(Jon Han) 

Vaccines on the Verge

Cyrus Poonawalla took a gamble in 1966 when he borrowed money from his family to start the Serum Institute of India (SII), a vaccine production company. The risk paid off, making him one of the 40 richest people in India. And that’s not because he priced his vaccines high, but because he priced them low.

Poonawalla began SII with the goal of making life-saving vaccines to offset the huge shortages in India, which continues to be his motivation today. SII is currently the world’s biggest low-cost, high-quality producer of vaccines against measles and DTP (diphtheria, tetanus and pertussis), and its fifth largest vaccine maker overall. That’s the fifth largest in terms of vaccine volume, not sales—which is precisely what Poonawalla intended. An estimated two out of three children in the world have been immunized by vaccines manufactured by his company, which supplies products to 140 different countries, many of them underdeveloped or emerging economies.

In a television interview in December 2010, Poonawalla said that his $222 million of revenue “looks ridiculously low” for a business that just before the recession was valued at $7 billion. The low revenue, Poonawalla explained, was because he sells vaccines “on humanitarian grounds, at half to 60 percent” of the going rates.

Rejiggering the Race

Poonawalla comes from a wealthy family that is still more famous for its racehorses and stud farm than for vaccine production. By chance, Poonawalla learned from a veterinarian on the farm that the Indian government–owned Haffkine Institute made vaccines with serum from over-the-hill studs donated from the Poonawalla farm. After hearing that, Poonawalla believed he could produce more and cheaper vaccines himself. In 1966, ­he and his brother Zavaray, his initial partner, raised $12,000 selling horses, added that to money borrowed from their father and set up their vaccines producing unit on a 12-acre plot on the family’s stud farm.

Within two years, SII began producing anti-tetanus vaccines, and introduced the DTP vaccine a few years later. As a result, the company helped reduce India’s dependence on imports for several product lines. After being accredited by the World Health Organization in 1994, the firm started supplying high quality vaccines to such organizations as UNICEF, the Pan American Health Organization, and many others.

In addition to its measles and DTP group of vaccines, SII makes vaccines against tuberculosis, hepatitis B, rabies and meningococcal A, among other conditions. Its pipeline includes a meningitis A, Y, C, W-135 quadrivalent vaccine, a bladder cancer vaccine and a pneumococcal polysaccharide and conjugate vaccine.

Triggering a Trend

Although India’s pharmaceutical industry is better known for producing generic drugs than original compounds, that perception could soon change. Poonawalla’s success has spurred other Indian vaccine start-ups like Shantha Biotechnics (acquired by Sanofi in 2009), Bharat Biotech International, Panacea Biotec and Zydus Cadila, to name a few. “In terms of global impact, Serum Institute has been an inspiration,” says Vijay Chandru, president of India’s Association of Biotechnology Led Enterprises.

The Indian vaccines market is now at about $700 million, according to Sushant Dalmia, a pharmaceutical industry analyst at Mumbai-based PINC Research. “It is a risky and capital-intensive business because approval of products is an issue,” Dalmia says. Despite this, firms continue to move forward in response to the tremendous demand in India and abroad. Dalmia adds that half of Indian-produced vaccines are exported.

The growth of Indian vaccine makers arises from their ability to develop and produce high-quality vaccines with low manufacturing costs. “The combination has made India a formidable source for vaccines,” Chandru says. “We may not be very far from being one of the largest in terms of the volume of vaccines, not in terms of dollar value, because we do manufacture low-priced vaccines.” Still, Poonawalla’s SII makes up almost 47 percent of the total Indian vaccine market.

Investing in Innovation

With SII’s success and the substantial improvement in India’s engineering and software industries—which reduces the need for equipment imports—a growing number of Indian companies are able to pursue development of innovative vaccines. “In the last 12 years we have matured in technological quality,” says Krishna Ella, Bharat Biotech International’s chairman and managing director. “Merck developed the hepatitis B vaccine 22 years ago. Now science and technology has changed and we have better biological molecules, better purification systems, and we’ve changed the process of production for the hepatitis B vaccine, which we have already patent protected.”

Chandru notes that sales of human vaccines are forecast to grow by 10–13 percent a year over the next five years. No doubt, predictions like this are behind a recent announcement from Gujarat-based Zydus Cadila. In the next four to five years, the company plans to invest as much as $55 million over the next three years in R&D and infrastructure—all aimed at introducing several new vaccines.

There’s good reason to invest in vaccines in India. Indeed, Poonawalla, who charted the course for these new players, entered the real estate business in 2006, when he inaugurated the Serum Bio Pharma Park, India’s first special economic zone for biotechnology and pharmaceutical products, adjacent to the SII headquarters.  In addition, he is worth $2 billion, according to a 2010 Forbes list of richest Indians, despite his company still being the cheapest source for vaccines globally. And now he has competition nipping at his heels. An expanding group of Indian firms plan to invest heavily in innovative approaches to biotechnology. That could turn this country—once known mainly for generics—into a leader in the creation and manufacturing of new pharmaceuticals. As a result, it may take more than Poonawalla’s racehorse knowledge to stay ahead of this pack.