The lifesciences industry in India is still a toddler: Most of the companies in the sector are less than 10 years old. Among the leading players is Ahmedabad-based Claris Lifesciences, which manufactures and markets high-end sterile injectable preparations, life-saving medicines and hospital products for the treatment of critical illnesses. Claris opened shop in 2000; today, it has a presence in 76 countries and aims to become a leading player in the niche global injectables market.

Both India and injectables are high-growth areas. The world pharmaceutical market was estimated at US$712 billion in 2007, growing at 6% to 7%. In India, the market’s growth rate is 13.7%. The injectable market is valued at US$147 billion. Generic injectables — Claris’s focus area — is about 40% of this.

The Indian pharmaceutical market is currently fourth in the world in terms of volume and thirteenth in value. According to a study by consulting firm McKinsey & Company, the market will reach US$20 billion by 2015 and present the third-largest growth opportunity (after the U.S. and China).

With estimated revenues of US$200 million for 2008, Claris has seen a compounded annual growth rate (CAGR) of 40% over the past five years. India Knowledge at Wharton spoke with Claris founder and CEO Sushil Handa about how he intends to keep his company at the cutting edge, even in the midst of the current financial downturn, as well as the tough but “invaluable” lessons he learned from his first venture, Core Healthcare. Following are excerpts from the interview.

India Knowledge at Wharton: How would you describe the lifesciences industry in India today and its overall growth prospects?

Sushil Handa: The India growth story started close to 15 years ago with the first phase of economic liberalization. Since then, the economy has gone from [one strong period to another], and the past five years in particular have seen strong growth across sectors. The Indian pharmaceutical industry was also able to capitalize on this opportunity, and early movers like Ranbaxy, Dr Reddy’s and Sun Pharma looked westward and found a huge opportunity waiting in generics.

The Indian pharmaceutical market has been growing at more than 13%, which is double the growth rate of the global market. The lifesciences industry in India is growing at a fast pace not only because of the increasing demand for quality healthcare from the burgeoning Indian middle and upper classes, but also because of a demand for generics from governments across the world determined to keep healthcare budgets under control.

So, India today is looked at as a significant source of quality healthcare products and services at significantly low costs. Generic formulations, bio-similars and vaccines have Indian players competing with multinationals. One other fact that should be kept in mind is that China is a big competitor in this sector as well. However, just like in IT, where India has an edge because of its human capital — which has a command over English and is well qualified — the situation is similar in pharmaceuticals. The pharmaceutical industry has a lot of regulations to work with in the process of getting approvals for drugs across various national regulatory agencies. This also requires a lot of documentation, submissions and query handling, which requires qualified and trained human resources. India has to work hard to maintain this edge, of course, and both industry and regulatory authorities realize this and are working towards maintaining quality systems across all aspects of the regulatory and manufacturing process.

India Knowledge at Wharton: What are the factors peculiar to India in this market?

Handa: In India there is a significant rise in public spending on health. With greater private involvement in the health sector, including the emergence of corporate hospital chains and growth in private health insurance, more people are gaining access to healthcare. There are still several opportunities for growth where the Indian industry has just made a beginning, like CRAMS (contract research and manufacturing services), pharma BPO services, biotechnology and lifestyle disease treatments.

India Knowledge at Wharton: What is your prognosis for the entire pharmaceutical sector?

Handa: The global pharma sector will continue to grow at 5% to 6%. However, growth in the coming years will come from increased access to healthcare, particularly in emerging countries, rather than [new] research molecules. Most of the research happening today is in areas such as oncology and diabetes, which are primarily urban lifestyle-related diseases.

India Knowledge at Wharton: What are the areas that Claris is focusing on? Does the company intend to diversify?

Handa: Claris focuses on new drug delivery systems for treatment of critical illnesses and diseases. It will continue to focus on and enhance its product basket in the areas of enteral and parenteral nutrition, anesthesia, blood products and plasma volume expanders, anti-infectives, nephrology, dialysis and transplant. The area where we will increase our presence is oncology.

Claris has always been very successful in introducing innovative changes in delivery systems like triple-chambered bags in nutrition. We will continue to innovate. One area in which Claris is working is single delivery systems for dry/wet injectables. Biotechnology is another technology platform which has attracted us because of its range of injectables in the critical care, oncology and nephrology areas.

As for diversification, when it comes to other aspects of the healthcare industry, especially the services sector, we have done that by setting up a company called Xcelris Labs.

India Knowledge at Wharton: What exactly is Xcelris doing?

Handa: Xcelris is a specialty CRAMS organization dedicated to gaining excellence in the drug development process, and thereby offering a complete spectrum of services including product development, contract manufacturing and research, clinical and regulatory support in general pharma, bio-analyses and cytotoxic drug development.

Xcelris Labs is a very exciting venture, started in a small way. I believe this will be our contribution in the development of innovative research capabilities, which are severely lacking in the Indian industry. It is probably a long way off for the Claris group. But the Indian pharmaceutical industry will contribute to the world by way of a research molecule in a few years.

India Knowledge at Wharton: What are your key challenges and what is the competitive scenario?

Handa: A key challenge is taking the company forward from an entrepreneurial, personalized approach to a more systems-and-process-oriented professional approach in the coming years as we grow exponentially from a mid- to a large-size company. Another challenge is the need for management depth and breadth, to meet the demands of fast-paced growth, as well as a shift from the group’s focus on organic growth to leverage the possibilities emerging from some strategic mergers and alliances. We are addressing this through a restructuring of the team.

The current global economic downturn notwithstanding, there are many opportunities for the Indian pharma industry to grow. However, managing the liquidity crunch during this period — especially for growing and expanding companies like ours — requires tremendous financial acumen and the will to stay on track.

Due to the nature of its business and products, Claris does not directly compete with any other Indian pharmaceutical company. Regionally, competition comes from local generic injectable companies. But these companies do not have the geographic spread we enjoy.

India Knowledge at Wharton: Are there intellectual property rights (IPR) issues in your segment?

Handa: As Claris is focused on the generic side of the business, IPR is not a big issue now.

India Knowledge at Wharton: What foreign companies are you working with and what exactly is your function?

Handa: We have alliances and understandings with international companies to develop new technologies, especially in the areas of fat emulsions and product or delivery system developments like bags and films.

India Knowledge at Wharton: You have already set up subsidiaries in the U.S. and the U.K. markets. What are your plans and progress so far?

Handa: In the U.S., we have filed 18 ANDAs (Abbreviated New Drug Applications). Of these, we have received approval for four ANDAs, and have started selling these products in the U.S. market.

The U.K. subsidiary is basically to hold our intellectual property across the European Union. We already have approvals of about 50 submissions across the EU in favor of Claris U.K. and more than 100 submissions are under various stages of approval in countries across Europe. In Europe, we are following a distributor-based model looking at the number of countries and also the local complexities of each country. These specialized distributors and marketing companies sell Claris U.K. products in different countries. Claris is expanding its reach across all the countries of Europe.

India Knowledge at Wharton: What are your plans for Japan and China, which you have identified as important markets?

Handa: These are large markets with their own challenges. We have filed about six dossiers which are currently in various stages of approval. We expect to have the first approvals in China by the fourth quarter of 2009. We have done a study of the Japanese market and expect this to be an important market for Claris. The Japanese government, too, is focusing on promoting the use of generic medicines. We expect to have the first few regulatory submissions made to Japan by the first quarter of 2010.

India Knowledge at Wharton: You were looking at an initial public offer, which you have had to postpone because of market conditions. You have also been talking about a capital expenditure of $40 million. Where are you going to get the money, and for what is it intended?

Handa: We do have plans for roping in additional investments to fund the capital expenditure for our expansion plans for manufacturing of cytotoxic (oncology) products, further investments in manufacturing facilities for regulated markets, expansion in manufacturing facilities and backward integration projects.

There are several options open to us for raising this money, and we will take a decision at an appropriate time.

India Knowledge at Wharton: Your first major venture — Core Healthcare — was in the same sector. But it ran into problems and the assets had to be sold off. What went wrong? Did you try to grow too fast? What have you learned from the experience?

Handa: My first venture, Core Healthcare, focused primarily on the I.V. fluids and disposables segment. We did well, and were recognized as one of industry’s biggest success stories of that time. Such was the confidence in the Core story that, when we drew up a stupendously ambitious expansion plan in 1994, it won support from all quarters. But we ran into rough weather, due to an unprecedented liquidity crisis in the country, which resulted in delayed disbursement of loans from financial institutions and the need to bridge this gap with short-term loans from Indian and foreign banks at interest rates as high as 26%.

We did make tremendous efforts to revive the company, and finally, Core bounced back, thanks to a sound business model, an authentic and transparent management philosophy, the unflinching commitment of the entire team, and good corporate governance practices.

There are some inherent lessons that both the success and difficult times at Core have taught us, which I can only describe as invaluable, and which will continually serve as the foundation for building a strong and powerful success story out of Claris. As a first generation company, we didn’t have the benefit of experience. When I look back, I realize I should have taken some hard decisions, and much sooner. Some of the lessons I have learned from this experience are:

  • Speed is good, but [only] when natural.
  • Follow an aggressive business strategy but conservative financial strategy.
  • Spread your risks.
  • Communication is a highly effective process, during both good and bad times.
  • Execution is the key.
  • Commitment and persistence drive success.
  • Transparency and working together with stakeholders is a win-win approach.
  • Owning up to responsibility builds power in a person or a team.
  • An organic business model helps in overcoming tough times with less difficulty.

India Knowledge at Wharton: The Claris story is now a case study at the Indian School of Business. What, in a nutshell, are the features that make it different?

Handa: I always tell people that in a world where everything can be replicated — technology, processes, products, even people — what differentiates an organization is that intangible “something” that is hard to define, but comes from the softer aspects, including its values, philosophy and principles. To sum up, it is what the organization truly stands for as [opposed to] what it makes, how it makes it, what it does, or who makes what is made.

India Knowledge at Wharton: Thank you.