What makes Serum click

Serum Institute’s 71-year-old founder, Dr Cyrus Poonawalla, is different things to different people.

A “vaccine hero,” says IT czar and philanthropist Bill Gates. And this is not surprising, since Serum’s vaccines are priced at an average 50 per cent less than what multinational charge.

“A visionary,” says a seasoned employee at Serum.

A formidable businessman who put his money on quality science and seized the opportunity, say competitors and industry colleagues.

Tucked away in Pune, vaccine-maker Serum Institute of India is the flagship of the estimated $3-billion Poonawalla Group that is more associated with a hi-profile horse-racing and breeding business.

Despite being in a business that industry-players describe as “tough, risky and where inconsistency is a common player”, Serum is the country’s largest vaccine maker.

With DTP (Diphtheria, Tetanus and Pertussis) and MMR (Measles, Mumps and Rubella) vaccines to relatively newer hepatitis-B, rabies and other combination vaccines in its basket, Serum clocked revenues of Rs 1,700 crore, and profits of Rs 700 crore in the year up to March.

Last week, Serum crossed another milestone, making its first overseas acquisition by buying Netherland-based Bilthoven Biologicals for over Rs 500 crore. The deal opens its doors to the advanced US and European markets.

Greater global play

In fact, in about four years, Serum will change “dramatically” from where it is now, says Poonawalla Group and Serum’s Executive Director, Mr Adar Poonawalla, indicating greater play on the global stage. But how much more global can Serum get? It is already said that two out of three children immunised across the world are vaccinated by a Serum vaccine. And what is it about Serum’s formula that seems to have worked so well?

Vaccines are tougher than regular pharmaceuticals, where repetition is quite the norm, says a vaccine-maker. It is not a copy-cat business, as biologicals – the segment that vaccines are a part of – deal with organisms that could be live, and need to be “manoeuvred and managed”.

Despite knowing the process of developing the vaccine, it is not easy to make the product, and there are high risks involved in repeating generically-similar batches of vaccines, he explains.

Philanthropic pricing

Just a handful of vaccine players exist locally because of the huge investments required, and the long “maturation or ageing time” in the developing process, he adds, contrasting this to shorter and simpler processes needed to make chemically-similar medicines. And it’s this challenging backdrop that makes the Serum story interesting. An early-mover advantage in vaccines, philanthropic pricing (that in hindsight turned out to be a good strategy) and the plough-back of revenues generated back into the business set Serum apart, says 31-year-old Adar, son of Dr Poonawalla.

Serum was started in 1966 “by my Dad with $10,000”. In the mid-1990s the company went in for World Health Organisation approvals for its plants and the scale of vaccine sales grew, he says. Investments were in quality systems, volumes expanded and the low pricing helped garner more market share. The company has invested about Rs 2,000 crore in capacities over the last 10 years, Adar adds.

“We looked at the world demand and built capacity more than others, he says,” explaining Serum’s success. The company sells 900 million doses of vaccine today.

Being owner-driven, the company could take more risks than that run by a Chief Executive. It brings in a certain flexibility, he says, adding that the promoter-family does not look to dilute stake or control. The company is 100 per cent owned by Dr Cyrus Poonawalla.

In the recent Dutch acquisition, for instance, other players in the race were deterred by the liabilities of the target company. It included operational losses of Euro 30 million per year. But Serum went ahead and inked the deal, he recounts.

With Serum meeting the public health criteria, it acquired 100 per cent shares in the Dutch government-run company. It will totally fork out over Rs 550 crore, over a three-year period.

Explaining why other local players may not have flocked into vaccines, Serum’s Executive Director, Dr Suresh Jadhav, points to the “risk factor”. Since vaccines deal with live organisms, contamination is a concern. Manufacturing facilities need a sterile atmosphere and high standards of good manufacturing practices.

Vaccines may be seen as commoditised, low-margin products sold in economically weak markets but, Dr Jadhav says, 75 per cent of its volumes are exported, and the company has a healthy bottom line, despite its pricing.

Last June, the pentavalent vaccine that Serum offered to the Global Alliance for Vaccines and Immunisation (GAVI) was priced at $1.75, compared with the multinational price of over $3, he says. Pentavalent vaccines protect against five potential killers, including diphtheria, tetanus, and hepatitis B.

Advantage Serum

The Dutch-acquisition changes Serum’s road ahead. Serum’s products ( accessible in developing countries) will roll out in advanced markets, taking competition right into the backyard of multinational companies.

The global vaccine market is estimated at over $15 billion, and dominated by Pfizer, GlaxoSmithKline and Sanofi. The Indian vaccines market is estimated at about $400-million.

The Dutch acquisition gives Serum a unique technology to make the injectable polio vaccine (Salk). Also in its fold is a manufacturing facility located in Bilthoven, about 45 minutes from Amsterdam.

The inactivated polio (IP) vaccine technology can be used for combination vaccines in future, Dr Jadhav explains.

Also, India has become polio-free. And the WHO recommends that countries shift from the orally-administered polio vaccine to the injectible vaccine. Advanced markets, including Europe, Australia, the US and Japan use IP vaccines in their immunisation programmes for children.

In India, doctors use imported injectible, inactivated vaccines. Soon the Government-run programme too is expected to shift to these vaccines, in line with WHO recommendations. And therein lies a local opportunity for Serum. Other global opportunities include the cyclical seasonal flu vaccine, the Rotovirus vaccine (targeting a leading cause of severe diarrhoea, regarded as the world’s second biggest killer of children), the pneumococcal conjugate vaccine and the cervical cancer vaccine, to name a few.

Serum also has financial investments in drug-maker Orchid and vaccine-company Panacea Biotech, wind-mills that reduce Serum’s power-bill , two schools, and a hospital it plans to take over .

With real-estate, hospitality and engineering too part of the Group, Adar says his hands are full, with little place for new business interests.

The pharmaceutical world has seen big-ticket sell-outs. Would he go down that road? “I would never sell,” says Adar, adding “What they do not realise is, it is difficult to be a leader on the global stage.” And that is what Serum wants to be.

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