Adar Poonawalla, 37, is the CEO of Serum Institute of India, the world's largest vaccine maker. The young billionaire who joined Serum Institute in 2001 at the age of 20 after graduation became the CEO a decade later. Speaking about the success of the company, Poonawalla asserts that it should be traced back to 1966 when his father started the company in a small scale.
“The journey started in a very small manner. He started with $ 10,000 as a start-up capital and today we are producing roughly 1.3billion doses of vaccines,” he told CNBC-TV18 in the interview in which he spoke about several issues. Edited excerpts:
A: The journey started in 1966 when my father founded the company and I took over in 2011 as CEO. The journey started in a very small manner. He started with $ 10,000 as a start-up capital and today we are producing roughly 1.3billion doses of vaccines.
Q: Let us start with the journey of Serum? It is the largest vaccine manufacturer today and the focus has been affordable vaccines globally? What is the journey been like and what are the recent challenges you faced? When I joined the company, we were mainly focused on India. We were in to 20-30 countries. I wanted to expand our footprint across the globe and I enjoyed travelling and registering and expanding the business relationships and now today we are in 145 countries.
We have in fact made a new plant which will also cater to Europe and US and we have ambitious plans to enter those markets. We have also acquired two companies in Europe, one in 2012 in Holland and one in Czech Republic in 2017 to make injectable polio and some other vaccines for Europe and US and the rest of the world. So, we have expanded from a very small capital and very small campus in the 60's to having two major campuses in India and two manufacturing sites in Europe.Our journey now is looking and has lot of challenges because we are trying to enter the Europe and US markets. We are trying to sensitize the Indian government to take more vaccines and plan and help them in their programmes to fight these life threatening diseases.
We have got other challenges from China and other countries where we are offering a red carpet treatment for them to come here, but when we want to go to China, we have got a lot of barriers that we are facing like parting with our technology, we have got to do joint ventures things which are impossible.
These are artificial barriers which our country and our country level has to sort out and open up the markets to help the Indian companies.
A: As you mentioned the turnover is close to about Rs 4,000 crore, what has happened is that as we have grown at a very rapid rate, we are roughly 50-60 percent market shareholders globally for the vaccines that we produce. So, now to grow from here in the existing vaccines space is very challenging. It is very rare that a company gets global market share of 60 percent for its product. So, what we are doing now is the future growth is going to come based on the new products and the new investments that we have made like for dengue, we have got a cure for dengue. We have got the Pneumococcal vaccines. Pneumonia is the major killer in babies, we are hoping to launch that next year.
Q: The latest figures that I have in terms of the revenues for the company is around Rs 4,000 crore. You have grown around 25-30 percent compound annual growth rate (CAGR). What are the current financials looking like for the company? This year in fact we launched the Rotavirus vaccine which is preventing diarrhea deaths and dehydration deaths in children. So, it is the new vaccines that we have invested in 5-6 years ago which will now take on the growth going on forward from 2020. Q: You had a target for around Rs 10,000 crore odd by 2022?
Q: Are you on track to achieve that?
A: Yes, very much. So, in fact that involves a lot of investments in infrastructure also, so we have spent about Rs 2,500 crore in our new campus to comply with the latest GMPs and built about 2 million square feet of manufacturing space there. With all these new products and with India and Prime Minister Modi's push on vaccines and the Prime Minister's new outlook on the health ministry and supporting that we have got a very bright future in India and the Indian market which is going to grow a lot also.
Q: A majority of your business is in the tender space that is basically government contracts within India as well as globally, but the traditional problem with the tender space has been traditionally lower margins and maybe lower tender prices as well. What exactly would the margins of the company be at this point?
A: The margins are about 20-30 percent. In some products it goes down to 10 or 5 percent because what happens in the tender space is that you can't differentiate your product. Once you are licensed and you are proved the challenge and this is something we have taken up with the tender agencies, the government bodies which issue the tenders is that with a lot of prices competition what happens over a period of 4-5 years is, you see manufactures walking out of the business if it gets to competitive because beyond a point you can't sustain your margins.
Partly, why we have been very successful and a lot of people asks us what is different about Serum Institute is that we were able to plan and foresee and invest in the infrastructure to make very high volumes. Our capacities were always very high, so when the demand went up sporadically we were able to cater to those demands. This was again partly because we were private limited we could take these decisions.
My father was very generous in allowing me to do whatever I wanted. There was a lot of debate and arguments always, but ultimately he just allowed me to do what I wanted which then enabled the company to make these investments which could have been looked at some point earlier on as risky or little too aggressive but ultimately it has all paid off because that is why we have got the largest capacities and that is why you can then fulfil that additional demand that no one could foresee came about in these vaccines.
Q: What are tender prices in the past one year? Has it fallen significantly?
A: They go down by 20-30 percent every year which is great for the consumer, but it is not very good for the manufacturers as an area because you spend five years developing a vaccine, your investments and your blood and sweat and then in 3-4 years if you see a huge erosion of the price then that is not a very healthy situation in terms of even having enough vaccine.
Ultimately look a country is depended on these two or three vaccine manufacturers and if they go out of business or chose to do something which is more profitable then the country and the children would be naturally vulnerable to that.
Q: How lucrative is the private business when it comes to vaccines?
A: It would have been lucrative where one could have made up your losses or your low margins in the government business. But what has happened is that the Indian government unfortunately, the price control authority has very illogically and irrationally put certain caps without looking into the costing or anything of these vaccines and as a result they have limited the MRP's of these vaccines they are Rs 100-200. Some vaccines they have limited at Rs 5 a dose. Now this is constant battle. Now how do you decide whether to deprive the children of vaccines at a loss which we have been supplying these vaccines at a loss and at the same time educate the government that you can't give something at Rs 5 - today even a beggar will not accept Rs 5 as a tip at traffic light. How do you expect a vaccine to be made at Rs 5 a dose? So, the government needs to understand. We were trying to explain that to them but that has been our major wall that we have not been able to penetrate.
A: As I said about USD 100-120 million a year goes in various clinical trials and research projects that we are doing because in the last 3-4 years we have been aggressively pursuing all these new vaccines and technologies. We are also investing heavily in monoclonals, one is vaccine for lung cancer for women we have got a bladder cancer vaccine coming up for Europe and US. So, we are entering the oncology space as well through monoclonals and vaccines.
Q: So, currently how much are you investing in research and development (R&D)? We have got the first in the world dengue monoclonal which is not vaccine it is a cure.
So, within two days of hospitalization I can cure you from dengue. But again with our Indian rules that we have to sort of which have been historically there I will be selling dengue monoclonals to foreign countries before we can even sell in our own country which is a shame and I am trying to change that.
The price is not an issue there. It is more of being able to get through the regulatory barriers where the permissions and licenses in the Modi government have drastically reduced and the Prime Minister and his whole team have done a great job. However we still need to streamline and bring that to a single window kind of clearance where you don't have to go to so many different committee and areas to get through a new product or a new development.
Q: This price problem that you spoke about, is it impacting quality of products in India as well because currently we have this whole contamination issue with regards to the type II polio vaccines. A 1,50,000 vials has been contaminated. So, how do you justify that?
A: I think the price could affect the quality because if you cannot reinvest in your plant to make a better GMP facility, you will find a point where you cannot quote in these businesses and that is why a lot of manufacturers have had to step out of that product line or that business. Right now the price is not affecting the quality because you have to comply to your GMP requirements otherwise you won't be licensed by the Indian regulator who is quite particular and making sure that everything is proper.
With regards to the recent polio issue, I cannot comment because I do not know the facts, I do not know what happened in that company, so I cannot comment on that but it is not the price. What the price will affect is whether that company continues to produce the product itself or not. They will either just stop it or they won't do it, I do not think that will affect the quality.
Also Read: Vaccine-maker Adar Poonawalla says may start a financial business in 2 months