THE MOLECULE MAKER

P.HARI

A.V. Rama Rao's firm Avra Labs has struck gold in contract research, winning deals from the global pharma giants.
When A.V. Rama Rao retired in April 1995, it wasn't like he was going to just stop working. After all, the man who
used to be director at the Hyderabad-based Indian Institute of Chemical Technology (IICT) could have his pick of
jobs.

Any of the big multinational pharmaceutical companies would have been glad to hire him. And, if he wanted to stay
in India, he could have joined one of the big Indian firms as head of research. Or, if he wanted to spread himself
wider, he could have set himself up as a consultant. There was even some talk of a fellowship at a reputed
institution -- he was after all a man with a reputation, having synthesised molecules for firms like Lupin and Cipla.
But those who knew Rao weren't surprised when he sought a life of greater adventure -- setting up his own firm.
But this was 1995, when contract research was non-existent in India. And, as Rama Rao insists, only one Indian
scientist (he has his own rigorous definition of 'scientist') has succeeded as an entrepreneur -- P.C.Ray, the
outstanding chemist who started Bengal Chemicals.

Rao began Avra Laboratories, a pure R&D company, with an investment of Rs 1 lakh, transferring some of his
assets to the company. He also took a loan of Rs 2 crore from the Technology Development Board (TDB) under the
department of science and technology (DST). Apart from this, he got a Rs 50-lakh loan from the State Bank of
India. Avra is a family affair -- elder son Rama Krishna, an MBA, helps run the company. Daughter Radha, a
doctor of medicine and a biochemist, is on the research staff. Younger son Chandra Shekhar, who's finishing his
Ph.D in inorganic chemistry at Cambridge, is due to join the company.

In four years, Avra has earned Rs 10.2 crore, all from multinational clients, including Rs 3.3 crore as profit. It also
has four US patents. Says R.A. Mashelkar, director general of the Council of Scientific and Industrial Research
(CSIR): "Avra is unique. The entire enterprise is being driven by the knowledge of one scientist."

A.V.Rama Rao (C) & Sons

Mashelkar should know, Rao is credited with having turned IICT into one of the leading CSIR laboratories. But
back then, Rao did not know how he would be able to raise the money he needed to start work. Then, on a lecture
tour of the US in June 1996, he happened to be at G.D. Searle, which had been looking for a tie-up up with IICT,
but only if Rama Rao had stayed at the helm. When Rao told them about his plans, G.D. Searle didn't wait to ask. It
handed him a cheque for $100,000, an advance on the memorandum of understanding which it signed with Rao for
research collaboration -- worth $200,000 over three years.

During the same trip, Rao also attended the prestigious Gordon conference on biology and chemistry (a rare honour
for an Indian). There he met executives of biotech firm Cytomed, which had discovered a new anti-cancer
compound (CMI 392). But with no chemistry expertise, Cytomed was struggling to synthesise it in the laboratory.
UK firm Resonance, then a Merck subsidiary, had tried without success. Rao suggested a possible route for
synthesis. On the basis of this he got another $50,000. Now he had the money, Rama Rao bought equipment and
started work. Dai-Ichi Karkaria of Mumbai offered him land free. But two years later Rao decided that he didn't
want to be tied to Dai-Ichi and relocated to his own facilities in Hyderabad. The Avra campus has four different
labs and arguably the best pilot plant in the country.

The Cytomed CMI 392 project went as far as phase III of clinical trials and Avra got a contract (worth $950,000) to
make 11 kg of the molecule. All this was done without hiring a single experienced chemist -- Rao's expertise as a
teacher came in handy here. Avra has 30 chemists, all of them recruited as fresh post graduates or doctorates. Rao's
dream encompasses his staff -- he wants to make his company a training ground for chemists and entrepreneurs. It
works like this -- if Avra gets a chance to make a compound on a large scale, he will let one of his scientists (most
of whom are his students) set up a company. "I want at least six such entrepreneurs in the next five years," says
Rao.

Rao's current success hasn't come easy: "I am used to struggling and so I was prepared to take risks." Four decades
ago, after finishing his BSc degree, Rao had to work as a demonstrator at the AC College in Guntur. He saved some
money out of that and went to the University Department of Chemical Technology at Mumbai to study
pharmaceutical chemistry, later joining the National Chemical Laboratory at Pune. After a short stint of research on
natural products, he went to work with E.J. Corey (a Nobel Prize winner and one of the best chemists of the 20th
century) at Harvard. There he learned the art of synthesising complex bio-molecules. It's this experience which
came in handy when he was IICT director, and is now employing at Avra. Natural product chemistry is very
complex, he says. You have to learn to work with a large team, a large number of reagents. What's more, the
scientist must also have a very good knowledge of stereochemistry, the science of how molecules orient themselves
in space. Says M.K. Gurjar, deputy director of NCL: "Rao had a sound knowledge of natural product chemistry.

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But he also used this knowledge to make value-added products." For instance, Rao studied nucleic acids, then used
this knowledge to make the anti-AIDS intermediate beta-cynidine.

At IICT, he pioneered the synthesis of several molecules, helping the Indian pharmaceutical industry to grow. The
anti-inflammatory drug flubiprofen was commercialised by FDC in Mumbai. Cipla got norfloxacin and
ciprofloxacin, two of the biggest-selling antibiotics in the world. Earlier, at NCL, he had gifted Vitamin B-6
technology to Lupin and diazepam (anti-depressant Calmpose is one brand) to Cipla. Again, at IICT, he taught
scientists how to handle poisonous gases like chlorine and hydrogen cyanide. He also developed something totally
new: technology for the production of carbon monoxide and using the gas to produce several chemicals.

Meanwhile, he also introduced an entirely new branch of chemistry to the country: chiral synthesis. Many
molecules exist in two forms -- mirror images of each other. When you synthesise a compound, you get a mixture
of its mirror images. However, the body recognises only one of the two images. Chiral synthesis is the art of
making only that compound which is biologically active. This reduces wastage and thus cuts costs. In modern
synthetic chemistry, a scientist is not much good if he cannot handle chiral synthesis. He imparted this knowledge
to several students -- he's trained 100 Ph.Ds, probably the first Indian scientist to do so. Rao's also known as a bit of
a character -- what his booming voice and shiny bald pate, apart from a fondness for chicken. And naturally enough
for a man of such broad talents, Rao is never one to brook naysayers. "I speak my mind," he says. While at IICT, he
never spoke to the union leaders because, according to him, they did not exist in his book.

Now, he can't talk to anybody too much about his work. Rao's clients are all multinationals, which do not want to
reveal who they are working with, let alone what they are working on. New drug development often starts at a small
biotech company which spots a new molecule. The firm can conduct toxicology and clinical trials, but usually does
not have the chemistry expertise to make the molecule. The firm then asks another company which has the
expertise on synthesis to help out.

As the trials go on, the quantity of the drug required also goes up. The chemists then scale up their processes and, if
the molecule is introduced in the market, get the first opportunity to make it commercially. During trials, speed, and
not cost, is the important factor. But after commercialisation, economics becomes very important.

The US is full of companies which undertake custom synthesis. In India, the concept is new. The only other such
company is Syngene, promoted by the Bangalore-based biotech firm Biocon. Rao says his lab is as good as any in
the world, with a Rs 1.5-crore pilot plant that can simultaneously manufacture eight different products at the same
time (no other such plant exists in the country). It can work at room temperature, and also at very low (-40 degrees)
and very high temperatures (300 degrees).

If anything, Rao has broken one canon of common wisdom: that real scientist perish in the Indian system. It may be
the exception to the rule, but if anything, the success of Avra shows that India too can nurture research talent.

Questions for Discussions

1. Derive the Objectives, Mission, Philosophy and Vision of the organization.

2. What is the core competency of the company?
3. How do you view the Business Strategy of the company?
4. Brief upon the SWOT.
5. What in your opinion the company must do to be successful?
6. Derive the Business Model
7. What is the Competitive Strategy?