Key members of Chairperson Kiran Mazumdar Shaw’s team say the agreement marks a moment of inflexion for the firm.
It’s all about sticking to your knitting: Do what you do best, create enough value in the system and product so that they withstand global scrutiny. Biocon’s two-decade-old core value hit pay dirt recently after it signed India’s largest out-licensing deal, which is for four biosimilar products in the insulin space, with global pharma giant Pfizer. The agreement will fetch Biocon an upfront payment of $200 million and additional $150 million on crossing certain product milestones.
“It’s not the deal value of $350 million that is more important to me. It’s a partnership with world’s number-one drug company, Pfizer, which gives me tremendous satisfaction,” says Arun Chandavarkar, Biocon’s chief operating officer.
Chandavarkar, who has been with Biocon for the last 20 years, has spearheaded Biocon’s product development agenda hands-on, and has been personally involved in developing the insulin portfolio. He also had a major say in how the Pfizer deal was clinched. “Pfizer was looking for a partner in the insulin space and we were looking to market our insulin products. The deal proved mutually beneficial for both parties,” adds Chandavarkar.
A sense of confidence was palpable at Biocon’s headquarters in Bangalore as Business Standard met with key people in the deal. The top management, including Chairperson Kiran Mazumdar Shaw, recall the last ten months with satisfaction because the marketing deal with Pfizer for four of its biosimilar products lends global recognition to its ability in the biotechnology space.
“Pfizer must have done its homework. It must have evaluated who could furnish an insulin portfolio, shares its global standards and matches its expectation in clinical trials. Only then did it select Biocon,” says an analyst.
Clinching the deal was certainly a group effort by all core members of the licensing team. From Group Chief Financial Officer Murali Krishnan to Chief Marketing Officer Rakesh Bamzai, they all worked meticulously to put the deal together amid rumours that Pfizer may pick up a direct stake in Biocon. This was vehemently denied by the management time and again.
Biocon has been assembling its insulin portfolio over the past two decades and has sold products in the Indian market with reasonable success against global giants such as Sanofi-Aventis. However, Biocon needed a worldwide marketing machine to take its products to the global stage. Pfizer provided just that.
“The insulin portfolio has been built by us, knowing the huge potential of this segment in the global market,” Shaw says. The insulin market accounts for 35 per cent of the world’s total diabetic drug market. According to independent market research company IMS, the market of Biocon’s four drugs — recombinant human insulin, glargine, aspart and lispro — to be marketed by Pfizer, stood at $14 billion in 2009. Analysts say that figure will swell to $20 billion in 2015 at a CAGR of 10 per cent, opening up an enormous opportunity for both companies.
Industry experts say the deal should enable Biocon to double its revenue in the next five years. “I can’t give you any projections about revenue in the next five years. But there will be a significant upside due to marketing proceeds from this deal,” said one.
Biocon has focused sharply on biological products from the very beginning of its fundamental research. “The first programme was for novel insulin, rather than biosimilars,” Chandavarkar added. Globally, the biosimilar market is a tricky one, as unlike other generics, they should be prescribed by physicians.
Further, you have deeply entrenched players like Sanofi Aventis, Eli Lilliy and Novo Nordisk with larger marketshares. “Biosimilars are not like other generics, where marketshare can be grabbed by reducing prices. As this space is highly competitive with reputed players, our partnership with Pfizer will definitely help us,” explains Chandavarkar.
Biocon’s deal has opened the floodgate of marketing deals in the biosimilar space. As most of the patented biotechnology drugs are going off-patent from 2015 and the global pool of innovative drugs are facing a cliff, global MNCs have no option but to look at biosimilars to protect their topline.
Many other biotechnology companies, which are working in this space, will definitely follow this trend, industry experts say. “There are biotechnology companies working on biosimilars in India. But, whoever enters into biosimilars has to remember that the investment has a long gestation period,” says Chandavarkar. It’s not like other generics where you enter for a quick return, he adds.
Biocon is also expected to look for out-licensing deals in the near future for its other programme — oral insulin — which, if successful, will be a blockbuster breakthrough for the company. It is conducting trials before the launch of its oral insulin in India. “When we started our oral insulin programme, we were naive. We wanted to finish of the programme and launch it in India. But now, we have decided to conduct more trials with sufficient data, which can withstand global scrutiny,” Shaw says.
“Licensing is about unlocking the value of a product. If you want to unlock value quickly, then you may not get the right valuation. So, it’s better to go for more trials with reliable data and then unlock it,” Shaw adds.
Following the Pfizer deal, Biocon has now concentrated on the manufacturing aspect of biosimilars. According to the financial officers of the company, it will invest around $300 million in the next three to four years to scale up its manufacturing ability in the biosimilar space. “We will scale up our Bangalore and Vizag capacity to meet the requirements of manufacturing in the biosimilar space,” Shaw confirms.
The company recently also signed an agreement in Malaysia to invest around $161 million by 2014 to ramp up manufacturing capacity. “Most of our manufacturing capacity is USFDA approved, and we will maintain this standard for all geographies,” Chandavarkar says.
Sums up Shaw: “This is an inflexion point for the company. It’s our constant endeavour to build and unlock value in Biocon. This is a validation of that effort.”