the right business model to beat recession
certainly makes business management difficult however choosing the
right business model can make it easy.
The economic slowdown has affected all the business sectors, even the
major drug manufacturers like Dr Reddy’s Laboratories,
Wockhardt and Biocon have not been spared. The new start-ups and the
mid-sized companies felt the greatest sting. The numbers may be small
but the trend of small start-ups closing down in the recent past can
lead to a much feared catastrophe of stagnation. The reasons for
setback could be attributed to lack of focus, lack of marketing skills
or lack of cash flow into their venture.
A lot of start-up biotech companies dig their own grave much before
they commence their operations. This coupled with lack of proper focus
and planning ultimately leads to their premature death.
According to Sandeep Saxena, founder and CEO, Acton Biotech, Pune,
“Many biotech companies burn a lot of cash right from the
word go. We often see that from the very beginning, these small
start-ups make huge investments, employ a lot of people and sales force
with a hope that their business will pick up with such heavy
investments. Hiring highly skilled sales force from reputed institutes
has its benefits but that can be a hitch at times. Due to their high
qualifications, these employees demand for higher salaries and perks
that can drain out a lot of cash from the company. Moreover despite
this many a time the sales force lacks marketing capabilities. Many
companies have a sound technological team but fail to put in place a
strong marketing and sales team.”
Dr Rama Mukherjee, managing director, Ara Healthcare, Gurgaon, said,
“Outsourcing of work to India is not going to stop, but it
will reduce. Ara Healthcare has been working on a number of molecules
because that is the best way to keep a multi-disciplinary scientific
team engaged. Companies today are having equity or valuation problem,
with share values of some of the best companies dropping. Getting
equity at the right value of the company is difficult. The government
agencies have been very helpful. We are expecting positive signs from
Biotechnology Industry Partnership Program (BIPP), this along with
contract research in cloning and expression of recombinant proteins
will keep our revenues afloat. Our diagnostic services are our biggest
revenue generator. We might be facing an economic downturn right now, I
am sure that in another six months time the situation will
The available capital to fund biotech companies has all dried up. Many
companies are drastically cutting their budgets and freezing
investments in order to preserve their capital to focus on their most
promising projects that have the shortest path to market. Several other
companies kick start without any focus on their business plan and
invest their eggs in many baskets. “Biotech companies start
with something, then get a better related opportunity and move to that,
leaving the first objective incomplete. This is coupled with launching
their products without understanding the dynamics of the market. So, it
is very important to take inputs from customers in order to have a
better understanding of the market,” opined Saxena.
The main hurdle for a biotech company is the financial support. Many
companies close down mid way because there is no financial backing for
their ambitious plans and in India the concept of venture capital (VC)
is not popular.
With respect to start-ups or early stage biotech companies, there can
be several general as well as company-specific reasons for this crisis
situation. According to Anand Daga, founder and managing director,
Aumgene Biosciences, Surat, some of the significant reasons are:
The ideal model
- Disparity in commitment levels of the management team
and/or company founders, particularly in the early stage of the company
when the cost and time involved in product development are
overwhelming. To withstand this all the team members must be willing to
go not just one but several extra miles.
- Faulty or poor assessment of risk involved in the venture.
Many start-up companies miscalculate the time and resources required
for product development, regulatory clearances, and manufacture, market
and sell biotech products. So even if the management team is strong and
committed they run out of gas to cover the extra miles.
- Choosing a wrong financial partner. This may be a venture
capital or angel investor or any partnering company that does not
understand biotech or is not as long term committed as the entrepreneur.
Experts opine that issues in cash flow occur because the industry is
not well versed with the art of saving despite the fact that a biotech
venture requires a huge amount of investment than any other industry.
“Companies should gear themselves up to have their beginnings
from a garage where they can save a lot and use up those savings for
buying further material,” observed Saxena.
Though many have been concentrating on cost reduction, a few others
have been exploring all opportunities and focusing on innovation
programs and setting up additional product lines or processes to buffer
the business from the slow down. Above all, instead of burning cash at
an early stage, companies should have their focus right from the
beginning. Getting into niche markets and arena can offer a wider range
of opportunities than tapping their investments in many segments at the
According to Dr Rajeev Soni, president and COO, Premas Biotech,
Gurgaon, “It is pertinent that start-ups focus on a niche
area rather than playing in a crowded space. This will help them to
maintain healthy margins where most other companies are adjusting by
dropping prices. The biotech companies should shift their focus to long
term contracts rather than short term projects to take advantage of
this scenario. The long term project ensures continuity thereby
allowing us to continue recruitment and investment. Premas Biotech has
also added a few more competencies to enhance the capabilities of the
“Companies have to keep their core projects insulated so that
they are not affected. Depreciation of rupee is a major issue that
upsets the revenue of the company. Outsourcing has also come down, many
companies, mainly contract research organizations, are not getting the
projects that they have been anticipating. We need to focus within the
company, and a greater cohesion between industry, academia and
department is required. Public private partnership is the way out; the
module adopted by the Department of Biotechnology (DBT) is
exceptional,” stated Dr Rama Mukherjee.
However, Dr Soni believes that start-up CROs are in a growth phase and
hence have not been impacted by the current recession.
“Recessive times bring in more prudence and most enterprises
look at optimizing their expenses. In this scenario outsourcing gets a
boost as cost cutting becomes essential and not optional.
Entrepreneurs should maintain a fine balance between the
company’s finances, products, operations and marketing
capabilities. Companies should have their marketing concepts and
fundamentals in the right place. “It is very much like the
case of Apple and Microsoft with despite the former being a high-end
Operating System failed to have an outreach in the Indian market, while
Microsoft which had the upper edge in its marketing capabilities has a
wider reach and still rules the Indian market. It has been noticed that
there are biotech companies that have a not so good profile but have
excellent marketing capabilities and end up doing well in the
market,” added Saxena.
“From my experience a biotech company should try to create a
cash cow business along with pursuing a mid to long term product
development goal. This might seem like an unconventional suggestion
because a start-up company having limited resources cannot ride on
multiple boats and also by doing so would lose its focus.
Having a cash cow type revenue generating biotech business such as
manufacturing or just trading in less regulated and faster marketable
products can be a good strategy to mitigate risks in biotech company in
an early stage. The biotech companies should also be prepared to cope
with both current as well as future recessive periods, when there will
be more pressure in controlling costs especially in high risk
R&D based product development,” opined Anand Daga.
Sameer Savkur, managing director, ORG IMS Research, Mumbai, said,
“Recession like this does impact all stakeholders in the
value chain that includes patients, manufacturers, distributors and
healthcare providers. Growth might be impacted but in the process
companies should not exit commercial areas where there are growth
opportunities. In terms of approaches, companies need to revise their
business strategies, rethink their R&D strategies, look at
their product portfolios and make their sales forces more
Recruiting skilled manpower is one of the effective models. Recession
provides a great opportunity to recruit highly talented
people who would otherwise be employed. While commenting on this
Anuradha Acharya, CEO, Ocumum Biosolutions, Hyderabad, said,
“Downturns have always proved good for Ocimum, this is the
apt time to get really good talent for very cheap. I cannot really
dream of getting those people of those levels during normal
While commenting on the recruitment strategy Saxena opined
“With the savings available the biotech companies should hire
people in a step-by-step process. And for start-ups, it is not
necessary to hire people from Indian Institute of Management (IIM),
even graduates can be equally capable.”
Experts also suggest that more than reducing costs, successful resource
efficiency increases the utility of products and services. It can also
ensure more cost-effective compliance while promoting competitiveness
through product differentiation. The challenging times offer new
opportunities for biotech companies to get stronger. This is an apt
time to evaluate present business model and look for new openings in
the competitive landscape by finding new solutions to fulfill customers
need that other firms are not addressing.
Jahanara Parveen with
inputs from Nayantara Som and Shalini Gupta
This as an
opportunity to become stronger
-Sushil Mehta, MD, RFCL, New Delhi
It was a cold and windy evening in the second week of March 2008 at
downtown Manhattan, when we walked into a Café to unwind
after a day’s hectic business deliberations. RFCL Team was
visiting the US to explore its expansion plans. The hustle and bustle
at the largest financial capital of the world seemed as usual, only to
be proven wrong next morning when the pink papers carried the story on
“Bears and Sterns” bankruptcy. We were fortunate to
hear early warnings of global recession while sitting in the midst of
the global financial capital.
This distress signal came to us at the right time when we were
finalizing our budgetary plans for the fiscal 2008-09 and the epithet
was loud and clear:
- Our growth plans should not dry up liquidity at the company.
- Focus on operational efficiency and thereby generate more
- Engage good people (people in context of future and not
- Accelerate the speed of implementation (most often
overlooked or not given priority).
The above guidelines became our operational philosophy for the next six
months and continues to be so till date.
Come October more and more financial investment companies who had
risked high on reverse mortgage came with financial results which wiped
out the assets created over years and decades. This indeed triggered
recession all over the corporate world.
Even as management after management looked for ways and means to
deliver as per guidance, the worm of recession had slowly crept into
the psyche of the corporate world. All over the corporate world cash
was pronounced as king and capital expenditure as a forbidden fruit.
I observed that sitting around the lunch table at RFCL the discussion
would invariably move to global recession. Suddenly some one said let
us make a conscious effort not to talk about it and honestly it has
helped. May be not in keeping recessionary trend at bay, but it has
surely helped in creating a mind set within the organization to search
for solutions and most importantly to strive towards learning the
balancing act to manage growth and costs.
Has it helped? Honestly yes. At RFCL we have registered a growth of 29
percent on organic basis and 48 percent on inorganic basis for the
fiscal year just concluded.
In fact the present global crisis can be converted into an excellent
opportunity for Indian companies and for Indian enterprises as the
competing economies will be busy in their cleaning act. The successful
companies of the future will be the efficient companies and they will
emerge stronger through this downturn period thereby differentiating
and polarizing boys from men. It is the right time for brave actions
for those who have the skill and willingness to outpace market growth.
We certainly are not immune to the events unfolding in global market
but a focused leveraging of our strengths will mitigate the effect.
India will be much quicker than the West in regaining tempo of growth.
We as a country have a history of giving our best in adversity.
Furthermore, pharma, biotech and health care as an industry is more
immune to this recession and as such the impact felt by the players in
the industry would be relatively smaller. For a company like ours which
gets almost entire revenue from domestic operations the global slowdown
gets marginalized because of a majority play in the domestic market.
Interestingly, I would like to add that it is ironical that our exports
in the last 12 months have more than doubled, increasing the revenue
contributions from two percent a year ago to five percent of sales for
just concluded fiscal year. Does it vindicate what we said earlier with
respect to developing a positive mindset even in challenging times?
A focus on operational efficiencies is the key, especially for
mid-sized companies with moderate or no reserves. So it is not only
important but pertinent to:
- Flush out unneeded costs (cost savings through waste
elimination and process improvements).
- Ensure efficient management of inventories (increasing MAT
- Ensure that growth is also driving the costs downward.
- Encourage innovation (balance between efficiency and
innovation as innovation will bring returns only in long term).
- Managing performance (clear cut distinction between strong
and mediocre performers)
- Right sizing the organization.
The most vital point for the leadership team is to communicate the need
for all of the above to employees and especially of the importance of
reducing cost to sales ratio. Organizations must develop well-planned
communication strategy. To maintain employee morale and to allay fears,
organizations should develop unified, consistent and continuous
communication. People are realistic and appreciate truth.
Finally, it is important to remain focused in this time of crisis and
use this as an opportunity to become stronger and remind ourselves that
India is going to be one of the key drivers of global growth and we
should feel fortunate to be in this market as long as we can be
efficient and nimble. I would say “reach out for stars with
feet on the ground.”