THE LONG-TERM CONTRACT

THE LONG-TERM CONTRACT

 

Anurag Bagaria, Chairman and Managing Director, Kemwell Biopharma

Kemwell Biopharma has come a long way from the time its founder Subhash Bagaria transformed it into a 100 per cent contract manufacturing company from a pharmaceutical and API (active pharmaceutical ingredient) manufacturer with ‘me-too’ products that was bleeding money. Anurag Bagaria, chairman and managing director of Kemwell, says, “My father, Subhash Bagaria, took over Indian Process Chemical Laboratory Pvt. Ltd. in the early 1980s when he moved to Bengaluru from Kolkata and renamed the company Kemwell.” When Kemwell got a contract manufacturing opportunity from GlaxoSmithKline (then Glaxo) for some of its liquids requirement, the senior Bagaria decided to make the change in Kemwell’s business model. He closed down its products business and converted Kemwell into a complete contract services business, with the goal of making it India’s foremost contract manufacturing organisation (CMO).

Anurag Bagaria, who joined Kemwell in 2004 as a second-generation entrepreneur, recalls, “My father often said that the mindset of a products business from that of a services business is poles apart. Only a service-centric business can put the customer’s needs at the forefront, which is critical to success.” This year Kemwell completes 30 years of operation and over the last five years, it has grown at a compounded annual growth rate (CAGR) of 20 per cent, driven by its development and manufacturing businesses.

The transformation
It is currently a leading pure play contract development and manufacturing company. Kemwell services five of the top 10 pharmaceutical companies in the world from five facilities in India and two in Sweden, employing over 1000 people worldwide. It does formulations contract manufacturing and development services for tablets, capsules, liquid orals, external drops, ointments, gels, creams, suppositories, injectables and biologic drug substance. Its primary revenue model is fee-for-service (fixed fee, Full Time Equivalent-based) for product development and manufacturing. “In some cases, we are investing in the early product development cycle with our customers to share returns upon successful commercialisation of the product,” shares Bagaria.

“My father laid the foundation for our first liquids facility in 1985 and in 1996, we built a new plant to triple our liquids manufacturing capacity to service the growing needs of our customers,” says Bagaria. In 2001, Kemwell built a new semi-solids facility in Bengaluru to diversify into the manufacturing of ointments and creams. By then, it was supplying to the top global pharmaceutical players including GSK, Pfizer, Johnson & Johnson, Novartis and Bayer. Kemwell currently supplies to 80 markets worldwide, including the U.S, Europe, Japan and RoW (rest of the world: South America, Africa and Asia). It also supplies to several other MNCs and Indian pharmaceutical companies.

In 2006, after the acquisition of a manufacturing facility from Pfizer in Uppsala, Sweden, Kemwell transformed from a domestic contract manufacturer to a global player. It continued to service Pfizer’s product requirements from the site. In 2008, it commenced operations at the oral solids facility in Bengaluru. This facility was built to produce up to five billion tablets and capsules annually for global supply. Kemwell also forayed into providing pharmaceutical development services to its customers in 2008, a business unit which grew to 100 scientists serving customers from Asia, Europe and the U.S. It is expected to add about 150 scientists in the next two years. A oral care R&D centre in 2008 was also set up in partnership with GlaxoSmithKline to cater exclusively to GSK’s global oral healthcare development projects.
Kemwell also decided to pursue the biologics manufacturing space in 2009 through a strategic collaboration with Boehringer Ingelheim (Boehringer), Germany with an aim of providing the customer with state-of-the-art technology from Europe along with the benefit of low cost manufacturing from India. Bagaria believes that alliances and risk sharing are very important to success in the very high risk product development lifecycle. And hence, Kemwell is pursuing similar alliances for other technologies in small and large molecule development.

In order to meet the growing needs of its customers, the company also began the construction of a new liquids manufacturing facility in 2010 to double the manufacturing capacity. Today, the new liquids facility has begun operations and the biologics facility is close to being commissioned, becoming the only CMO facility for biologics manufacturing in India at this scale.

Snap Shot

Kemwell Biopharma
Founder: Subhash Bagaria
Year: 1980
City: Bengaluru

Setting up the systems
Innovator companies recognise Kemwell’s commitment to intellectual property (IP) rights, which has been the reason for its longlasting relationships with big and small pharmaceutical companies. “Being a family-owned business, we have been able to focus on the long term horizon instead of short term profits,” says Bagaria.

However, the next couple of years are challenging and exciting for the Kemwell team. “We have invested in greenfield solids, liquids and biopharmaceutical facilities. The key is now to commercialise these assets,” says Bagaria. The company’s focus is on building the right team, training and developing them, and building the right systems and processes for the future. It is also working on improving its HR systems and business processes through optimal usage of SAP. “We are strengthening our marketing and business development as we have grown all these years purely by repeat business and word-of-mouth,” shares Bagaria. He adds, “Lack of clarity of the regulations and long timelines for various approvals are really hindering the growth of the industry. Nowadays, quick implementation of projects and certainty of timelines are extremely important for the customer.”

On the drug development front, the challenge is recruiting and retaining key scientific manpower. “Even though our education system produces many PhDs and Master’s graduates every year, I don’t think we provide them with the right type of education in terms of challenging the status quo and application of knowledge,” says Bagaria. R&D is also a highly team-based activity, where people of various ages and disciplines have to work together. “The hierarchal culture of India and the chalta hai attitude has to change for real success in this field,” says Bagaria.
The growing market
The global contract development and manufacturing market in the formulation space is around US $35 billion and of this, only less than one per cent is outsourced to India. However, the growth of outsourcing to India is much faster (12 – 15 per cent) than the growth of the overall industry (6 – 8 per cent). “An increasing number of our customers is realising that their core competence is in product development, and sales and marketing. For research, they are partnering with universities and startups and for manufacturing, they are looking at outsourcing as a key strategy. Thus, the industry overall is going to grow,” shares Bagaria. For India, there is an added opportunity. There is pressure on the global pharmaceutical companies to reduce healthcare costs and hence, cost-effective supply chain is becoming increasingly important.

Operating in this environment, Kemwell is poised to grow at a CAGR of 20 – 25 per cent over the next five years. Most of its growth will come from servicing customers in the U.S., Europe and India. For its biologics and pharmaceutical business, it plans to target small and medium pharmaceutical companies in Europe and the U.S. The company has commenced aggressive marketing and business development efforts in all three geographic areas with a larger team and more marketing through print advertisements and participation in various exhibitions. It is also evaluating various acquisition opportunities in both India and in the overseas market to add to its services in both pharmaceutical development and commercial manufacturing, which will be funded internally with some component of debt.

“Our current customers are today strapped with a very complex supply chain with a large number of in-house as well as outsourced facilities,” says Bagaria. The pharmaceutical value chain needs to adapt advances made in other industries like automobiles and electronics, where outsourced partners become an integral part of their customers’ supply chains and become involved in long-term strategic decisions. “I believe that companies like ours have to provide many solutions to each customer. Thus, we are constantly pursuing growth areas to diversify our service offering,” concludes Bagaria.


What next?

  • For its biologics and pharmaceutical business, it plans to target small and medium pharmaceutical companies in Europe and the U.S. 
  • It has commenced aggressive marketing and business development efforts in all three geographic areas with a larger team and more marketing through print advertisements and participation in various exhibitions. 
  • It is pursuing alliances for other technologies in small and large molecule development.
  • It is evaluating various acquisition opportunities in both India and in the overseas market to add to its services in both pharmaceutical development and commercial manufacturing, which will be funded internally with some component of debt.

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