance's stake in vaccinesmaker Shantha Biotech for $784 million (Rs 3,700 crore).

One of India's biotech pioneers, Biocon is also India's biggest bet in the business. So far, Biocon has been good at identifying its core skills and capitalising on them. Now, Biocon will need to translate its manufacturing advantage in biosimilars into a global marketing footprint. Or become just another target.