A sustained effort to improve operational efficiency and technology for increased yield helped Serum to keep costs low, maintain quality, thereby capturing more markets, says Poonawalla
Pune: Adar Poonawalla, executive director and chief executive officer of the world’s largest (by volume) vaccine producer Serum Institute of India Ltd and scion of the $5.2 billion farms-to-pharma Poonawalla Group, is committed to taking forward the strong healthcare legacy that his father (chairman Cyrus Poonawalla) created over a period of five decades. “We have no intention to sell our company as it doesn’t make sense to sell a long-established business, which is our core strength, and get into something new that we don’t have any expertise in," he said in an interview. Edited excerpts:
Although Serum has been one of the top vaccine manufacturers globally with substantial scope for further growth, it hasn’t yet made any solid moves in the ongoing industry consolidation wave. Why?
Our growth has been almost fully organic so far as we did not do many acquisitions and large scale expansions requiring big investments. The first acquisition that we did was in 2012 in Holland, spending about €200 million. This acquisition (of Bilthoven Biologicals) offered a lot of synergy and it is expected to pay back soon. This unit, which was making an annual loss of €30 million when we bought it, is making a turnaround now with lots of technology and capacity enhancement and market expansion, (and) has already reached break-even. We expect the Holland operation to become profitable sooner with a scaled-up production and taking its products to other markets as well.
And more importantly, our investment decisions have always been very cautious as any small or big mistake will directly result in losing our own cash as we do not have public money to blow and do not want to create large debt either. As a result, we grew very slowly compared with many others. But at the same time, we also didn’t have as many issues as others have on the financial front. But a sustained effort to improve our operational efficiency and technology for increased yield helped us to keep the costs low, maintain the quality, thereby capturing more markets.
But we had looked at a few opportunities in the domestic market earlier, including (Hyderabad-based) Shantha Biotechnics. We gave an offer of ₹ 1500 crore to Shantha when the (Paris-based) Merieux Alliance wanted to sell its majority stake (80%) in the company. But it didn’t work out as Sanofi (French drug maker Sanofi SA) paid more than double ( ₹ 3,018 crore, six times the turnover of Shantha in 2008), hugely overvaluing the target as it became a prestige issue for the French company after it sensed that (British drugs and vaccine giant) GlaxoSmithKline Plc. was also in the fray.
The other issue here is that there are only a very few good targets available in the market and many of them are listed companies. We have certain reservations on acquiring listed companies as it will curtail our independence and flexibility in decision making. This was the same reason for not listing Serum too. But, we are open to small acquisitions and partnerships just like the one which we did with Cipla in India and other parts of the world as our cash position at present allows us to look at small investment opportunities.
Is there any truth in the news that you will merge with Cipla Ltd
That was just a misrepresentation of facts, as certain media were confused while interpreting our commercial tie-up with Cipla. This is purely a marketing partnership by which Cipla will sell our vaccines in Europe, where we have had no presence so far and thus do not have any direct setup for seeking regulatory approvals and marketing. This is not just a distribution arrangement, but a profit-sharing partnership in which Cipla will also invest for product registration and marketing activities. We may expand this partnership to other developed markets including the US once it has proved successful in Europe. This is what my father said last week to the media.
Also, let me clarify that we have no intention to sell our company as it doesn’t make sense to sell a long-established business, which is our core strength, and get into something new that we don’t have any expertise in. More importantly, I want to take forward the legacy that my father created in the healthcare space as that is where our expertise lies and, secondly, it has certain values that match our philosophy of making an impact in human life.
We own around 15% stake in Panacea Biotec. Since the company is currently almost out of the woods after resolving some of the regulatory and financial issues, we may remain invested in Panacea for some time and might increase our stake when opportunities arise. The other option is to exit when the valuation goes up.
But the investment in Orchid (Serum and its promoters together hold around 11% equity in Orchid from a couple of investments made in 2010 and 2011) seems a bit risky now. The stock was expected to do well to enable an easy exit for us since there were hopes that its long time partner Hospira (the US drug maker which bought the injectable business of Orchid in 2009 and remained an outsourcing partner for the Chennai-based company) would buy the company. But since Hospira has been acquired by Pfizer now, uncertainties remain in this investment.
How has the journey been since you took over as CEO?
I joined the company in 2001 and got into the board as executive director and became chief executive with full control of day-to-day operations four-and-a-half years ago.
My father still comes in and we discuss key strategies and important decisions as we find his ideas and insights interesting and valuable.
My points of view and style of functioning, though a little bit different from my father—who believed in micromanagement, looking into each and every detail to ensure no big or small issues concerned with products, people, technology among others—are more or less in the same line. In fact, many at the level of chairman or very senior management normally don’t get into such issues, but they find themselves puzzled when something comes up unexpectedly.
When I joined the company soon after my education in London, I found the country’s style of doing business, and the bureaucratic hurdles in particular, often difficult to handle. So I concentrated largely on the international markets, especially investing money there, expansion, registering products in new markets among others, initially. It gave positive results. We were exporting to only 35 countries at the time of my joining and we are in 141 countries now. Of course, I have also learnt the issues and challenges in the domestic market now and how to get around them.
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