Indian Biotechnology Industry

Portfolio Analysis

Submitted by Group 9
Group member Bhavna Sharma Debojyoti Burman Himanshu Agarwal Mudit Kalra Nitin Kumar Saindani Pranit Suchit Singh Roll number 2011PGP593 2011PGP615 2011PGP649 2011PGP732 2011PGP758 2011PGP844 2011PGP899

TABLE OF CONTENTS
Biotechnology Industry in India .................................................................................................................... 3 Introduction .................................................................................................................................................. 3 The Indian Advantage ............................................................................................................................... 3 Firms reviewed:............................................................................................................................................. 5 1. Bio-pharma sector................................................................................................................................. 5 1.2 Serum Institute of India Pvt. Ltd. ....................................................................................................... 5 2. Bioinformatics Sector: ........................................................................................................................... 5 2.1 2.2 3. Ocimum Biosolutions .................................................................................................................... 5 Strand Life Sciences ...................................................................................................................... 6

Bio-Industry Sector: .............................................................................................................................. 6 3.1 3.2 Novozymes .................................................................................................................................... 6 Advanced Enzymes ....................................................................................................................... 7

4.

Bio-Services Sector:............................................................................................................................... 7 4.1 4.2 TransAsia ....................................................................................................................................... 7 Quintiles ........................................................................................................................................ 8

5.

Bio-Agri Sector: ..................................................................................................................................... 8 5.1 5.2 Rasi Seeds...................................................................................................................................... 8 Monsanto India Ltd. ...................................................................................................................... 8

Plotting the GE/McKinsey Matrix: The Approach ......................................................................................... 8 Analysis of GE matrix: ................................................................................................................................. 11 Budget 2012: Implications .......................................................................................................................... 11 Appendix ..................................................................................................................................................... 12 List of References ........................................................................................................................................ 15

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Biotechnology Industry in India

Introduction
India is emerging as a significant player in the global biotech industry. Biotechnology is deemed as a revolution throughout the world. Scientists, through Research and Development (R&D) are continuing to develop cures for diseases that have affected people since time immemorial. With its large population of over a billion people India creates almost a perfect environment for biotech companies to shift bases here. In addition, the Indian sub-continent, which occupies only 2.4% of the total surface area on earth, has the most diverse species of flora and fauna. Also increasing prosperity raises the demand for healthcare services. The Indian Advantage Promising potential to be a global player in the arena of biotechnology Innovation opportunities: Public funding for product innovation and research in the biotech sector and focused R&D activities by private biotech firms. The sector has experienced significant growth in government spending since 1985 with constantly increasing budgetary allocations to the biotech sector FDI investment up to 100 per cent is permitted via the automatic route Large pool of skilled and cost competitive manpower Well developed and integrated scientific infrastructure Advanced chemical synthesis technologies Manufacturing practices conforming to US and EU norms Diverse biological resources Globally recognized as a producer of low cost, high quality bulk drugs and formulations. In the year 2010-11, this industry 4 earned revenues to the tune of US$ 3.5 3927.6 million growing 21.5 percent 3 over the last years revenue of US$ 3233.2 million. The emphasis 2.5 between exports and domestic sales 2 has also witnessed minor shifts 1.5 ranging between two-to-five 1 1 percent. The exports across segment made up 51 percent of the 0.5 overall revenue contributing a total 0 of US$ 2015.7 million. The ratio 2005 between exports and domestic sales stands at 51:49, which is a sign of a robust industry.

3.6 3 CAGR~23.8% 2.1 1.8 1.4 2.5

2006

2007

2008

2009

2010

2011

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The biotechnology sector can be divided into 5 sub-sectors namely: Bio-Pharma Sector: It is comprised of 130 companies involved mainly in the production of vaccines, therapeutic drugs and diagnostics. The Indian bio-pharma sector is export-driven, with exports accounting for more than 58% of revenue. Bio-Services Sector: A number of global companies are now looking at India to conduct large scale global trials. While low costs and large patient pool still remain the crucial deciding factors for attracting these companies, skilled investigators and emphasis on quality are some of the rising factors contributing to the segments growth. The bio-services sector contributes a total of 22% to Indian Biotech sector and it widely consists of clinical research, contract manufacturing, contract research and consultancy. Bio-Industrial Sector: The modern use and application of biotechnology for the sustainable production of industrially useful products like bio chemicals, biomaterials and bio-fuels from renewable resources, using living cells and/or their enzymes. This results generally in cleaner processes with minimum waste generation and energy use. Enzymes which constitute a major segment of this sector, are used in industrial processing of starch, distilleries, alcohol, textile & garments, leather processing as well as for supplementing healthcare products.

Bio-Informatics Sector: Bioinformatics is the field of science in which biology, computer science, and information technology merge to form a single discipline. Bio-informatics deal with the creation and maintenance of extensive electronic databases on various biological systems; it is the smallest part of the current domestic biotechnology industry. It can play important role in critical areas such as data mining, mapping and DNA sequencing. There is also opportunity in functional genomics, proteomics and molecule design simulation. Major Products and Services include Database Services, Integrated research application software, Biotech software services. Bio-Agri Sector: BioAgri is the biotechnology applied to agriculture. It is the use of organisms or parts of organisms to improve the agricultural products and processes. Selection of desired characteristics, domestication of plant species, and mechanics of cell biology come under this sector. In India, BioAgri is further classified into hybrid seeds, transgenic crops, bio-pesticides and bio-fertilizers.

For further insight into the market breakup of the sub-sectors refer appendix at the end of report.

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Firms reviewed: 1. Bio-pharma sector

1.1 Panacea Biotech: It is the second
largest vaccine producer in India. Major products offered include Vaccines, Diabetes Management 1200 Products, Anti pyretic, Anti renal 1000 management drugs. Revenues 800 totaling $20 million were recorded in 600 Sales (INR) 400 FY 2011 with a growth of 32%. The 200 firm has been in news for the losses of 0 INR72 crores after its vaccine FY08 FY09 FY10 FY11 pentavalent was delisted by WHO. It heavily invests in its R&D facilities and expects to enter branded generics in emerging markets like Africa and Eastern Europe. The sales figures for 2008-11 are as shown.

Sales (INR)

1.2 Serum Institute of India Pvt. Ltd.

Sales(INR)
50 40 30 20 10 0 FY09 FY08 FY07 FY06 INR Sales

It is the worlds largest producer of Measles and DTP vaccines. Major products offered are various antiviral and anti-bacterial vaccines like NASOVAC, Tubervac, Anti-cancer and Hormonal products. It amassed revenues of $216 million in FY11 with a growth of 16%. Its efforts have been constantly lauded by WHO for its efforts in research in this area. The adjoining graph displays its sales figures.

Revenues of OCIMUM BIOSOLN

2. Bioinformatics Sector:
2.1 Ocimum Biosolutions
It is the leading global genomics firm providing information solutions. Important products and services include Microarray services, Comprehensive genomic reference databases, life science lab information 5|Page
80 60 40 20 0 2010-11 2009-10 2008-09 2007-08 2006-07 65 41.4 47.57 65 60

management, other research consumables. In 2011 the company recorded revenues of $13 million. It has witnessed low growth. The firm manages worlds largest gene expression databases.

2.2

Strand Life Sciences

Revenues of STRAND LIFE SCIENCES

50 40 30 20 10 0 2010-11 2009-10 2008-09 2007-08 2006-07 42 35 35 20 10

The firm is a pioneer in discovery research informatics. Core strengths of the firm include data mining, predictive modeling, bioinformatics and computational chemistry. The revenues of $10 million in FY11 and it witnessed a record growth of 40% in last five years. Clients include 5 out of top 10 pharmaceutical companies of the world.

3. Bio-Industry Sector:

3.1

Novozymes

It is the largest supplier firm of industrial enzymes and microorganisms in India specializing in enzymes and microbes for manufacturing of detergents, food, feed, textiles, leathers, oil, alcoholic beverages and bio-fuels. Revenues to the tune of $230 million were earned in FY2011 due to a growth of 16%. The firm recently acquired Biocons enzyme business for $155 million.

NovoZymes SouthAsia Revenues

300 200 100 0 2006-07 2007-08 2008-09 2009-10 2010-11

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Advanced Enzymes Revenues

200 150 100 50 0 2006-07 2007-08 2008-09 2009-10 2010-11

3.2

Advanced Enzymes

It is the pioneer in plant, animal and microbial based enzymes like human healthcare enzymes, animal healthcare, food processing and industrial processing enzymes. The company recorded revenues of $154 million in FY11 and saw a record growth of 26% in last five years. The company caters to worldwide markets and has 50% export share just from US markets.

4. Bio-Services Sector:
4.1 TransAsia
The company is recognized as a leading player in the diagnostic world. It provides Diagnostic Services and Biochemistry Analyzers for hospitals. Revenues of $20 million were recorded in FY 2011 with a growth of 600 32%. McEvoy and Farmer report on IVD 500 industry in India (2006) ranks 400 Transasia as the 2010-11 # 1 Company in 300 2009-10 the Indian 2008-09 Diagnostic 200 Industry. It has the largest Sales 100 and Installation base with over 0 20,000 Transasia Biomed Tulip Quintiles India installations all over the country.

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4.2

Quintiles

The firm is a global pioneer in pharmaceutical services like Biostatistics, Central Laboratory Servies, Clinical monitoring, Data management offering a functional service provider. The company revenues equaled $99 million in FY11 and it registered a growth of 23%. The only global CRO with its presence in India verified by US FDA

5. Bio-Agri Sector:
5.1 Rasi Seeds
The company is one of the leaders in cotton hybrids and maker of one of the most successful BT cotton varieties, cotton hybrids, maize hybrids, pearl millets and vegetables. The company amassed revenues of $74 million in FY 2011. The firm is known for heavily investing in its R&D facilities in the 800 recent past. The firm has been in 600 news recently for a Rs.10 crore Revenues(i 400 outlay in Attur for R&D in virus n Rs. resistant and transgenic seeds. Crores) 200

Revenues(in Rs. Crores)

5.2

Monsanto India Ltd.

0 2007 2008 2009 2010 2011

The firm is a pioneer in chemical weed control and is a market leader in rice herbicides, weed herbicides like Roundup, Maize seed hybrids like Dekalb. The company earned revenues of $75 million in FY11 and witnessed a record growth of 106% in last FY. Firm has made some aggressive acquisitions in past and plans to establish many more breeding stations and laboratories. Recently in news for opposition to its melon patent which violated patent laws.

Plotting the GE/McKinsey Matrix: The Approach

The GE/McKinsey Matrix identifies the optimum business portfolio as one that fits perfectly to the company's strengths and helps to exploit the most attractive industry sectors or markets. Thus, the objective of the analysis is to position each SBU on the chart depending on the SBU's Strength and the Attractiveness of the Industry Sector or Market on which it is focused. Each axis is divided into Low, Medium and High, giving the nine-cell matrix. The following methodology has been adopted to calculate various parameters.

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Business Strength Market Share Profit Margins D/E ratio Percentage of expenses on R&D Cost of capital Brand Awareness (1 to 10) Product Quality (1 to 10)

Methodology followed Ratio of revenue to total market size of the sector Ratio of Net Profit to Sales Ratio of total debt/ Total Shareholder's Equity Percentage of expenses that were spent on research Taken as weighted average cost of capital Subjectively calculated based on secondary research Subjectively calculated based on secondary research

Industry Attractiveness Market Growth Market Size Profit Margins of top 5 players Competitiveness

Methodology followed CAGR in last 5 years Total Business done by the sector as a whole Average profit margins of the top 5 players HHL Index has been used to calculate competitiveness of the sector Calculated using sum of s^2 for top 3 firms where s is share of that firm CAGR of export revenues of the sector in last 5 years Subjectively calculated based on secondary research on support given to the industry Subjectively calculated based on secondary research

Growth in Exports Regulatory Regime (1-10) Ease of entry (1-10)

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The following table shows the calculation of the indices used in the plotting of the matrix. Sector Bio Agri Bio Pharma Bio Industry Bio Services Bio Informatics Company Name Rasi Seeds Monsanto India Ltd. Panacea Biotech Serum Novozyme Advanced Enzyme Quintiles Transasia Ocimum Biosoltions Strand Life Sciences Business Strength 1.627204074 1.8 1.66938 1.9 1.68736 2.33643 1.1 1.23 0.877676667 1.26969 Industry Attractiveness 78.351 78.351 180.609 180.609 19.368 19.368 111.596 111.596 11.505 11.505 Size (Revenues) 370 369.56 967 1080 254 154 476 364.5 65 42

The GE matrix was plotted as shown below:

Panacea Serum

Industry Attractiveness

Bio Agri Quintiles Transasia Rasi Seeds Monsanto India Ocimum Strand Life Science Bio Pharma Bio Industry Bio Service Bio Informatics Advanced Enzyme

Novozyme

Business Strength

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Analysis of GE matrix:
Bio-Pharma: This sector dominates the biotech sector. Industry attractiveness is high and business strength is moderate to high. Launch of many similar products is expected in two years. It is expected to grow at 25%. Bio-Agri: This segment is one of the fastest growing segments. In last 5 years its market share increased from 5% to 14%. It has revolutionized the farming space with the launch of Bt Rice, Bt maize, Bt Tomato and Bt Cauliflower. The sector needs more investments in R&D and acceptance of products among farmers. Bio-Informatics: This is the smallest segment of biotech industry. It barely has 2% of market share in overall industry. Most of the companies in this segment are small scale. Many big companies like TCS and HCL have forayed in this segment. Indian companies need to establish a good reputation to protect client data. Bio-Industry: This segment has slowest growth rate of 12%. Most of the Indian companies do not have their own R&D division. They are importing the enzyme and selling in India. This sector needs more investment in order to strive for high growth Bio-services: This segment is growing at a rate of 20% and is expected to continue the same growth rate in future. The segment is facing competition from small home grown companies. Mandatory registration of all clinical trials in India will lead to a rise in the number of global companies outsourcing clinical trials to India.

Budget 2012: Implications

Following is an analysis to see the impact of the latest budget on the biotechnology sector. Considering the significance of this constantly growing sector on the Indian economy it is only sensible to analyze the effect of the policy changes. Expectations of the Industry: Reduction of Excise duty from the present level of 10% to 4% Reduction of services tax by 5% from existing 10.30% Non inclusion of agrochemicals in the list of Free Trade Agreements (FTAs) Permit tax free import of R&D equipments to the tune of 25% of export earnings

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States should be prevailed upon not to levy VAT on agrochemicals

Budget Outcome: Basic customs duty is being reduced from 10% to 5% on probiotics (cost-effective means of combating bacterial infections) This year it has been decided to make common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertilizer sector eligible for Viability Gap Funding under the Scheme to support PPP in infrastructure Increase in the allocation for the initiative of Bringing Green Revolution to Eastern India (BGREI) scheme from 400 crore in 2011-12 to 1000 crore in 2012-13 Agriculture Credit: The target for agricultural credit in 2012-13 has been raised to 5,75,000 crore which represents an increase of 1,00,000 crore over the target for the current year Sum of 200 crore for incentivizing research with rewards, both for institutions and the research team responsible for such scientific breakthroughs

Appendix
The appendix has been included to offer additional insight into the sector breakup into the 5 subsectors.

3.60%

1.50%

14.40%

Bio-Pharma Bio-Services Bio-Agri

18.80%

61.70%

Bio-Industrial Bio-Informatics

Bio-Pharmaceutical sector accounted for the largest chunk with 61.7% share. BioServices and Bio-Agri followed with a share of 18.8 and 14.4% shares respectively Bio-Informatics has the least share but its one of the most rapidly rising sectors owing to Indian IT expertise

Figure 1: Market break-up by revenues 2010-11

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1.70% 1.20% 0.80%

Bio-Pharma 33.70% Bio-Services Bio-Agri 62.50% Bio-Industrial Bio-Informatics

Bio-Pharma contributes most to exports followed by bioservices. Outsourcing has opened up further avenues of growth for biotech. India is a good base outsourcing because of its cost effectiveness. Expertise in bioinformatics can play a significant role in critical areas like data mining and mapping

Figure 2: Export share among sub-sectors 2010-11

4 3.5
CAGR~18.7%

3 2.5 2 1.5 1 0.5 0 2008 2009 2010 2011

Figure 3: Exports of biotechnology products in $ billion

Revenues from biotech exports valued at $1.8 billion in FY2011, constituting 52% of biotech industrys revenue. As shown we can see an annual growth of 18.7% over 2007-2010 in export driven revenues.

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120.00% 100.00% 80.00% 60.00% 40.00% 25.80% 20.00% 0.00% Bio-Pharma -20.00% Bio-Services Bio-Agri Bio-Industrial Bio-Informatics -6.80% 96.80%

28.10% 8.10%

Figure 4: Domestic business growth of biotech industry, FY11

In domestic sector, India offers a suitable population for clinical trials because of its diverse gene pool, which covers a large number of diseases. Owing to a huge agricultural economy, India has a huge opportunity in the agri-seeds and agri-chemicals. Lifestyle diseases are set to account for a greater part of health care market. Rising per capita income and middle class population is yet another contributor to growth.

50.00% 43.40% 40.00% 30.00% 21.10% 20.00% 10.00% 0.00% Bio-Pharma Bio-Services Bio-Agri Bio-Industrial Bio-Informatics 16.10% 19.10% 28.10%

Figure 5: Export business growth of biotech industry, FY11

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List of References
http://biospectrumindia.ciol.com/content/BioServices/11106141.asp http://biospectrumindia.ciol.com/content/CoverStory/71106091.asp http://biospectrumindia.ciol.com/cgi-bin/printer.asp?id=127792 http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-sectors/Biotechnology1.htm http://www.ableindia.in/pdf/eighth_biospectrum_June_10.pdf http://www.ibef.org/ http://biospectrumindia.ciol.com/ http://www.rasiseeds.com/profile.html http://www.monsantoindia.com/ http://tutor2u.net/business/strategy/ge_matrix.htm http://www.business-toolstemplates.com/U_GuidesPDF/General%20Electric%20GE%20McKinsey%20Matrix%20User%20Guide.pdf

http://articles.timesofindia.indiatimes.com/2012-03-17/union-budget/31204496_1_weighteddeduction-excise-duty-small-biotech-firms http://economictimes.indiatimes.com/news/news-by-industry/healthcare/biotech/biotech/budget2012-pranab-mukherjee-fails-to-address-the-wish-list-of-biotechnologysector/articleshow/12303122.cms

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