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Cover Story
 

Does R&D Really Pay?

Issue Date - 03/02/2011
 
“R&D SPEND TO GROW”
Kiran Mazumdar shaw shares the finer details of how biocon’s r&d strategy is helping it to open new doors

This qualified master brewer from the Ballart University in Melbourne joined Biocon Biochemical in Ireland as a Trainee Manager in 1975 and also founded Biocon India in collaboration with Biocon Biochemicals Limited in the same year. Despite initial fund problems, she did not deter from her real goal. Under her, Biocon transformed itself into an integrated biopharmaceutical company. Kiran Mazumdar Shaw, CMD, Biocon Ltd. speaks to B&E’s Anindita Chakraborty on R&D investment strategies and the latest innovations of the company.

B&E: What are the strategies adopted by Biocon to invest in R&D and how has it paid off in terms of increasing shareholder value in the past five years?
Kiran Mazumdar Shaw (KMS): We have invested in R&D through  a risk balanced portfolio approach. In generics & biosimilars as near and mid term opportunities; and novel programs as potential large, long term opportunities. Our R&D has been entirely self financed wherein we have ploughed back all our earnings from generics and biosimilars. Today we have created an enviable pipeline of high potential drug programs which are at various stages of development. Over the past 10 years, we have successfully developed comprehensive portfolios of Statins and Immuno-suppressants as generic APIs, which have contributed to 75% of our revenues and delivered a 5-Year CAGR of 24%.

B&E: What steps are you undertaking to increase R&D productivity?
KMS: Partnerships with companies like Pfizer, Mylan, Amylin and others are enabling us to understand the complexity of R&D. Bringing in experienced skills and investing in building better R&D infrastructure and providing advanced IT is certainly augmenting productivity. We have steadily increased R&D investment over the past 5 years from sub 5% levels to around 8% today. We expect the years ahead to see an enhancement to between 9-10% of revenues. 

B&E: How has the company realised pay-offs in the case of R&D investments?
KMZ: Both the Pfizer and Mylan deals have more than helped us to realise the investments we made so far in these programs and the upsides are exponential. Finally, some concluding remarks on our business strategy:

Partnering has been integral to our global strategy.  In fact, I do believe that we are entering a decade of strategic partnerships.  Resource & risk sharing models, I believe, are the only way forward to fix Big Pharma’s  broken innovation engine.

1. We have sought both research & marketing partnerships to access global markets.
2. Our recently announced, high visibility commercialisation partnership  with Pfizer for Bio-similar Insulins and our co-development and marketing partnership with Mylan for Bio-similar MAbs have provided us with the means to develop  bio-similars and helped us address global markets.
3. Our research partnerships with Amylin, Vaccinex, CIM & IatriCa, we believe, will enable us to develop high value licensable assets, which we intend to develop for global markets.
4. India’s cost and clinical base has provided us with a differentiated strategy that allows us to access emerging markets in Phase I and the highly regulated markets in Europe, US and Japan in Phase 2.

 
Case Analysis : FMCG
Keeping innovation first

Emami has shown cosmetics and skin care companies in India how investments in R&D can boost their toplines.

During the last three years, the leading FMCG players in India have increased their annual expenditure on R&D (as per FICCI) on an average by 30%. In fact, they were the companies which despite the slowdown had never put a stymie on their R&D budget. Raison d’être: Indian FMCG market is flooded with ‘me too’ products and R&D contributes a lot, both in terms of product innovation and improvement, thereby creating an edge for them against competition.

Thus, it’s not surprising that the home grown FMCG companies like ITC, Dabur, Marico, et al, are now setting aside a major chunk (30% on an average) of their annual revenues for R&D (KSA Technopak). What’s more? Sources from ITC confirm that ITC had even compromised on its ad expenditure at the cost of sustaining R&D activities during the recent slowdown in the Indian economy. But then, is there a positive correlation between the investment in R&D and shareholder’s wealth, or is it just limited to creating a niche for the company?

As far as the Kolkata based Rs.10 billion Emami Group is concerned, investment in R&D had a multidimensional effect on it. While the net sales of the company has doubled from Rs.4.26 billion in FY2006 to Rs.10.37 billion in FY2010, it EBITA margins too have increased from Rs.530 million in FY2006 to a whopping Rs.2.53 billion in FY2010. In fact, looking at the impressive performance posted by the company on the financial front, its directors have made R&D a mandatory part of the new product development procedure. As of today, any Emami product, prior to its launch goes at least through a three year R&D programme, which comprises of extensive research, from product innovation to packaging. “For us R&D is not only limited to product development, but also comprises of market research, evaluation of packaging standard. Therefore, it takes us two to three years of minimum time in R&D,” Aditya V. Agarwal, Director, Emami India tells B&E. But then, isn’t Emami losing down to competition by investing a minimum of three years in developing a new product in a fiercely competitive FMCG market, which is witnessing at least 10 brand forays (specially in personal care segment) every year?

However, the officials at Emami strictly deny getting bogged down to such allegations as they claim the process not only provides them with a new and better product, but it also helps them in the modification of existing products. “All our products go through some changes every year as to survive in a fiercely competitive market you necessarily need to go for product modifications and that too frequently. In addition to this, many of our research for a new product might be utilised in improving our existing product line,” Priti Sureka, Director, Emami Group tells B&E.

Clearly, Emami is trying to mint the benefit of research in every way, be it the existing product or a totally new product. However, like any other FMCG company, the biggest challenge for it is to stop the high attrition level in the R&D division, which at times can result in the loss of business secrets. But then, they say without risk there is no pay off in a business and Emami is no exception!

By Angshuman Paul

          

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